Squirreling Away
When I get together with estate planning clients, one question that often comes up is “what happens to my assets if my spouse or I have to go into long-term care?” I then explain Medicaid, the government program designed to help pay for our stay in a long-term care facility if we can’t afford it.
One of the types of assets that is not considered when Medicaid is looking at eligibility is the retirement accounts of the spouse who is not in the long-term care facility. So, when I’m meeting with a couple where one spouse has health concerns and we’re worried about a future long-term care stay, one strategy is to pump money into the retirement accounts of the healthy spouse.
The next question clients would then ask is how much can be contributed to a retirement account in one year. For 2022, a person can contribute up to $6,000 in an IRA and up to $20,500 in 401(k)s, 403(b)s, 457s, SEPS and the federal government’s Thrift Savings Plan. However, for taxpayers over the age of 50, the IRS allows them to save a little more – known as “catch-up” contributions. In 2022, this amount is $1,000 for IRAs and $6,500 for 401(k)s and similar plans.
I’ve had this discussion dozens of times during my career. The last time I had it, however, it dawned on me that I now fit into this older taxpayer category. Bummer.
But, I might as well take advantage of it. And next year, us seniors can sock away more than ever.
Last month, the IRS announced it is increasing the contribution limits in 2023 more than they ever have in the past. Due to the high pace of inflation, the government wants to incentivize taxpayers saving for retirement.
Individuals will be able to contribute up to $6,500 to an IRA next year. They can also save up to $22,500 in their 401(k)s and related plans in 2023. This $2,000 increase of almost 10% the biggest hike in history since 401(k) plans began indexing to inflation starting in 2007. While the catch-up for IRAs is still $1,000 in 2023, this figure bumps up to $7,500 for 401(k)s and related plans.
“Therefore, participants in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan who are 50 and older can contribute up to $30,000, starting in 2023,” the IRS said in the statement.
Because Americans are struggling with the highest levels of inflation in 40 years, Uncle Sam is also looking to throw us a bone when it comes to taxes. In addition to allowing taxpayers to contribute more pretax dollars to retirement accounts (within certain limits), they are also raising the income limits within tax brackets. In other words, in 2023, Americans can earn more money, save more for retirement, and not pay any more in taxes.
As I mentioned, contributions to a traditional IRA are tax deductible, but only under certain conditions. If a taxpayer or his or her spouse was covered by a retirement plan at work, the deduction may be reduced, or “phased out,” until it is eliminated entirely, depending on filing status and income. The IRS is also increasing the “phase-out” ranges for these deductions next year.
So, while there’s lots of scary economic terms being tossed around these days, like inflation, interest rates and recession, the scariest one – taxes – may not be so scary after all.
Reg P. Wydeven
Latest posts by Reg P. Wydeven (see all)
- Advertising Loophole? - October 29, 2024
- Internet Speculation - October 22, 2024
- Roadkill - October 15, 2024
- Our Kids Getting a New Lease on Life - October 8, 2024
- Breathe Easy - October 8, 2024