The IRS is increasing the standard deductions for 2023 as inflation intensifies(npr.org)
npr.org
The IRS is increasing the standard deductions for 2023 as inflation intensifies
https://www.npr.org/2022/10/19/1129843538/irs-standard-deductions-taxes-2023-inflation
22 comments
Other good news (if you assume you'll be taxed at a lower marginal rate in retirement than you are now): the 401(k) elective deferral limits go up by $2K to $22.5K (and the catchup contribution for those over 50 goes from $6.5K to $7.5K, so from a total of $27K to $30K).
To correct the above since I think something got deleted as OP was editing themselves:
* 20,500 -> 22,500 : 401K employee contribution limit changes
* 6,000 -> 6,500 : IRA contribution limit changes, for those under age 50
* 6,000 -> 7,500 : IRA contribution limit changes for those age 50 and older (includes $1000 catch-up)
* 20,500 -> 22,500 : 401K employee contribution limit changes
* 6,000 -> 6,500 : IRA contribution limit changes, for those under age 50
* 6,000 -> 7,500 : IRA contribution limit changes for those age 50 and older (includes $1000 catch-up)
Man 401ks are such a sham imo
Why would you say that? If you expect your tax bracket to be lower in retirement, then it lets you keep money you'd otherwise have to give to the government. And many employers offer (limited) matching, which is just free money.
1) in many cases investment options are limited to certain packages. These often suck major ass
2) in many cases there is a 1% + fee which absolutely obliterates your returns over the long run
3) your entire principal + capital gains are taxed as income when you take distributions whereas for an investment outside of 401k your principal gets taxed when you pay income taxes and then capital gains are taxed at a long term rate if you hold long enough, which is way lower than income rate. E.g. you actually kinda get fleeced on taxes too
4) your money is held hostage under threat of 10% penalty for a withdrawal and you have to practically beg for it it is so obnoxious to withdraw.
My 401k did like 4 % at a time when the s&p 500 did like 30. That's a straight up scam
2) in many cases there is a 1% + fee which absolutely obliterates your returns over the long run
3) your entire principal + capital gains are taxed as income when you take distributions whereas for an investment outside of 401k your principal gets taxed when you pay income taxes and then capital gains are taxed at a long term rate if you hold long enough, which is way lower than income rate. E.g. you actually kinda get fleeced on taxes too
4) your money is held hostage under threat of 10% penalty for a withdrawal and you have to practically beg for it it is so obnoxious to withdraw.
My 401k did like 4 % at a time when the s&p 500 did like 30. That's a straight up scam
It's probably too complex of a product for much of its audience.
The whole retirement process is usually presented with little useful guidance. Here's a packet of different investment offerings, many of which are opaque, and plenty are surprisingly inefficient (high fees, excessive turnover). How much should I be contributing? Here's a calculator with confusing and iffy assumptions baked right in! This all but guarantees the house will win in some way-- even if you get a "good" outcome, you're probably not doing absolute optimally and that margin bankrolls it.
Actually, I'd like to pull out a little. Investment in general is too complex for most people. My 401(k) using the default "2035 target date" plan I was offered is down 20% over the last year, but it's not like my self-directed investments are doing better. The only thing that's worked out bulletproof has been I-bonds, and I'm afraid I'm not going to get that far on that, with a 10k-per-annum cap.
TBH, what I want is a product where I can "prepay" retirement services and have someone else take the economic risks. In a way, defined benefit pensions were sort of like that, but I'd like to be even further decoupled from the dollar. Let me sign up to pay $x,000 per year during my working years, and when I'm 70, I get a paid-for-life furnished condo in (what will by then be) the palm-tree lined beachfront party town of Halifax, Nova Scotia.
If the counterparty to the deal is a brilliant dollar jockey and makes 70% a year compounded on my money, good for him and I don't see a cent of it. But if he bets it all on Meta and has to pick up dog droppings to pay for ramen, too bad, he's the one who's gotta pull a housing unit out of his ass in 2050. Put it behind some sort of state backing fund to ensure delivery of goods if you have to.
I also suspect the default 401(k) choices tend to reinforce our society's toxic relationship with the stock market. Yeah, there's probably something bond-centric or emerging-market somewhere in the Poorly Printed Menu of Confusing Investment Choices, but mostly, it leads to the narrative of "We have to keep pumping up the S&P 500, and make a bunch of flailing companies trade at a P/E of 73, because Grandpa's portfolio is fundamentally garbage but we feel a social duty to not make him work at McDonald's when he's 89."
The whole retirement process is usually presented with little useful guidance. Here's a packet of different investment offerings, many of which are opaque, and plenty are surprisingly inefficient (high fees, excessive turnover). How much should I be contributing? Here's a calculator with confusing and iffy assumptions baked right in! This all but guarantees the house will win in some way-- even if you get a "good" outcome, you're probably not doing absolute optimally and that margin bankrolls it.
