Here are the biggest retirement changes coming in 2023

Surging inflation this year smashed retirement savings accounts and left retirees battered by escalating prices from gas and food to monthly rent. The fallout from higher prices transformed the landscape for older Americans and those saving for their golden years, while a last-minute spending deal to avert a government shutdown included a handful of changes to the retirement system next year. Here’s a snapshot of what’s coming in 2023.

New retirement reforms

A number of retirement reforms were included in the federal spending package that passed Congress. Starting next year, retirees must start taking required minimum withdrawals, or RMDs, from their tax-advantaged retirement accounts when they turn 73. That’s up from 72 this year. That will bump up to age 75 in 2033. The legislation also provides a $500 tax credit for small businesses that:

• Allow military spouse employees to become eligible for the employer’s retirement plan within two months of starting a job,
• Allow these workers to get employer matches before two years of service, and
• Make these workers 100% immediately vested in all employer contributions.

The new bill includes a host of other changes to the retirement system — mostly small with some bringing good tidings to only the most well-heeled Americans — which will go into effect later than 2023. Here’s a comprehensive look at what the legislation entails.

Key Medicare changes

Premiums and deductibles on Medicare Part B are going down. For the first time in over 10 years, Medicare will become cheaper for millions of retirees. The monthly premium for Medicare Part B, which covers doctor visits and other outpatient care not covered by Medicare Part A, will be $164.90 for 2023, a decrease of 3%, or $5.20 a month, from $170.10 in 2022. The annual deductible for all Medicare Part B beneficiaries will be $226 in 2023, down from the annual deductible of $233 in 2022. Next year, thanks to provisions in the Inflation Reduction Act, 3.3 million Medicare Part D beneficiaries with diabetes will benefit from a guarantee that copays for insulin will be capped at $35 for a month’s supply. Another notable change in 2023: Vaccines covered under Part D will come with no copays or deductibles. That will ease the cost of pricey vaccinations, such as the shingles vaccine. While the Inflation Reduction Act delivered the most significant changes to Medicare in almost two decades, most of the provisions for the 59 million beneficiaries, including lower prescription drug prices and out-of-pocket costs, won’t kick in for several years.

Huge Social Security increase

Social Security beneficiaries will see a pay raise next year thanks to an 8.7% increase in the Social Security cost-of-living adjustment (COLA) for 2023. The increase is the largest since 1981, when the COLA was 11.2%, and raises the average retiree benefit by more than $140 per month starting in January, according to the Social Security Administration. “The combination of a COLA this high, and the fact that Medicare Part B premiums went down, is a once-in-a-lifetime event,” Mary Johnson, a Social Security policy analyst for The Senior Citizens League, previously told Yahoo Money. “This is probably as good as it will get.”

Changes to retirement plan contributions

The Internal Revenue Service announced record-high maximum annual contributions to 401(k) and similar retirement accounts for 2023. Workers who have a 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan can contribute up to $22,500 next year, up 9.8% from the limit of $20,500 this year. For those 50 and over, they can save an additional $7,500, up from last year’s $6,500 catch-up contribution limit. In total, workers who are 50 and older can contribute up to $30,000 starting in 2023. The annual contribution limit for IRAs next year also increased to $6,500 from $6,000 — an increase of 8.3%. Individuals 50 and over can save an additional $1,000 in their IRAs, unchanged from last year. Contributions to a traditional IRA are tax-deductible as long as you meet IRS rules, including income limits. IRA contributions are fully deductible if you (and your spouse) aren’t covered by a retirement plan at work. For 2023, IRA deductions for singles covered by a retirement plan at work aren’t allowed the deduction after their modified adjusted gross income (MAGI) hits $83,000, versus $78,000 in 2022. The deduction disappears for married couples filing jointly when their MAGI hits $136,000, up from $129,000 in 2022. Individuals can only contribute to Roth IRAs if they meet certain income conditions. The income phase-out for Roth IRA contributions next year for singles and heads of household will be from $138,000 to $153,000, up from $129,000 to $144,000 in 2022. Married couples filing jointly will see the phaseouts starting at $218,000 to $228,000, up from $204,000 to $214,000. Finally, the income limit for the Saver’s Credit for low- and moderate-income workers is $73,000 for married couples filing jointly, up from $68,000; $54,750 for heads of household, up from $51,000; and $36,500 for singles and married individuals filing separately, up from $34,000.

HSA: A key retirement tool just got better

How much you can contribute next year to your health savings account (HSA) is increasing by $200 for individuals and $450 for families. The annual inflation-adjusted limit on HSA contributions for self-only coverage under a high-deductible health plan will be $3,850, up from $3,650 in 2022. The HSA contribution limit for family coverage will be $7,750, up from $7,300. That’s roughly a 5.5% increase over 2022 contribution limits, versus just a 1.4% gain between 2021 and 2022. A health savings account option is available for folks enrolled in a high-deductible health care plan (HDHP). You can also open an account as a self-employed freelancer or business owner if you have a qualified HDHP. The IRS sets the parameters for these accounts annually. With a high-deductible plan, you pay a lower premium per month than other types of plans, but a higher annual deductible — the amount you pay for covered medical costs before insurance kicks in. Money you don’t use can roll over year after year and can be used for non-qualified expenses after turning 65. “From a tax perspective, it’s the best thing out there,” Paul Fronstin, director of health benefits research at the Employee Benefit Research Institute, a nonprofit, nonpartisan organization, previously told Yahoo Money. “It benefits from a triple tax advantage. It’s the only account that lets somebody put money in on a tax-free basis, lets it build up tax free, and lets it come out tax free for qualified healthcare expenses.”