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Wait, what? Inflation benefits? Is there such a thing?! Inflation has been the table-talk buzzword for 2022. Below we give you some benefits, yes, some benefits to inflation…
That’s right, there are actually some benefits to inflation! While the cost of living going up is nothing to smile about, there is some silver lining.
Social Security Benefit Increases
With the increased cost of living comes increased benefits for Social Security recipients. Approximately 70 million Americans will see their benefits increase by 8.7% in 2023. So while everyday items cost more, at least these folks will have more money to pay those costs.
Higher Savings Rates
For years now, savings accounts have been earning next to nothing. Inflation and Fed rate hikes have changed that. Many online savings accounts are actually earning north of 3% these days. Inflation has also dramatically increased the return on I-Bonds, allowing folks to see some benefit in having money saved, whether that be for future home maintenance items, saving for a new car, or just plain old reserves.
IRS Tax Adjustments
With inflation comes IRS changes in tax brackets and other thresholds. For 2023, the standard deductions will be increasing by $1,800 for married joint filers and $900 for single filers, as well as up $1,400 for head of household filers.
Marginal tax rates remain the same, but income thresholds are increasing by about 7% on average at each bracket limit. So for instance, married filers will now pay 24% IRS tax for income over $190,750 up to $364,200 in 2023. Whereas in 2022, those limits were $178,150 - $340,100.
Retirement Contribution Limit Increases
For those looking to up their retirement contributions, 2023 tax year changes will allow for those increases.
Employees can now contribute $22,500 to 401k’s (up from $20,500). Those 50 and over also see an increased catch-up contribution allowance from $6,500 to $7,500
IRA Contribution limits are increasing from $6,000 to $6,500. The catch-up allowance remains at $1,000.
IRA income phaseout thresholds are also increasing for Traditional & Roth IRA contributions. We’ll release more specifics in early 2023 on these limits.
While not a retirement detail, annual gift tax exclusions are increasing from $16,000 in 2022 up to $17,000 in 2023.
So while none of us are happy about an increased cost of living, there are some collateral positives!