The IRS recently announced changes set for next year that will affect cost of living, tax rates, and retirement plan limits.
First, social security beneficiaries are in for good news. Next year, you stand to receive the largest cost-of-living adjustment in 40 years! Roughly 70 million Americans will see an 8.7% increase in their Social Security benefits and Supplemental Security Income (SSI) payments. On average, Social Security benefits will increase by more than $140 per month starting in January.
Of course, with cost-of-living adjustments come adjustments to the threshold limits for pension plan and other retirement plan contribution- related matters. The contribution limit for employees who participate in 401(k), 403(b), most 457 plans and the federal government’s Thrift Savings Plan will be $22,500 next year, up from $20,500 this year.
The limit on annual contributions to an IRA will increase to $6,500, up from $6,000 in 2022. The IRA catch‑up contribution limit for individuals aged 50 and over is not subject to an annual cost‑of‑living adjustment and remains $1,000.
The catch-up contribution limit for employees aged 50 and over who participate in 401(k), 403(b), most 457 plans and the federal government’s Thrift Savings Plan is increased from $6,500 to $7,500. Therefore, participants in these plans who are 50 and older can contribute up to $30,000 starting in 2023. The catch-up contribution limit for employees aged 50 and over who participate in SIMPLE plans is increased to $3,500, up from $3,000. For more information, click here.
Lastly, in regard to income taxes, these changes affect standard deduction rates, marginal rates and the Alternative Minimum Tax exemption. For more information on those adjustments, click here.