Tax Resources

Tax Planning in 2023:  New Opportunities to Save Money and Improve your Finances

At Planning Alternatives, we are firm believers in the power of tax planning.  Especially in challenging economic times, effective tax strategies can help you save money and improve your financial situation.

This year is an especially important one for tax planning for two reasons.  First, the SECURE 2.0 Act was passed late 2022, ushering in many new ways to strengthen your retirement savings. Then, recent persistent inflation has resulted in changes to tax brackets and more, offering further opportunities to review with your wealth manager.  Here are some tax planning highlights for 2023 and beyond.

1. Take advantage of higher catch-up contributions for retirement.

  • Retirement saving limits increased in 2023. The amount individuals can contribute to their 401(k), 403(b) and government savings plans increased to $22,500 — up from $20,500 for 2022. The catch-up contribution limit for employees age 50 and over increased to $7,500. The limit on annual contributions to an IRA increased to $6,500. The IRA catch‑up contribution limit for individuals age 50 remains $1,000.
  • Regular IRA catch-up contributions will be inflation-adjusted.   For those younger than 60, there’s still some good news. Starting in 2024, the $1,000 standard catch-up contribution for IRAs will be increased annually based on inflation.
  • Addition of a special catch-up contribution period.  Thanks to new legislation, the SECURE 2.0 Act, you’ll have opportunities to save even more money on a tax-advantaged basis with a higher catch-up contribution that lasts for four years starting at age 60.  Instead of the usual amount (which is $7,500 for 2023), beginning in 2025, you can contribute the greater of $10,000 or 150% of the standard catch-up contribution amount to workplace retirement accounts. Also, the $10,000 limit will be adjusted annually for inflation starting in 2026. This can help you ramp up your savings as you approach retirement. 

The only exception is that this doesn’t apply to SIMPLE IRA accounts. If your workplace retirement plan is a SIMPLE IRA, the age 60 to 63 catch-up will be less. For these plans, you can contribute $5,000 or 150% of the standard catch-up contribution, whichever is greater. Again, the limit will be indexed for inflation beginning 2026. 

2. Consider more Roth contributions if eligible.

Roth retirement accounts have you forgo the current year’s tax deduction, but then withdrawals in retirement are tax-free. That feature makes them a valuable tool for tax planning in retirement. 

For 2023, the income phase-out range for people making contributions to a Roth IRA will increase for taxpayers filing as single, head of household and married filing jointly. Please review our 2023 Tax Guide for more information on Roth contribution income ranges.

Previously, SIMPLE and SEP IRAs didn’t allow Roth contributions. As of 2023, the SECURE 2.0 Act now authorizes employers to offer a Roth option.

However, it may be some time before these options are available since employers and custodians will need to retool.  In addition, the implementation path of this new regulation is currently unclear. So watch out for this to change later if you have one of these plans at work.

3. Save for college with far more flexibility.

Families often struggle to pick the right savings vehicle for college. 529 plans have been a reasonable option for years but have one distinct limitation. If the money is not used up for education, it is often stranded, as there is little flexibility on how to use the remaining money. 

The SECURE 2.0 Act changes that.  After 15 years, unused 529 plan assets can be converted to Roth retirement savings. This is tax and penalty-free as long as the regulations and transfer limits are followed. There are some limitations, and timing is important, so talk to your wealth manager about this if you are interested.

4. Enjoy more retirement planning options with delayed RMDs.

Recent tax law changes have continued to focus on RMDs (Required Minimum Distributions). You must make these withdrawals each year from retirement accounts starting at a specific age. These apply to most retirement accounts, including IRAs, 401(k) and 403(b) plans. 

These RMDs can be problematic since they may force you into a higher tax bracket, increasing your tax bill for the year. Their taxable income can also increase your Medicare premiums. 

The original SECURE Act pushed RMDs out two years which was a welcome change. Now, the new SECURE 2.0 Act further delays these RMDs if you have not started taking them, giving you more flexibility and control over your tax bill.

Under the new legislation:

  • If you turn 73 between 2023 and 2032, you must start RMDs at age 73.
  • If you turn 73 in 2033 or later, you must begin RMDs at age 75. 

Please note that some drafting issues in the SECURE 2.0 Act need to be ironed out, so we can expect some future clarifications or modifications in this area. 

5. Potentially save money due to higher cost of living adjustments.

More good news:  you might see your tax bill drop a bit due to 2023 changes in tax brackets and the standard deduction. Due to the resurgence in inflation, we’ve seen a significant increase in social security checks. But that’s not all that has changed. For example, tax brackets have been increased, which might translate into savings if your income has stayed flat. Also, the standard deduction was increased by 7% from its 2022 level, which can reduce your taxable income.

Along with those changes, the IRS has increased the alternative minimum tax exemption, the earned income tax credit, and the amount workers can deduct for contributions to flexible spending accounts. 

Key Takeaway

Bottom line, 2023 is a year of significant tax changes.  Consequently, be sure to meet with your tax professional and wealth manager so you can take advantage of strategies to save money and put more away for retirement. 

Can you benefit from better tax and financial strategies in 2023?  

Schedule a call today and learn how we can help.

Share this Article

Ready to step into your best life?

We are ready to help.  Let's talk.