STEPHEN: Over the past year you’ve probably been hearing a lot about inflation. Generally speaking, when the cost of goods and services are increasing, that’s not so great for consumers. But there is some good news, and you’re going to wanna watch the rest of this video to find out.
Welcome back and thanks for tuning into another episode of “The Smart Money Show.” I’m your host, Stephen Rischall, and today we’re going to be talking about some recent developments related to inflation. And this time it’s good news.
Now look, I know we’ve all been feeling it in our pocketbooks this year. Everything from food to gas and more have become just more expensive the last 12 months. It’s normal for the costs of goods to increase because inflation is to be expected and it’s actually a good thing for the economy. But we’ve been battling much higher than normal rates of inflation, and you’ve heard us talk about that a lot on this show lately.
Well, today I finally have some good news to share and no, it’s not that inflation magically undid itself but we are seeing some positive signs over the past several months that inflation is returning to more normal month over month levels. Even better than that, the Social Security Administration and the IRS recently announced their cost of living adjustments for 2023.
Today, Social Security and Supplemental Security Income benefits approximately 70 million Americans. These benefits are set to increase by 8.7%. That’s the largest single year increase since 1981 and by far the largest increase over the last 10 years. The 8.7% COLA will begin with benefits payable to more than 65 million Social Security beneficiaries in January of 2023 Increased payments to more than 7 million SSI beneficiaries will actually begin at the end of December this year. You’ll be notified by the SSA about your new benefit amount sometime around early December. The fastest way to find out more about your new benefit is to access the My Social Security website through ssa.gov. Otherwise, just sit tight and the SSA will send you some mail and you’ll have your new benefit information.
Now, some people have asked us if they will still benefit from this cost of living increase, even if they aren’t receiving Social Security benefits yet. Well, I have good news. You are eligible for cost of living benefit increases starting with the year that you turn age 62. This is true even if you don’t get benefits until your full retirement age or until age 70. So yes, the Social Security Administration will add COLA increases to your benefit, beginning with the year you reach 62. So if you’re turning 62 or you’re already 62 in 2023, then yeah, this benefits you and that is definitely good news.
Now, if you’re fortunate enough that you don’t really need the additional income, maybe you’re more focused on gifting your wealth, I’ve got more good news for you. For 2023, the IRS has increased the annual gift exclusion amount from 16,000 up to $17,000 per individual. And if you’re married, you can do a split gift and that amount doubles to $34,000 before you need to file a gift tax return.
Also, the IRS increased the standard deduction for 2023. For single filers, that’s going up to $13,850. And for married filing joint, that’s going to be $27,700. There’s also been some important changes to the income thresholds for marginal tax rates. To be clear, the tax rates themselves have remained the same but the lowest being 10% and the highest being 37%, but the the amount of income individual filers and married couples filing joint must earn before reaching the higher tax brackets have gone up across the board. I put that out on the screen so you can kind of see the different thresholds there based on your tax situation.
These cost of living adjustments from the IRS also bring good news for retirement savers. If you’re a participant in a 401k, 403b or 457 retirement plan through your employer, the maximum employee salary deferral has increased by $2,000. So that’s from $20,500 up to $22,500. And for anyone over the age of 50, the catch up contribution has also gone up and that’s increased to $7,500. That means you could save up to $30,000 in your retirement plan through your workplace and receive a dollar for dollar deduction on the full amount. Also, the total amount that can be contributed to a defined contribution plan for 2023 is going up to $66,000 from $61,000. In addition to employer sponsored retirement plans, the contribution limits for individual retirement accounts, that’s IRAs and Roth IRAs, that’s increased by $500 from $6,000 to 6,500. However, the catch up contribution for IRAs remain the same as last year, which is an additional $1,000.
Several other limits have increase for SEP and SIMPLE plans, defined contribution plans and defined benefit pension plans. These can be a bit more nuanced, so I’m not gonna dive into all those details today. But if you’re a business owner and you have questions about these increased limits or you wanna set up a retirement plan, let’s connect and talk more about that.
So yeah, inflation does have some benefits. The COLA increases for social security is one of them. And the IRS also increasing limits on things like gifting and retirement contributions, those are benefits too. So if it’s been a while since you’ve met with your advisor or you have questions about increasing your retirement contributions for next year, send us an email, give us a call and let’s make time to review your financial plan and make these updates accordingly.
And hey, if you learn something new in this video, please share it with your friends and your loved ones because they might benefit from learning about some of this too. Until next time, I’m Stephen Rischall and this is “The Smart Money Show.”