Actually, I'd like to pull out a little. Investment in general is too complex for most people. My 401(k) using the default "2035 target date" plan I was offered is down 20% over the last year, but it's not like my self-directed investments are doing better. The only thing that's worked out bulletproof has been I-bonds, and I'm afraid I'm not going to get that far on that, with a 10k-per-annum cap.
TBH, what I want is a product where I can "prepay" retirement services and have someone else take the economic risks. In a way, defined benefit pensions were sort of like that, but I'd like to be even further decoupled from the dollar. Let me sign up to pay $x,000 per year during my working years, and when I'm 70, I get a paid-for-life furnished condo in (what will by then be) the palm-tree lined beachfront party town of Halifax, Nova Scotia.
If the counterparty to the deal is a brilliant dollar jockey and makes 70% a year compounded on my money, good for him and I don't see a cent of it. But if he bets it all on Meta and has to pick up dog droppings to pay for ramen, too bad, he's the one who's gotta pull a housing unit out of his ass in 2050. Put it behind some sort of state backing fund to ensure delivery of goods if you have to.
I also suspect the default 401(k) choices tend to reinforce our society's toxic relationship with the stock market. Yeah, there's probably something bond-centric or emerging-market somewhere in the Poorly Printed Menu of Confusing Investment Choices, but mostly, it leads to the narrative of "We have to keep pumping up the S&P 500, and make a bunch of flailing companies trade at a P/E of 73, because Grandpa's portfolio is fundamentally garbage but we feel a social duty to not make him work at McDonald's when he's 89."
Yeah see and my 401k account is down like 10% net over its lifetime. My personal investments are up like almost 100% over the same period (3 years) its an incredible time to be investing right now because there are a metric fuckload of small cap stocks that are extremely mispriced. See: shipping sector in the last 3 years (dry bulk and lng)
This is why 401ks are a total shame. You get marginal, if any tax benefits (entirely possible you pay significantly more tax when all is said and done), your money is in jail for your entire fucjing life so if you have an investment opportunity you won't have the capital to maximize your profit, and to top it off, the investment selections are dogshit broad based funds that almost never even match the s&p 500 and you pay like a 1% management fee for the pleasure of all these lovely features. It's a complete sham and it would take an enormous amount of employer matching to make it worth doing. E.g. an amount that no employer would ever be willing to offer.
This is why 401ks are a total shame. You get marginal, if any tax benefits (entirely possible you pay significantly more tax when all is said and done), your money is in jail for your entire fucjing life so if you have an investment opportunity you won't have the capital to maximize your profit, and to top it off, the investment selections are dogshit broad based funds that almost never even match the s&p 500 and you pay like a 1% management fee for the pleasure of all these lovely features. It's a complete sham and it would take an enormous amount of employer matching to make it worth doing. E.g. an amount that no employer would ever be willing to offer.
You can do the income side of that with deferred fixed-income annuity. You won't be happy with the amounts, because you're offloading the economic risk to someone else who will be paid handsomely for taking that on.
You'd probably be even less happy with the real-estate side, but I'm sure you can find someone to take the other side of that deal for the right price. (Hell, I'll do it for the right price, but you won't like that price either.)
You'd probably be even less happy with the real-estate side, but I'm sure you can find someone to take the other side of that deal for the right price. (Hell, I'll do it for the right price, but you won't like that price either.)
They feel like a prisoners dilemma to me. Pensions are a relic unless you chose your career wisely and were lucky/related enough to get in. So I’m stuck with whatever crappy 401k my employer provides and I’m hoping that my paltry investments now will support me for 2-3 decades when I’m to infirm to labor? Mind you I’m doing this while paying my criminally expensive (20-40% gross pre tax) health insurance for the privilege of neglecting to get healthcare I desperately need because I can’t afford all the out of pocket expenses required to actually receive the care I need because my employer won’t pay me enough nor will they absorb these costs. Lastly, I’m doing all this while praying that our comatose government won’t completely fuck over even harder while I try to scrimp and save and suffer my bootstraps up to a more than barely surviving state of existence. If by some miracle I survive to retirement and have no 401k (and assuming it would’ve performed well) I’ll be stuck living in a disgusting sro for the destitute. So yeah, they’rea sham to distract us from the fact that social safety nets have evaporated to juice the economy while surpassing the cognitive abilities of an average person.
So does this apply to 2022 paces paid in 2023 or will effect the next tax cycle?
Phrasing like “2023 tax year” typically means for taxes paid in 2023 (i.e. your return will be due in 2024 with any concomitant payment/refund). So this won’t take effect for another year, basically.
It takes effect at the start of 2023. You'll want to increase your 401k contributions right away at start of the year if you want to reach the new maximum. You can't do 401k contributions later while filing the taxes like you can for an IRA.
