Do Gold and Real Estate Fit Inside Your IRA?
On our last episode, we ran through the changes to Medicare and Social Security that will affect seniors' benefits next year.
Today, we're going to complete our 2023 planning picture by discussing tax brackets and contribution limits for retirement accounts. We also examine whether or not gold and real estate should factor into your financial planning given the current levels of inflation.
1. Tax Brackets and the Standard Deduction
Similar to how the Social Security Administration decides the annual Cost Of Living Adjustment (COLA), the IRS does consider inflation when it sets tax brackets for the year ahead. For 2023, the IRS raised all seven tax bracket limits and the standard deduction by about 7%. Essentially, this means folks will have more of their earnings taxed at a lower rate.
Here's how next year's brackets break down:
Tax Rate |
For Single Filers |
For Married Individuals Filing Joint Returns |
For Heads of Households |
10% |
$0 to $11,000 |
$0 to $22,000 |
$0 to $15,700 |
12% |
$11,000 to $44,725 |
$22,000 to $89,450 |
$15,700 to $59,850 |
22% |
$44,725 to $95,375 |
$89,450 to $190,750 |
$59,850 to $95,350 |
24% |
$95,375 to $182,100 |
$190,750 to $364,200 |
$95,350 to $182,100 |
32% |
$182,100 to $231,250 |
$364,200 to $462,500 |
$182,100 to $231,250 |
35% |
$231,250 to $578,125 |
$462,500 to $693,750 |
$231,250 to $578,100 |
37% |
$578,125 or more |
$693,750 or more |
$578,100 or more |
The Income-Related Monthly Adjustment (IRMA) brackets for Medicare recipients also went up by roughly 7%.
2. Retirement Contribution Limits
In 2023, workers will be able to contribute $22,500 to their 401(k) accounts, around a 10% increase. Folks over 50 will be able to make an additional $7,500 in “catch-up” contributions.
Roth IRA contribution limits are going up 8% to $6,500, and the Roth phase-out limits are also going up by nearly 7%. High earners should keep in mind that backdoor Roth conversions are still allowed, so if you're ineligible to fund a Roth directly, making a non-deductible IRA contribution and immediately converting it to a Roth IRA could make sense.
3. Gold, Real Estate, and Your IRA
On the other hand, we've been getting questions about some alternative IRA strategies that I'm not enthusiastic about.
First is the idea of holding physical gold inside of your IRA. Some investors see gold as a traditional hedge against inflation and stock market volatility. However, gold is down around 8% in the last 12 months, and down 14% from recent highs in March, which tells you that gold isn't quite as rock solid as enthusiasts would have you believe.
Moreover, buying physical gold creates a series of logistical problems, in or out of an IRA. It would be prudent for one to store it securely, insure it, and value it regularly. It's not easily divisible if you want to sell part of it. And if you do hold it inside an IRA and you're over age 72, your gold will be subject to required minimum distributions. Mess up that calculation and the IRS will tax you 50% of what your RMD should have been.
Holding real estate inside of an IRA can create headaches as well. The property inside your Roth IRA cannot be your primary residence. You can't have a mortgage on the property. Your IRA has to pay for all operating costs and expenses, which means you lose tax advantages on things like maintenance and depreciation. And if you have renters, the rent payments have to go into the IRA.
If you are interested in investing in commodities or real estate, especially in your IRA, it's probably best to talk to your advisor about exchange-traded funds (ETFs).
Turn Off the Ads and Call Your Advisor
During periods of market volatility, it's not unusual for my team at Keen Wealth to field these kinds of questions about alternative investment opportunities.
And we also know that less-than-scrupulous brokers and fraudsters like to prey on those emotions. That's why you've probably seen so many ads on TV and social media for gold and other shaky investment products that are supposed to help you weather the storm and make some fast cash. In reality, the only ones who usually come out on top with those products are the salespeople earning commissions.
My Keen Wealth team creates comprehensive financial plans that have only one aim: helping you to meet your unique financial goals. Give us a call and let’s discuss what you want to accomplish next year and beyond.
About Bill
Bill Keen is a CHARTERED RETIREMENT PLANNING COUNSELOR℠ and independent financial advisor with more than 25 years of industry experience. As the founder and CEO of Keen Wealth Advisors, a registered investment advisory firm, he specializes in providing personalized retirement planning designed to help people thrive before and during their retirement years. With a passion for educating others, Bill regularly blogs about retirement planning, hosts the podcast Keen on Retirement, and has contributed to U.S. News and World Report, Reuters, Wall Street Journal’s Market Watch, Yahoo Finance, and other publications. Based in Overland Park, Kansas, Bill and his team work with clients throughout the greater Kansas City area and across the nation. To learn more, connect with him on LinkedIn or visit www.keenwealthadvisors.com.
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