Tax Changes for 2023

There are lots of tax changes for 2023.

Last Dec.'s massive government funding legislation contains a slew of retirement savings provisions. Green-energy tax breaks and a few business-tax hikes were included in last August's Inflation Reduction Act. Other changes reflect last year's high inflation.

Let's start with the SECURE 2.0 Act ...

A new law to bolster retirement savings. It has over 90 changes to help retirement savers and to urge more employers to offer retirement plans. Many of the changes begin after 2023. But some important changes go into effect this year. Included in this list: Upping the age for first taking required minimum distributions to 73 from 72. This applies to people who tum 72 after 2022. The RMD start age rises to 75 in 2033. Lowering the excise tax for account owners who fail to take RMDs to 25% from 50%. It goes down to 10% if the failure is corrected in a timely manner. Indexing to inflation the $100,000 cap for qualified charitable distributions from IRAs and allowing a one-time QCD of up to $50,000 via a charitable gift annuity, a charitable remainder annuity trust or a charitable remainder unitrust.

Plus more:

Enhancing tax credits for small firms that offer retirement plans. Relief for military spouses, firefighters, etc. Letting employers give low-dollar gift cards or other financial incentives to encourage worker retirement plan contributions. Adding exceptions to the 10% additional tax for payouts taken before age 59½. Easing the adverse tax consequences of IRAs involved in prohibited transactions. Letting SIMPLE IRAs and SEPs accept Roth payins. Giving plan participants in 401(k)s, 403(b)s and governmental 457(b)s the option of having Roth-based employer matches. Also, providing retirement-related relief to victims of federally declared disasters.

Many key dollar limits on retirement plans and IRAs are higher in 2023 ...

Thanks to prior-year inflation. The maximum 401(k) contribution is $22,500. Ditto for 403(b) and 457 plans. People born before 1974 can put in $7,500 more. The contribution limit on SIMPLEs is $15,500, plus $3,500 for people age 50 and up. The 2023 payin cap for traditional IRAs and Roth IRAs increases to $6,500, plus $1,000 as an additional catch-up contribution for individuals 50 and older. The income ceilings on Roth IRA payins go up. Contributions phase out at AGis of $218,000 to $228,000 for couples and $138,000 to $153,000 for singles. And deduction phaseouts for traditional IRAs start at higher levels, from AGis of $116,000 to $136,000 for couples and $73,000 to $83,000 for singles. If only one spouse is covered by a plan, the phaseout for deducting a contribution for the uncovered spouse starts at $218,000 of AGI and ends at $228,000.