No one wants to hear inflation is high. Unfortunately, inflation means higher costs of goods, higher interest rates and slower economic growth. And with living costs expected to be the highest in history this year and after a year of stock market volatility and rising interest rates, you might feel like there’s a significant amount of uncertainty in 2023 — especially when you think about your financial future.
But while it may seem like a financial dire time, times of inflation can actually provide great opportunities to build wealth. And thanks to several recent changes from the IRS to help combat inflation, 2023 is the perfect time to boost your finances, increase retirement savings and save on taxes.
Here are five top ways to maximize your wealth during inflation this year.
1. Bigger contribution limits on retirement accounts
This is the year to make more significant contributions to your retirement, thanks to some changes in contribution limits for 401(k) and individual retirement accounts. In 2023, the employee deferral limit increased from $20,500 to $22,500. Catch-up deposits for savers over 50 have increased from $6,500 to $7,500.
These increases apply to 403(b) plans, many 457 plans and Thrift Savings Plans.
2. Tax savings with inflation-adjusted brackets
In October, the IRS announced higher federal income tax brackets for 2023. This means you can earn more income before hitting the next tax tier.
The standard deduction also increased at the beginning of the year. This rose to $27,700 for married couples filing jointly, up from $25,900 last year. Single filers may claim $13,850 in 2023, up from $12,950.
3. Higher threshold for 0% long-term capital gains
The IRS recently bumped the income thresholds for 0%, 15% and 20% long-term capital gains brackets for 2023, applying to profitable assets owned for more than one year. You may qualify for the 0% rate with a taxable income of $44,625 or less for single filers and $89,250 or less for married couples filing together.
4. Higher income limit for Roth IRA contributions
More Americans may also qualify for Roth IRA contributions this year because the adjusted gross income phaseout range increased to between $138,000 and $153,000 for single filers and $218,000 and $228,000 for married couples filing jointly.
5. More time for required minimum distributions
On December 23, Congress passed a $1.7 trillion omnibus appropriations bill, including dozens of retirement provisions known as “Secure 2.0.” One thing this bill did was change the required minimum distributions (RMDs). These must be taken annually from certain retirement accounts.
Previously, RMDs kicked in when you turn 72, with a deadline of April 1 of the following year after your first withdrawal and a December 31 due date for future years. However, this year, the starting age is shifted to 73, thanks to Secure 2.0. This will increase to age 75 in 2033.
Take advantage of these tips, and you’ll be ahead of the curve during higher inflation.
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