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By: FEDweek StaffThis is the time of year when government agencies that make inflation-based adjustments to benefits, thresholds, and other areas and announce the number changes for 2023. By now we all know that the COLA for Social Security and CSRS is 8.7% and is 7.7% for eligible FERS employees. This has caused concomitant increases in items such as the Social Security earnings test and the dollar amounts used in calculating Social Security retirement benefits.
The Internal Revenue Service announces changes that apply to the Thrift Savings Plan and to Individual Retirement Arrangements. You may have run across these number changes (they were announced back in October, but if you haven’t, here they are.
The elective deferral limit for the TSP and other employer sponsored plans will be $22,500 in 2023, while the catch-up amount for those 50 and older (including those who turn 50 in 2023) will increase to $7,500.
Up to $6,500 can be contributed to an IRA in 2023, with a catch-up amount of $1,000. The catch-up amount for IRAs is not adjusted based on inflation.
There are income levels above which you cannot deduct your contributions to a traditional IRA and their 2023 levels are:
Single filing status
Full deduction allowed if income is below $73,000
Partial deduction allowed if income is between $73,000 and $83,000
No deduction allowed if income is over $83,000
Joint filing status if spouse also belongs to a retirement plan at work
Full deduction allowed if income is below $116,000
Partial deduction allowed if income is between $116,000 and $136,000
No deduction allowed if income is over $136,000
Joint filing status if spouse does not belong to a retirement plan at work
Full deduction allowed if income is below $218,000
Partial deduction allowed if income is between $218,000 and $228,000
No deduction allowed if income is over $228,000
There are also income levels above which you cannot contribute at all to a Roth IRA.
Single filing status
Full contribution allowed if income is below $138,000
Partial contribution allowed if income is between $138,000 and $153,000
No contribution allowed if income is over $153,000
Joint filing status
Full contribution allowed if income is below $218,000
Partial contribution allowed if income is between $218,000 and $228,000
No contribution allowed if income is over $228,000
Regardless of your income, you are allowed to make non-deductible contributions to a traditional IRA.
How much has inflation increased these numbers over time? Back in 1987, when the deductibility of IRA contributions was first limited, the threshold for those in the single filing status was $25,000; this year it is $73,000. The purchasing power of a dollar has steadily decreased over time. We should be aware of this and adjust our TSP and IRA withdrawals accordingly; perhaps we start withdrawing at a lower rate and adjust TPS withdrawals for inflation each year. We’re fortunate that we have automatic cost-of-living adjustments in CSRS, FERS and Social Security.
Did you know…
If you choose to purchase a TSP life annuity, your decision is irrevocable? Even if circumstances change, you’re stuck with your purchase decision. Perhaps this explains why far more participants choose installment payments (which can be changed) than life annuities.
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The Process of Retiring: Last-Minute Changes
The Process of Retiring: Check Your Agency’s Work
TSP: Don’t Spend it All in Once Place
Pay Gap Increases; New, Expanded Localities Again Recommended
Looking Forward to a Lump-sum Payment for Unused Annual Leave
The Government Pension Offset and Social Security
askFW: Calculating a Federal Annuity – FERS and CSRS
askFW: Federal Annuity Calculation for LEOs and Firefighters
FERS Retirement Planning Bundle: 2022 FERS Guide & TSP Handbook
