In this week’s Tuesday Tip video, learn about key retirement and tax changes for 2025, including tax brackets, contributions, and Social Security updates. Please watch the video below to learn more. If you would like a free review of your current financial situation, please use this link to schedule a free call. You can find an edited transcript below the video.
As we start a new year, it’s important to consider retirement and tax changes for 2025, and what they are. So, let’s review the retirement and tax changes for 2025.
2024 vs. 2025 Tax Brackets
The first of the retirement and tax changes for 2025 is to the tax brackets. Tax brackets increase because of inflation every year. The bracket that I like to focus on is the 24% bracket, which is kind of the sweet spot for Roth conversions. If you were single in 2024, that bracket went from $100,525 to $191,950.
In 2025, it goes from $103,350 to $197,300. For married couples, it went from $201,050 to $383,900 in 2024. In 2025, that will be $206,700 to $394, 600.
Also, there is a small increase to the amount for which you can pay 0% capital gains tax.
So that’s something else to consider. If you are in a situation where your income is lower, you can have tax-free capital gains. The 0% capital gains tax bracket will go up to $48,350 for singles and $96,700 for married couples in 2025. You want to think about that as well.
Higher Retirement Account Contribution Limits
Let’s review some of the retirement account contribution limits.
If you are an employee and can contribute to a 401(k), a 403(b), or a 457 plan, in 2024, you could contribute $23,000, and you can contribute an extra $7,500 if you were 50 or older. In 2025, the catch-up contribution for those who are 50 and above stayed at $7,500 which means your total contribution goes from $30,500 to $31,000.
We have something new in 2025—that’s a super catch-up contribution. For those who are ages 60 to 63, they can contribute an additional $3,750 to their employee retirement plan, which means that their total maximum contribution is $34,750 as opposed to $31,000 if you’re only 50 and above.
Your total 401k or SEP IRA—that’s a Self-Employed Pension Plan—is $70,000, plus you can put in another $7,500 if you’re over 50, that’s up to $70,000. And that’s a combination of the employer and the employee contribution amount.
There are no changes to the IRA and Roth IRA contribution limits in 2025 so they will remain at $7,000, or $8,000 if you’re 50 or over.
There is a slight increase for 2025 to HSA contribution limits. They will be $4,300 for singles and $8,550 for families in 2025.
Higher Limit for QCDs
Another of the retirement and tax changes for 2025 is we have higher limits for qualified charitable distributions (QCDs). For many years that was capped at $100,000. It went up to $105,000 in 2024.
It goes up another $3,000 to $108,000 in 2025.
Remember that qualified charitable distributions must be made from your IRA, and you must be at least 70 ½ years old. And, QCDs have significant tax advantages in that the amount you make as a qualified charitable contribution does not get included in your income. So, it doesn’t factor into some of the income-related adjustments that can be made or deductions that you can receive. And, it’s more advantageous to contribute via QCD than to contribute to a QCD than via writing a check from your bank account.
Higher Estate, Gift Tax Exclusions
The next thing we have is higher estate and gift tax exclusions. The estate tax exemption is increasing by $380,000 from $13.61 million to $13.99 million per person in 2025. And, the gift tax exclusion is increasing from $18,000 in 2024 to $19,000 in 2025. Don’t forget a married couple who can give up to $38,000 to a child because you each can make a $19,000 gift—and that’s gift tax-free. If it goes over that, you must file a gift tax return. It doesn’t mean that you owe any taxes because of the estate tax exemption, but you should file a gift tax return to show the $0 tax liability and show you’ve used up some of that exclusion.
Health Care Related Adjustments
What happens next is we have some healthcare-related adjustments. Medicare Part D annual out-of-pocket costs are going to be capped at $2,000. I shared an article about this in a blog a few weeks ago.
We also have changes to deductible long-term care insurance premiums. The amount of those increased.
You can see the amounts on the slide. If you’re 71 and above, it’s $6,020.
If you have a Flex Spending Account rather than a Health Savings Account, the amount you can put aside in that Flex Spending Account goes up $100 to $3,300 in 2025.
Social Security
Lastly, we have Social Security. The cost-of-living adjustment for Social Security in 2025 is 2.5%. You should have already received information about that. And, for those who are employed and paying into the Social Security system, the taxable income threshold went up from $168,600 to $176,100. You pay 7.65% if you work for another company. If you’re self-employed, that’s 15.3% of your self-employment income up to the income caps I just shared.
Retirement and Tax Changes for 2025 – Closing Thoughts
Please schedule a call if you have any questions about these 2025 retirement and tax changes and how they might impact you.
I hope you find this information helpful. I’m Phil Weiss of Apprise Wealth Management. I wish all of you a very Happy New Year! May 2025 be your best year yet!
Thanks for listening and have a great day.
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For firm disclosures, see here: https://apprisewealth.com/disclosures/
Phil Weiss founded Apprise Wealth Management. He started his financial services career in 1987 working as a tax professional for Deloitte & Touche. For the past 25+ years, he has worked extensively in the areas of financial planning and investment management. Phil is both a CFA charterholder and a CPA.
Located just north of Baltimore, Apprise works with clients face-to-face locally and can also work virtually regardless of location.
