WHAT’S AHEAD IN 2025: TAX LAWS, RETIREMENT, SOCIAL SECURITY, ESTATE TAX AND MORE
What’s done is done—for last year’s taxes, that is.
But now that a new year is here, so are new “opportunities,” or adjustments and changes to tax provisions, announced last fall by the IRS, that could affect your 2025 filings.
While these changes won’t affect the tax return you’ll likely be filing in a few months, they will be helpful as you start planning for the year to come. Here are some highlights; be sure to get in touch with us for a more complete discussion about how these changes could affect your planning.
NOTABLE PERSONAL INCOME TAX CHANGES
The standard deduction is increasing in 2025, which could mean a bigger tax break for you and ultimately reduce your overall tax bill.
The new standard deductions for 2025 announced by the IRS:
Married filing jointly: $30,000, up $800 from 2024
Single taxpayers and married individuals filing separately: $15,000, up $400
Heads of households: $22,500, up $600
Additionally, retired married couples receive an additional standard deduction of $1,600 for each spouse age 65+. Single individuals receive an additional $2,000.
Did you know? If you’re 65 or older, you can qualify for a higher standard deduction, giving you extra tax relief.
WHAT ABOUT RETIREMENT PLANNING?
SECURE 2.0 has significantly changed retirement savings rules in recent years, like new RMD ages and increased access to 401(k) plans for part-time workers. There’s more to come in 2025. Highlights include:
· The amount individuals can contribute to their 401(k) plans in 2025 has increased to $23,500, up from $23,000 for 2024.
· The limit on annual contributions to an IRA remains $7,000.
· And …
Benefit from tax-free growth with Roth matching contributions
Beginning this year, employers can allow employees to designate their matching contributions as Roth contributions. This means employees can choose to have employer matches to their retirement accounts made on a Roth (after-tax) basis, enabling tax-free growth and withdrawals.
This provision could potentially result in significant tax savings at retirement, especially for younger workers who expect to be in a higher tax bracket when they retire.
Need to catch up on your retirement savings? Meet the “Super Catch-Up” opportunity.
So we’re all on the same page with the same terminology, catch-up contributions are additional retirement savings allowances for individuals 50 and older. They are designed to help boost retirement savings, allowing eligible individuals to contribute beyond the standard annual limits in various retirement accounts like 401(k)s and IRAs.
Beginning in 2025, if you are ages 60 to 63, you can now contribute several thousand dollars more to your 401(k) retirement plan.
Known as a super catch-up option, this change allows individuals to contribute an additional $3,750 to their employer-sponsored retirement plans, for a total catch-up amount of $11,250.
Note, however, that catch-up contributions for participants ages 50 and up will remain at $7,500.
WHAT’S CHANGING WITH SOCIAL SECURITY?
Social Security and Supplemental Security Income (SSI) benefits will increase 2.5% in 2025 or an average increase of almost $48 per month. That will increase the estimated average monthly Social Security benefit from $1,927 to $1,976, the Social Security Administration says.
Here’s the magic question … when should you start taking Social Security?
While you can start receiving Social Security benefits as early as age 62, waiting a few years or until you reach your full retirement age can substantially increase the amount you receive over your lifetime.
Our short answer? There are many factors to consider, like current health, family history and current financial needs, when choosing your start date for benefits. It’s best to weigh all your options before setting an arbitrary time or age, and, of course, talk with your financial planner before deciding when to begin those benefits.
ESTATE TAXES AND GIFTING
In 2025, the gift tax annual exclusion will increase from $18,000 to $19,000. Individuals can gift up to this amount to any number of individuals without incurring gift tax or using any of the taxpayer’s lifetime exemption. For couples, each spouse can gift up to $38,000 annually to each recipient.
Additionally, the lifetime exemption amount increased $380,000 per person, up to $13.99 million per individual. This increase means that a married couple can shield a total of $27.98 million from federal estate or gift tax. Those who used their full exemption in recent years will now be able to make an additional tax-free gift to family members or others.
Important consideration: With a key exemption scheduled to be sharply cut after 2025, the window to make large gifts to your heirs may close soon. That’s because several provisions of the Tax Cut and Jobs Act of 2017 are expected to sunset at the end of 2025, lowering the lifetime exemption to around $6 million by 2026.
LAST CONSIDERATION
Though new in 2024, this change likely impacts several clients—and possibly you. It bears repeating.
You can now transfer unused funds that you have in a 529 college savings plan into a Roth IRA for the same beneficiary, without tax or penalties. These rollovers are subject to several rules and limits:
· Transfers have a lifetime maximum of $35,000 per beneficiary.
· The 529 plan must have existed for at least 15 years.
WE’RE HERE TO HELP
Although these changes won’t affect you until you file in 2025, knowing about them now can help you plan through the year. Certain planning strategies can take months or even years to implement. We can work with you to develop a plan that maximizes your assets, minimizes your tax liabilities and reflects your lifestyle aspirations, today and in the future. Contact us today to arrange a meeting.
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