Author: Sarah DeCamp

The 2023 IRS contribution limits have been released, and there were some significant increases. If you are wanting to maximize your retirement savings, be aware of these limits and update your contributions accordingly. If you have any questions, reach out to your SBC Wealth Management advisor. We are happy to answer any questions you may have, and discuss how this impacts you and your financial plan.

2023 IRS Contribution Limits

 

 

2023 IRS Contribution Limits—Income Phaseout Ranges

You can download this document below to print and save for your records.

2023 IRS Limits Downloadable Sheet

Have you thought about selling your home recently? Or perhaps selling your vacation home or rental home to capitalize on this buying frenzy?

Real estate, specifically the purchase and sale of homes, has been a hot topic in recent years. Home prices have increased exponentially creating huge opportunities for sellers. But have you thought about the tax consequences of that sale? Or what options you may have to defer taxes or possibly avoid taxes altogether? 

Your tax liability depends on the purpose of the home and how long you have held the property. When you sell a home or property for more than you paid for it, you may owe capital gains tax. If you held the home for more than a year, you could owe long-term capital gains tax on the difference between the purchase price and selling price. Long-term capital gains tax rates are either 0%, 15% or 20%, depending upon your income. If you sold the home less than a year after purchasing, you could be subject to short-term capital gains tax. Short term capital gains are taxed at ordinary income tax rates, which could be much more than long-term cap gains rates depending on your income and profit from the sale.

However, there are some exceptions and exclusions to consider before you prepare to pay your dreaded tax bill…

  • Primary Residence Exclusion

If you are selling your primary residence, the IRS allows you an exclusion for capital gains tax called the “Primary Residence Exclusion.” You may exclude up to $250k of profits if single, or $500k if married filing jointly. To qualify, you must have lived in the home for at least two out of the previous five years.

Note: The IRS says you’re not eligible for the exclusion if you excluded the gain from the sale of another home during the two-year period prior to the sale. There are some exceptions to this rule, and you may still qualify or partially qualify if you had a change in employment, change in your health, or experienced other unforeseen circumstances.

*A common strategy for rental home owners is to use the property as their primary residence for at least 2 years so they can qualify for this exclusion.

  • 1031 Exchange

A 1031 exchange, also known as “like kind exchange,” allows you to defer taxes by selling your property and then buying a similar property. To do this correctly, the properties must be “like-kind” and you should use a qualified intermediary (in other words, do not take control of the cash before the exchange is complete or the entire transaction could be disqualified.) You must report this to the IRS on Form 8824.

  • Opportunity Zone Funds

Opportunity zones were created under the Tax Cuts and Jobs Act of 2017. The idea was to spur economic growth in low income communities and offer a tax benefit to those investing in these areas. Within 180 days of the sale, an individual may roll their gains into an opportunity zone fund, and defer the taxes until 12/31/2026. If you hold the investment for more than 10 years, any appreciation earned on the opportunity zone fund will be tax free. For investments made before 12/31/2021, an investor can get a 10% step up in basis for holding the fund at least five years.

  • Donor Advised Funds

If you are making substantial donations to charity, it could make sense to donate the property to a Donor Advised Fund and receive a deduction up to its fair market value. The limit for non-cash assets held more than a year is 30% of your AGI, but there is a carryover for five years if the deduction exceeds these limits.

All of that being said, please remember to not let the tax tail wag the dog. Taxes should be considered, but not at the expense of all else. Speak with both your financial advisor and accountant to weigh your options and determine the best strategy for your personal situation.

 

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We can probably all agree that men and women are different, but some of those dissimilarities pose large financial risks to women specifically. Women are set to control $30 trillion in assets by 2030, so I think it is important to understand the risks we face and create strategies to prepare for them accordingly.

Here are a few things women should consider as they prepare for their financial future:

  • Women Tend To Be More Conservative With Their Money

Research shows women are more likely to be conservative in their approach to retirement planning than men—meaning that women often start investing later and allocate more to lower risk assets (such as cash or bonds). One study shows that while women, on average, save 9% more of their salary than men, they invest 40% less of it, creating a financial gap between women and men. Being conservative is not necessarily a bad thing, but being too conservative has a cost—lower growth on assets which can result in less retirement savings.

Albert Einstein once said, “Compound interest is the eighth wonder of the world.” Why? Compounding can have an exponential impact on your money. For example, if you earn on average 7% each year, your money doubles every 10 years – compare that to 2% which takes almost 36 years to double! 

If you wait too long to start saving or are too cautious with your investments, you could be giving up hundreds of thousands of dollars or more over your lifetime.

  • Women Live Longer Than Men

Many of us know that women outlive men, but how does that impact your financial plan? Simply put, longevity comes with a hefty price tag.

Living longer requires more savings, especially considering income tends to decrease for women after a spouse’s death while healthcare costs tend to increase. Here are some facts to consider:

    • Life expectancy is currently 81 for women, 5 years longer than men. For women who live beyond 65, their life expectancy increases to 85. The average retirement age for females is 62, which means you need to be prepared to cover at least 19-23 years of expenses (with inflation) after you are done working.
    • When a spouse passes away, expenses tend to go down, but typically not enough to cover the loss of income.Total social security benefits decline, and if your late spouse had a pension, it is possible you would receive half or nothing at all after his death.
    • Healthcare costs continue to rise, which is especially concerning as women already spend more, on average, on healthcare than men. Although Medicare covers a portion of expenses, there are still large gaps. Even with supplemental insurance, most long-term care costs are not covered. The average cost in Indiana for a nursing home is $7-$8k per month, which comes out to $84-$96k per year. And 70% of nursing home residents are women.
  • Women Tend to Experience Decline in Lifestyle Post Divorce

The divorce rate has doubled over the years for those 50+. More than 40% of the boomer generation is divorced. Research suggests women get the short end of the stick, seeing a 27% decline in their standard of living post-divorce, while men enjoy a 10% increase.

Although we cannot always avoid divorce, we can be knowledgeable on how it affects us financially. Women need to think about taxes and post-divorce lifestyle when dividing assets and income sources.

  • Women Tend to Defer Finances to Partner

A UBS study revealed that nearly 7 in 10 married men take the lead on household finances. The study also found that even in same sex couples, one spouse defers the financial responsibilities to the other 40% of the time.

There is a steep price of not being involved in your finances, and for married couples that price is paid after a spouse’s passing. Patrick Morrow from our SBC team discusses why both parties should be involved in household finances in a recent blog post here.

Not all risks can be avoided, but it is important to understand them and develop a plan early to combat them.

As an advisor, I prepare my clients for the years ahead by creating a financial plan they are confident in today. I consider their goals and lifestyle objectives, weigh the potential risks ahead, and implement strategies to get them to the finish line.

It is never too early to start planning or too late to seek help. I recommend taking control of your financial future TODAY. Ask questions, and make a game plan – you will thank yourself later.

All information is from sources deemed reliable, but no warranty is made to its accuracy or completeness.  All investments involve risk, including loss of principal.  Past performance is not a guarantee of future results.  This material is being provided for informational or educational purposes only, and does not take into account the investment objectives or financial situation of any client or prospective client.  The information is not intended as investment advice, and is not a recommendation to buy, sell, or invest in any particular investment or market segment.  Those seeking information regarding their particular investment needs should contact a financial professional.  SBC, our employees, or our clients, may or may not be invested in any individual securities or market segments discussed in this material.  The opinions expressed were current as of the date of posting, but are subject to change without notice due to market, political, or economic conditions. 

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