Ringing in 2023 can include making larger IRA or 401(k) contributions. Learning about these new contribution caps is recommended if you are a Florida resident in the midst of retirement planning or are new to making financial plans for the future. Get a head start here and some Estate Planning tips, such as working with a South Florida Estate Planning Attorney.
If you have a 401(k), your limit increase for 2023 is $22,500. For an IRA, the new limit in 2023 is $6,500. It is also possible for individuals aged 50 and over to make “catch-up” contributions to their retirement funds. The catchup value increased from $6,500 in 2022 to $7,500 in 2023, making it possible for 401(k) holders to contribute up to $30,000 in 2023. The catchup contribution limit for IRAs in the coming year is $1,000, so the total limit for individuals aged 50 or over is $7,500. Other contribution limits for 2023 include the following:
- SIMPLE IRA – $15,500
- SIMPLE Catchup – $3,500
- SEP IRA – $66,000
The IRS increased 401(k) and IRA contributions in light of inflation-related tax laws. The Social Security Administration utilizes these laws to calculate annual cost-of-living adjustment (COLA) benefits, and the IRS must follow suit. The Social Security COLA percentage for 2023 is 8.7%. Therefore the IRA limit will increase by 8%.
If you have questions about the new IRA contributions that take effect in January 2023, contact The Siegel Law Group.
Contribution Deductions For IRAs
Should you have a traditional IRA, it is possible to deduct contributions from your taxes if you satisfy certain IRS criteria. You must be under a certain income limit–if you are, making a full deduction is possible. The deductible amount is “phased out” until you hit the maximum income amount and can no longer deduct contributions on your taxes. For example, if you are single and have a workplace retirement plan, your phase-out begins at $73,000 and ends at $83,000.
If you are married and filing jointly or have an IRA covered by a workplace program, the phase-out begins at $116,000 and ends at $136,000. Should you be married but filing jointly and your IRA contributor is not covered, your spouse is, the phase-out begins and ends at $218,000 and $228,000, respectively. Again, you enjoy a full deduction if you are under the beginning phase-out number.
Estate Planning Tips if You Have Large Retirement Accounts
Your retirement accounts are in place to keep you comfortable and financially secure throughout your golden years. If you have large accounts to contend with, it is important to be mindful of tax laws and how they eventually affect your beneficiaries. Applicable tax laws include income, estate, and GST, or Generation-Skipping Transfer, taxes.
Except for Roth IRAs, all retirement accounts are subject to federal income taxes following the primary account owner’s passing. If the accounts are relatively small, the assets undergo a “step-up” period where capital gains earned from the purchase date through the inheritance date are taken off. This means the beneficiary’s tax liability lowers.
However, removing capital gains does not necessarily alleviate taxes if the retirement accounts are sizable. Learning how your beneficiaries will be taxed upon removal helps them plan accordingly.
Federal and state estate taxes are typically placed on your retirement accounts when your beneficiaries inherit them. How much taxes your heirs pay depends on the value of the accounts or other assets. As of 2021, married couples can give up to $23.4 million to their beneficiaries without being federally taxed. Single individuals can bequeath up to $11.7 million to their beneficiaries without the risk of federal taxation.
Estate taxes on the state level vary. Some states do not tax retirement accounts, so it is good to learn your state’s estate tax laws. As a Florida resident, you are not subject to estate taxes, but you still must pay federal estate taxes. If you do not plan to retire in Florida for any reason, consider reviewing the other states that do not have estate taxes as a courtesy to your beneficiaries.
In terms of the GST tax, it applies to beneficiaries who are at least 37.5 years younger than you. Otherwise, the tax exemptions for GST taxes are the same as income tax taxes on assets. If your grandchildren are not at least 37.5 years younger than yourself, transferring assets to them means paying a flat tax. The tax is 40% of the assets you bequeath to your heirs.
In addition to researching the state where to retire and being mindful of applicable estate taxes, it is a good idea to officially name your beneficiaries. Individuals with considerable assets who pass without naming heirs subject their family members to lengthy, costly probate court sessions.
Naming beneficiaries bypass probate court completely, allowing your heirs to receive the assets they were promised promptly. You can name your beneficiaries in your last Will, with individual Trusts also a possibility. Trusts prepare funds for heirs when you pass and they reach a certain age, such as 18 or 21.
Call an Experienced South Florida Estate Planning Attorney Today
Working with a South Florida Estate Planning Attorney is strongly recommended if you have large retirement accounts and other assets. An experienced lawyer answers your retirement planning questions and helps you create related documents, including your Advance Directive, Last Will, Trust Accounts and Power of Attorney documents. Contact the Siegel Law Group today at 561-955-8515 to schedule your free consultation and get started.