Financial Strategies To Help You Get Ahead in 2023

As the saying goes, “Out with the old and in with the new”. With each year comes the ability to learn from the past and make the next year even better. And while we may not have control over the markets or inflation, that doesn’t mean we still don’t have opportunities to boost our finances in 2023.

I thought of this as I sat down for a few beers at the Quahog recently with an old buddy of mine, I’ll call him “Mack”. He’s an old Mass. Maritime shipmate of mine who I have not seen in decades.  He recently purchased a home nearby and is an avid reader of this column.  Mack was always a smart guy and is a surgeon at Massachusetts General and needless to say, he does pretty well for himself. He and his wife are empty-nesters and are starting to think about setting a date for retirement. His wife, Sarah, is an interior decorator and is thinking of continuing to work part-time to keep herself occupied in retirement. Mack, though, has his doubts about retiring. 

Despite his successful career and sizable retirement savings, the past few years in the markets have left him with a vague sense of uneasiness. He watched the financial headlines regularly, and 2022 in particular has him wondering if he should be doing more to truly prepare for the year ahead, whatever it might bring.

Personally, I’m optimistic for 2023 to be a better year. I don’t have a crystal ball and can’t tell you what will happen in the markets or the economy, but that doesn’t mean we are defenseless. In fact, 2023 ushered in some recent legislative changes that can make a real difference for a lot of folks’ finances this year. And with our time together this week, let’s go over a few of these that might make 2023 just a little bit brighter.

After a year of high inflation, stock market volatility and rising interest rates, it’s easy to see why many feel uncertain heading into 2023. But rising costs have prompted updates from the IRS which may positively affect many Americans’ finances, including retirement savings and taxes. And recent legislation may present further options for the new year.

For starters, you can now add more to your retirement accounts. 2023 ushers in higher contributions for your 401(k) and individual retirement account (IRA). In 2023, the employee deferral limit is $22,500, up from $20,500, and catch-up deposits for savers age 50 and older jump to $7,500, up from $6,500. These increases also apply to 403(b) plans, most 457 plans and Thrift Savings Plans.

Contribution limits have also increased for IRAs, so you can save up to $6,500 for 2023, up from $6,000 in 2022. While the catch-up contribution remains at $1,000 for 2023, it will index to inflation starting in 2024.

Another potential benefit is inflation-adjusted brackets. The IRS rolled out some relief via higher federal income tax brackets for 2023, which means you can earn more before hitting the next tier. This can result in tax savings for many. Each bracket shows how much you’ll pay in federal income taxes for each portion of your “taxable income,” which is calculated by subtracting the greater of the standard or itemized deductions from your adjusted gross income. The standard deduction has increased for 2023, rising to $27,700 for married couples filing jointly, up from $25,900 in 2022. Single filers may claim $13,850 in 2023, a jump from $12,950.

Next, let’s consider the capital gains tax. The IRS has bumped up the income thresholds for 0%, 15% and 20% long-term capital gains brackets for 2023, which applies to the sale of profitable assets owned for more than one year. With higher standard deductions and income thresholds for long-term capital gains in 2023, you’re more likely to fall into the 0% bracket. You may qualify for the 0% rate with taxable income of $44,625 or less for single filers and $89,250 or less for married couples filing together.

Another bonus? Higher income limits for Roth IRA contributions, which means more Americans will qualify for Roth IRA contributions. Of course there’s always the so-called backdoor Roth conversions, which transfer after-tax 401(k) contributions to a Roth IRA. But recent changes will mean more folks can actually contribute to a Roth because the adjusted gross income phaseout range rises to between $138,000 and $153,000 for single filers and $218,000 and $228,000 for married couples filing jointly.

And the icing on the cake? You can delay those pesky Requirement Minimum Distributions (RMDs) just a little longer. Assuming you don’t actually need the income from your retirement accounts yet, pushing back the RMD age allows your money to continue growing – and defers the taxes as well. 

In December 2022, , Congress passed a $1.7 trillion omnibus appropriations bill, including dozens of retirement provisions known as “Secure 2.0.” Part of that bill allows you to delay RMDs to age 73 from 72 in 2023, and shifts the starting age to 75 by 2033. This hands you more control in managing your retirement distributions in concert with your overall investing, income and tax strategies. 

Lastly, I explained to Mack the differences between his current accumulation vs. a solid distribution investment strategy.  I helped him understand how a well engineered distribution strategy should incorporate downside risk mitigation systems that instills quantitative data that may help him improve his outcome for financial success.  He got it and he even picked up the bill.  

Folks, this year be careful not to fall prey to the gloom and doom of the media. Instead, these strategies give you some good reasons to cheer in the new year.

So as always – be vigilant and stay alert, because you deserve more!

Have a great week.

Jeff Cutter, CPA/PFS is President of Cutter Financial Group, LLC, an SEC Registered Investment Advisor with offices in Falmouth, Duxbury, and Mansfield, MA. Insurance offered through its affiliate, CutterInsure, Inc.

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