2025 Changes
If you think this blog is about the implications of yesterday’s elections on next year’s economy or financial markets, I regret that you will be deeply disappointed.
As I write this blog on Tuesday morning, I am blissfully unaware of what (if any) election results will be finalized by the time you read this blog.
Instead, I would like to focus on aspects of your financial life that you can control in 2025. We can neither persistently predict nor exercise any control over the economy. We can neither persistently predict nor exercise any control over the financial markets. Those are simply beyond our capabilities.
What we can control is our ratio of how much we save to how much we spend and whether we are maximizing tax-saving opportunities in the process.
Last week the Internal Revenue Service (IRS) released a veritable slew of information regarding tax-advantaged savings opportunities for 2025. Hopefully these numbers with dollar signs will provide a nice change of pace from watching all of those poll results in percentages.
Next year there will be three different employee contribution limits for 401(k), 403(b), and 457 plans depending on your age:
- $23,500. This is the normal employee contribution limit (an increase from $23,000 in 2024).
- $31,000. If an employee is age 50+, the catchup contribution limit remains $7,500 – unless the employee is age 60-63 at the end of 2025 (see next bullet point).
- $34,750. The new SECURE 2.0 higher catchup contributions kick in next year. Employees who are ages 60, 61, 62, or 63 by the end of 2025 benefit from a catchup contribution of $11,250 instead of $7,500.
Health Savings Accounts (HSAs) are increasingly popular due to their distinct tax advantages – tax deductible contributions and tax-free distributions if used for eligible health-related expenses. You must also be enrolled in an eligible high deductible health plan to make HSA contributions. Back in May the IRS announced the new 2025 limits for HSAs will be as follows:
- $4,300 for self-only coverage (an increase from $4,150 in 2024)
- $8,550 for family coverage (an increase from $8,300 in 2024)
- $1,000 for catchup contributions for policyholders that are age 55+ by the end of 2025
If gifting is your thing, then you will be pleased with IRS adjustments to the following provisions:
- $19,000. In 2025 one taxpayer may gift another taxpayer up to $19,000 per year without filing a gift tax return or reducing their estate exemption. This is an increase from $18,000 in 2024.
- $108,000. The annual limit on Qualified Charitable Distributions rises from $105,000 in 2024. Keep in mind you must be at least 70.5 (to the day) to make Qualified Charitable Distributions from your IRA account.
If your employer offers a SIMPLE IRA plan for retirement, there will now be six different possible employee contribution limits in 2025 depending on your age and how many employees work for your company. Leave it to Congress to convert a SIMPLE retirement plan into a complex maze of options!
For employers with over 25 employees who make standard matching contributions, SIMPLE IRA contribution limits are as follows:
- $16,500. This is the normal employee contribution limit (an increase from $16,000 in 2024).
- $20,000. If an employee is age 50+, the catchup contribution limit remains at $3,500 – unless the employee is age 60-63 at the end of 2025 (see next bullet point).
- $21,750. The new SECURE 2.0 higher catchup contributions kick in next year. Employees who are ages 60, 61, 62, or 63 by the end of 2025 benefit from a catchup contribution of $5,250 instead of $3,500.
For employers who make enhanced matching contributions or have fewer than 26 employees, the 2025 SIMPLE IRA contribution limits are as follows:
- $17,600. This is the normal employee contribution limit.
- $21,100. If an employee is age 50+, the catchup contribution limit remains at $3,500 – unless the employee is age 60-63 at the end of 2025 (see next bullet point).
- $22,850. The new SECURE 2.0 higher catchup contributions kick in next year. Employees who are ages 60, 61, 62, or 63 by the end of 2025 benefit from a catchup contribution of $5,250 instead of $3,500.
For those taxpayers eligible to make IRA or Roth IRA contributions, the 2025 contribution limit remains the same as 2024 — $7,000. The catchup contribution for taxpayers age 50+ also remains the same at $1,000. In 2025, the Adjusted Gross Income limitation for Roth IRA contributions will phase out between $236,000 and $246,000 (married filing jointly) or $146,000 to $161,000 (single).
It is highly likely that we will see significant tax legislation signed into law in 2025 that will impact your 2026 taxes. We will be monitoring this closely along with your tax professional to determine if accelerating or deferring income or deductions may benefit you a year from now.
As always, please consult your tax professional before making any changes to your tax plan. Specific rules may impact your eligibility for any of these tax-advantaged savings strategies.
Quote of the week: Thomas Sowell: “I have never understood why it is ‘greed’ to want to keep the money you have earned but not greed to want to take somebody else’s money.”