Decreasing taxes to fight inflation. We've clearly got the experts in the driver's seat here.
Was listening to doomberg musing on energy policy last night and he made the observation that if we could just barely kind of get our shit together, we could be in an unbelievably dominant geopolitical position in the short term but instead we are almost certainly going to footgun ourselves and then wonder what happened.
I couldn't agree more
Was listening to doomberg musing on energy policy last night and he made the observation that if we could just barely kind of get our shit together, we could be in an unbelievably dominant geopolitical position in the short term but instead we are almost certainly going to footgun ourselves and then wonder what happened.
I couldn't agree more
> Decreasing taxes to fight inflation. We've clearly got the experts in the driver's seat here.
This article is not describing any kind of policy change or decision that was made by the IRS.
The size of the standard deduction is set by a federal law passed by Congress. That law fixed the deduction at $3,000 (for single filers) in 1988, and specified that it should be adjusted for inflation in future years by multiplying by the change in CPI, so that the real value of the deduction stays constant.
The IRS is just doing the arithmetic and updating the forms, as they're legally required to.
This article is not describing any kind of policy change or decision that was made by the IRS.
The size of the standard deduction is set by a federal law passed by Congress. That law fixed the deduction at $3,000 (for single filers) in 1988, and specified that it should be adjusted for inflation in future years by multiplying by the change in CPI, so that the real value of the deduction stays constant.
The IRS is just doing the arithmetic and updating the forms, as they're legally required to.
Can you elaborate on why you think it’s a bad idea to increase the standard deduction? I am not an economist so it doesn’t appear like a clearly bad idea to me, and it gets money into peoples hands when they need it.
Counterintuitively, I'm not really against the deduction. At least as a mostly apolitical person I'll say, I believe it's a net gain for me personally.
But if you were an economic planner the equations involved here are really simple. The more cash you push out to consumers, the harder it is to fight inflation. You could make an argument that it is neutral to inflation if you believe this would mean a cut in government spending that was proportional to the increase in consumer spending, but back here in reality, the government just spends what ever it's going to spend on deficit and prints debt so the meaningful metric is private sector liquidity.
But if you were an economic planner the equations involved here are really simple. The more cash you push out to consumers, the harder it is to fight inflation. You could make an argument that it is neutral to inflation if you believe this would mean a cut in government spending that was proportional to the increase in consumer spending, but back here in reality, the government just spends what ever it's going to spend on deficit and prints debt so the meaningful metric is private sector liquidity.
Currently the Federal Reserve is attempting to reduce demand for goods and services by raising interest rates dramatically.
Reducing taxes increases demand and works against the Federal Reserve here.
The US needs a credible tax policy otherwise no one will buy Federal Government Debt. How does the government source money? Via taxes or new debt issuances.
Without sufficient taxes you cannot issue more government debt. UK just had this issue, EU looks like it’s next. Maybe even the USD after that.
Reducing taxes increases demand and works against the Federal Reserve here.
The US needs a credible tax policy otherwise no one will buy Federal Government Debt. How does the government source money? Via taxes or new debt issuances.
Without sufficient taxes you cannot issue more government debt. UK just had this issue, EU looks like it’s next. Maybe even the USD after that.
Where exactly do you see dramatic interest rate increase? Are you referring to these tiny .75% increases? We have 3-3.25% interest rate with 9% inflation.
The Fed Funds rate was 0.25% one year ago, now it 3.25% or >10x higher…
0.25% was never sustainable and everyone not on the take was sending the alarm in the teens . Had the fed taken the bandaid off faster following 08 they would have had the tools to support the economy without needing to pump trillions of dollars in during COVID. Now the Fed’s in a corner and if they don’t continue squeezing we’ll see 40% inflation in no time, if they do we’ll see mass suffering in 50-90% off the population. Perhaps a retroactive excess profits tax, land value tax, meaningful inheritance tax, nationalization of healthcare, mobilization of a CCC to build infrastructure/provide jobs, and massive housing build out, could ease the suffering. Alas, each of these individually are helpful enough to the common human as to be non negotiable for the half of Congress committed only to themselves and their puppeteers.
Fed quickly pumped trillions of dollars to stock market, because it is good for the wealthy. Keeping interest rate above inflation is good for common people so it is not as important.
Tax bracket thresholds, single:
Tax bracket thresholds, married filing jointly:
Retirement account contribution limits [3] have also increased:
Overall, IRS adjustments for 2023 are roughly:
[1]: https://www.irs.gov/newsroom/irs-provides-tax-inflation-adju...
[2]: https://www.irs.gov/newsroom/irs-provides-tax-inflation-adju...
[3]: https://www.irs.gov/newsroom/401k-limit-increases-to-22500-f...