Inflation makes everything more expensive, but there are two things that might ease the pain a little: higher retirement account contribution limits, and higher tax thresholds (standard deduction and tax brackets).
Retirement Account Limits
| Account | 2022 Limit | 2023 Limit |
| 401(k) and 403(b) | $20,500 | $22,500 |
| Age 50+ Catch-Up | $6,500 | $7,500 |
| TOTAL | $27,000 | $30,000 |
| IRA and Roth IRA | $6,000 | $6,500 |
| Age 50+ Catch-Up | $1,000 | $1,000 |
| TOTAL | $7,000 | $7,500 |
The Age 50+ Catch-Up amounts apply in the year you turn 50, even if your birthday is December 31. You can contribute $30,000 in 2023 if you turn 50 at any time in 2023.
Be careful to spread your contributions evenly throughout the year so you don’t miss out on an employer match. Usually you only receive the match for a period if you made a contribution in that period. Contact me for assistance with these changes.
Inflation Triggers US Tax Changes
You might catch a small tax break next year because of inflation, assuming your pay doesn’t go up at the same rate as inflation.
In 2023, the Standard Deduction for couples goes up $1,800 to $27,700; for singles it goes up $900 to $13,850. The Standard Deduction (used by most taxpayers now) is subtracted from your Adjusted Gross Income to arrive at your Taxable Income (simplified). So any increase in the deduction reduces your taxes. For example, for a couple making $200K per year, the higher standard deduction will save $432 of US tax ($1800 times their marginal rate of 24%).
The tax brackets have all gone up due to inflation as well. This might have a bigger impact on reducing your taxes. For example, a couple that had Taxable Income of $200,000 in 2022 would pay $35,671 in tax. In 2023, they would pay $34,800—a reduction of $871.
So for that couple, they will pay $1303 less in US income tax in 2023, if their income does not go up.
This information is of a general educational nature, not individual investment or tax advice. Investing involves risk of loss. A diversified portfolio does not protect against a loss or guarantee a gain. Information in this post is believed to be accurate but may contain inadvertent errors.