Benefits and threshold adjustments based on inflation are about to take effect.
Inflation-based adjustments to benefits, criteria, and other areas are made around this time of the year, and the numerical changes for the year are also announced within this period. We are all aware that the COLA for CSRS and Social Security is 8.7%, and for qualifying FERS employees, it is 7.7%. At the same time, things like the Social Security income test and the monetary amounts used to determine Social Security retirement payments have increased as a result.
The Thrift Savings Plan and Individual Retirement Arrangements are affected by the changes that the Internal Revenue Service has announced. These number changes may have already been mentioned to you (they were first revealed in October), but just in case, here they are.
In 2023, the TSP’s and other employer-sponsored plans’ voluntary deferral limits will be $22,500, and the catch-up amount for anyone 50 and older (including those who turn 50 in 2023) will increase to $7,500.
In 2023, IRA contributions are limited to $6,500 with a $1,000 catch-up contribution. The catch-up amount for IRAs is not adjusted for inflation.
Traditional IRA contributions are tax-deductible up to a certain income cap, which for 2023 is as follows:
Single filing status
You’ll get a full deduction if your income is less than $73,000.
You’ll get a partial deduction if your income is between $73,000 and $83,000.
No deduction is permitted if your income exceeds $83,000.
Joint filing spouse enrolled in a workplace retirement plan
You can take the full deduction if your income is under $116,000.
You can make partial deductions if your income is between $116,000 and $136,000.
No deductions are permitted if your income is more than $136,000.
Joint filing spouse not enrolled in a workplace retirement plan
You can take the full deduction if your income is under $218,000.
You can make partial deductions if your income is between $218,000 and $228,000.
No deduction is permitted if income is more than $228,000.
Additionally, there are income thresholds at which Roth IRA contributions are entirely prohibited.
Single filing status
The full contribution is permitted if income is less than $138,000.
A partial contribution is allowed if your salary is between $138,000 and $153,000.
Contributions are only permitted if your income is less than $153,000.
Joint filings status
The full contribution is permitted if your income is less than $218,000.
A partial contribution is allowed if your salary is between $218,000 and $228,000.
Contributions are not permitted if income exceeds $228,000
You can make non-deductible contributions to a conventional IRA regardless of your income.
How much have these figures grown over time as a result of inflation?
The income restriction for persons in the single filing status was $25,000 in 1987, when the deductibility of IRA contributions was initially restricted; this year, it is $73,000. Over time, a dollar’s purchase value has slowly declined. Knowing this, we should modify our TSP and IRA withdrawals to reflect it; perhaps we start withdrawing at a lower rate and modify TPS withdrawals annually for inflation. We are fortunate that CSRS, FERS, and Social Security automatically adjust for the cost of living.
Additional Retirement Plan Modifications
Other adjustments to retirement programs were made. If you have specific questions, you might want to talk with a financial professional about how these changes could affect your investing plan.
Retirement Age Previously, you had to start taking distributions when you turned 70 1/2. The required minimum distribution (RMD) age has been raised to 72. If you attain 70 1/2 before January 1, 2020, it is still 70 1/2.
Deadline for IRA Contributions 2022
The last day to make an IRA contribution for the tax year 2022 is April 15, 2023.
Do you know…
Your choice to purchase a TSP life annuity is final if you do so. You are obligated to stick with your choice, even if circumstances change. Perhaps this explains why a far higher percentage of participants select flexible installment payments than life annuities.
More opportunities to invest and increase your retirement wealth result from larger contributions, particularly for self-directed IRA investors. In an era where retirement savings are so much more important than they once were, the industry has been calling for change, and perhaps this is a beginning in the right direction. Please consult a tax expert if you have any questions regarding the tax ramifications of these IRS adjustments.
Email: [email protected]
Rick Viader is a Federal Retirement Consultant that uses proven strategies to help federal employees achieve their financial goals and make sure they receive all the benefits they worked so hard to achieve.
In helping federal employees, Rick has seen the need to offer retirement plan coaching where Human Resources departments either could not or were not able to assist. For almost 14 years, Rick has specialized in using federal government benefits and retirement systems to maximize retirement incomes.
His goals are to guide federal employees to achieve their financial goals while maximizing their retirement incomes.