Silver linings
Strategies for wrapping up a volatile year
In a year that has presented extraordinary volatility, we have found some some silver linings.
Social Security Cost of Living Adjustment (COLA) of 8.7%
The biggest increase to Social Security checks since 1981 was good news, and not just for retirees. With the stock market down 25% over the past year and Social Security payments rising to a maximum benefit of $4,485 in January, even clients with substantial income are starting to pay much closer attention.
Simply put, rising benefits gives investors more options when creating an optimal retirement distribution strategy.
Even for those further away from retirement, planning to delay Social Security benefits is more worthwhile thanks to the cost-of-living adjustment being baked into their computations.
The SSA announced a historic cost of living adjustment for 2023.
Even if you aren’t collecting benefits, the COLA adjustment—8.7% for 2023—still gets factored into the amount you’re eligible to receive starting at age 62. And it gets compounded, so each year you hold off on collecting to full retirement age (somewhere between 66 and 67 depending on when you were born) or beyond will make your eventual payout even higher (the benefit increase stops when you reach age 70).
Our clients have access to customized, tax-sensitive distribution planning to maximize their retirement surplus and avoid losses to unnecessary taxes and risk. Contact us to get started.
Increased 401(k) and IRA Contribution Limits
Speaking of tax sensitivity, the Internal Revenue Service announced cost of living adjustments for contributions to most retirement accounts. The contribution limit for employees who participate in 401(k)s, 403(b)s, most 457 plans and the federal government’s Thrift Savings Plan has increased to $22,500 (up from $20,500). The limit on annual contributions to an IRA increased to $6,500, up from $6,000.
The catch-up contribution limit for employees 50 and older in 401(k)s, 403(b)s, most 457 plans and Federal TSP plans increased to $7,500, up from $6,500. For those who participate in SIMPLE plans, it increased to $3,500, up from $3,000. The IRA catch-up contribution limit for individuals 50 and older is not subject to an annual cost-of-living adjustment and remains $1,000, the IRS said.
There were also increases in income ranges for determining eligibility to make deductible contributions to traditional IRAs, and to contribute to Roth IRAs in 2023.
Roth Conversion Analyzer
For many of our clients, the IRS’s increased Roth eligibility (or using a “back-door” Roth when ineligible) is not as appealing as a Roth conversion of substantial sums of qualified money that were previously deferred into both defined contribution and defined benefit plans, paired with charitable structures to manage tax liability of the conversion.
As the country continues to deal with rising federal budget deficits, underfunded entitlement programs, and turbulent markets, increased taxes on forced portfolio withdrawals in retirement are one of the greatest risks and uncertainties for our clients and the investing public.
Even without pairing charitable structures, clients can estimate how much more or less they’d owe in taxes by using our Roth conversion analyzer tool:
Tax Bracket Changes for 2023
Along with new retirement plan contribution limits, the IRS has released new information regarding shifts in the tax code for the 2023 tax year. Keep in mind that these changes are for the 2023 tax year and will have no impact on the taxes you file next April.
Specifically, the Internal Revenue Service (IRS) has announced higher federal income tax brackets and standard deductions for 2023. Here are a few noteworthy changes:
- Federal income tax brackets will increase by roughly 7%, allowing taxpayers to shield more of their hard-earned income from taxation.
- The standard deduction is increasing from $25,900 in 2022 to $27,700 for married couples filing jointly and from $12,950 to $13,850 for single taxpayers.
- Taxpayers will be able to give up to $17,000 in gifts in 2023 without paying taxes, up from $16,000 in 2022.
- The IRS will exempt up to $12.92 million from the estate tax, up from $12.06 million for people who died in 2022 — another increase of roughly 7%.
Riding out the market’s continued volatility
Markets continue to show instability and unpredictability. With this in mind, we continue to recommend financial structures that avoid losses to unnecessary taxes and risk, including:
- Equity index strategies that participate in market gains without incurring losses
- Leveraged strategies supercharge wealth accumulation without bearing market risk
- Aggressive tax loss harvesting of professionally managed investment portfolio
We will discuss these opportunities, along with premium refund disability as an initial risk protection measure, in upcoming client reviews and new client consultations.
Reach out and start your journey from less to more.
For over 30 years, our firm has helped successful physicians and dentists across the country maximize the efficiency, control, and safety of the conversion of their earnings into spendable savings.
Our five question loss test can identify how much of your earnings and savings are currently being lost to unnecessary taxes and risk.
Our eBook and webinar provide financial education on the structures that move you to financial independence and personal significance.
Our monthly e-Newsletter provides updates on the structures and strategies important to doctors.
Click the link below for a free consultation and free financial analysis.
If you are new to us, click here to schedule your free consultation and financial analysis.
For existing clients, please schedule your client review meeting with us here.
Sincerely,
Jeffrey Taxman, MBA
Principal
Physicians Financial Services
402.399.8820 (o) | 402.681.9007 (m)
402.397.9510 (f) | jtaxman@pfsfa.com
Online: www.pfsfa.com
Matthew Taub, JD
Associate
Physicians Financial Services
402.399.8820 x105 (o) | 531.375.5962 (d)
402.960.2571 (m) | mtaub@pfsfa.com
Online: www.pfsfa.com
Physicians Financial Services specializes in the unique financial needs of doctors and their families, as well as other productive individuals. A national practice, PFS has administrative offices in Omaha, Nebraska.
You Need Not Be a Doctor: we also work with other productive individuals with similar financial needs.
All information provided by Physicians Financial Services is for information purposes only and is not, and does not constitute or intend to constitute, investment advice or any investment service. Such information also is not and should not be deemed to be an offer to purchase or sell or a solicitation of an offer to purchase or sell, or a recommendation to purchase or sell any securities or other financial instruments. The content in this promotional literature is based on sources that are considered reliable. No guarantee is provided on its accuracy, correctness or completeness either express or implied. The information provided is purely of an indicative nature and is subject to change without notice at any time. The information provided does not confer any rights. The value of your investment may fluctuate. Results achieved in the past are no guarantee of future results. You must make your own independent decisions regarding any securities or other financial instruments mentioned herein. You are advised to seek professional advice as to the suitability or appropriateness of any products and their tax, accounting, legal or regulatory implications.
DOCTORS’ FINANCIAL EDUCATION. Financial Education Series. | © Copyright 2022 Physicians Financial Services. | Jeffrey L. Taxman, MBA, | PFS Consulting LLC | 1810 South 108th St., Omaha, NE 68144, jtaxman@pfsfa.com, 402.399.8820 (o), 402.397.9510 (f)