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Key Tax Changes for High-Net-Worth Individuals in 2023

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As the individual tax filing deadline nears, high-net-worth (HNW) individuals must prepare for the expiring pandemic-related tax breaks and recent federal tax changes for 2023. These changes can affect your financial and retirement planning.

To align your financial plans with long-term goals, consider staying informed about policy and tax changes. If you need help or guidance, contact DeWitt PLLC to see how an experienced tax law and minimization attorney can help.

What you need to know about the Secure Act 2.0

President Biden signed the Secure Act 2.0 into law in December 2022. This act aims to enhance retirement savings options for Americans. It introduces several changes significant for HNW individuals.

A key provision is raising the age for required minimum distributions (RMDs) from 72 to 73 in 2023 and later to 75 in 2033. This allows for longer investment periods and more time to convert tax-deferred assets to tax-free assets, such as in a Roth IRA.

The act, in 2025, also increases the catch-up contribution limit for individuals aged 60 to 63 in employer plans such as 401(k), 403(b), and 457(b). There will be a 150% limit on the standard amount of $10,000, which aids in reducing gross income and boosting retirement savings.

However, starting in 2024, HNW individuals earning at least $145,000 must make all catch-up contributions to a Roth IRA account.

Additionally, Secure 2.0 introduces options for tax diversification. Employers can now make matching contributions and/or non-elective contributions to 401(k), 403(b), or 457(b) plans as Roth contributions. This offers a balance between pre-tax, Roth, and non-retirement accumulations.

Another change allows penalty-free rollovers from a 529 college savings plan to a Roth IRA within the yearly Roth IRA contribution cap and a $35,000 lifetime limit.

Tax changes involving gifts and estates

A gift tax is a tax on the transfer of wealth during an individual's lifetime. For example, if you give someone money or property during your life and the value of that gift exceeds a certain annual threshold, it must be reported to the IRS.

An estate tax is a tax on the transfer of wealth after a person's death. When someone passes away, their assets are valued to determine the gross estate. This can include cash, securities, real estate, insurance, trusts, annuities, business interests, and other assets.

The federal annual gift tax exemption for 2023 has increased by $1,000 to $17,000 for individuals and $34,000 for married couples. The total lifetime gift and estate tax exemption is now $12.92 million for individuals and $25.84 million for couples.

This increase allows those who have reached their lifetime gifting limit to gift an additional $860,000 for individuals and $1.72 million for couples without gift taxes. However, 2023 brings us closer to a potential 50% reduction in the gift and estate tax exemption by the end of 2025 unless tax codes change.

Tax changes involving charitable donations deductions

Charitable donations to non-profits offer HNW Individuals a valuable deduction. With changing interest rates and deductions, advisors should explore strategies like charitable remainder trusts (CRTs). CRTs allow taxpayers to donate to charity while drawing annual income, suitable for those with significant planned donations and needing reliable income.

With the evolving tax laws, HNW Individuals face increasing tax complexity and volatility. Advisors should conduct mid-year check-ups to prevent surprise balances at tax time. Tailored analysis and proactive tax planning opportunities are essential for advisors to effectively guide their HNW clients.

We can help you achieve your goals and reduce your tax liability

If you're a high-net-worth individual, these tax changes may present several challenges. Navigating these changes requires planning and strategic adjustments to comply with evolving tax laws while optimizing your tax liabilities and protecting your wealth.

An experienced tax lawyer at DeWitt PLLC can help guide you through the process. We'll provide personalized advice and strategies tailored to your unique financial situation. We'll also ensure you remain tax-compliant while taking advantage of tax savings.

To learn more, contact us online or call our South Miami law office. We'll be glad to answer any questions you have and explain how we can help you.

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