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Important Financial Planning Changes For 2025

Camille Blomdahl
Camille Blomdahl
Director of Client Services
WealthTrace

Key Points

  • The cost-of-living adjustment for Social Security benefits rises by 2.5% for 2025.
  • Employees aged 60-63 can make a higher catch-up contribution of $11,250 to their 401(k) plan.
  • New 401(k) plans must auto enroll their employees starting in 2025 unless an exception applies.

As we approach the new year it is important to keep up with regulatory changes. In 2025 we will see the typical IRS tax inflation adjustments, changes to Social Security benefits and updated IRA/401k contribution limits.

2025 financial planning changes 

Notable IRS Tax Adjustments

  • Standard deductions:
    • For single taxpayers, the standard deduction rises to $15,000.
    • For married couples filing jointly, the standard deduction rises to $30,000.
    • For heads of households, the standard deduction rises to $22,500.
  • Marginal rates:
    • 37% for incomes over $626,350 ($751,600 for married couples filing jointly)
    • 35% for incomes over $250,525 ($501,050 for married couples filing jointly).
    • 32% for incomes over $197,300 ($394,600 for married couples filing jointly).
    • 24% for incomes over $103,350 ($206,700 for married couples filing jointly).
    • 22% for incomes over $48,475 ($96,950 for married couples filing jointly).
    • 12% for incomes over $11,925 ($23,850 for married couples filing jointly).
    • 10% for incomes $11,925 or less ($23,850 or less for married couples filing jointly).
  • The estate tax credit increased to $13,990,000.
  • The annual gift tax exclusion has been increased to $19,000.
  • The Alternative Minimum Tax (AMT) exemption amount for single taxpayers increases to $88,100 ($68,650 for married couples filing separately) and begins to phase out at $626,350. For married couples filing jointly, the AMT exemption increases to $137,000 and begins to phase out at $1,252,700.

     

    Click here for a full list of the 2025 IRS Tax Adjustments. 

    Changes to Social Security

  • Cost of living adjustment (COLA) rises by 2.5%. This year’s adjustment is lower than last year’s increase of 3.2%. The average check for retired workers will increase by around $50 per month.
  • The maximum earnings subject to Social Security taxes will increase from $168,600 to $176,100. The Social Security administration raises this limit every year to keep pace with increases in average wages. There is no maximum earnings amount for Medicare Tax.
  • The maximum Social Security benefit will increase from $3,822 in 2024 to $4,018 in 2025. This maximum applies to those who are retiring at full retirement age (FRA).
  • The Social Security benefit for widows, widowers and the disabled will increase by the COLA adjustment, meaning the average widowed mother with two children will see an increase of roughly $100 per month.
  • The Annual Retirement Earnings test exempt amounts will increase in 2025, to read more about this click here.

    Update your Social Security payment in WealthTrace
    Make sure to update your annual Social Security payment in WealthTrace to ensure your plan projections are as accurate as possible.

    Updated IRA/401(k)Contribution Limits

  • The 401(k) contribution limit increases to $23,500 for 2025.
  • The IRA limit remains at $7000 in 2025, meaning the IRS has not adjusted it for inflation this year. The IRA catch up contribution for individuals aged 50 and over was amended under the SECURE 2.0 ACT to include an annual COLA adjustment but remains $1,000 for 2025. The recent inflation rate was not high enough to cause a notable increase in the limit.
  • The 401(k) catch up contribution for employees ages 50 and over remains $7,500 for 2025. A higher catch-up contribution limit applies for employees aged 60-63, this higher contribution limit is $11,250 instead of $7,500, allowing those aged 60-63 to make a total contribution of $34,750.
  • The income ranges used to determine eligibility to make a deductible contribution to an IRA, Roth IRAs and to claim the Saver’s Credit all increased for 2025. Click here to see the updated ranges.
  • New 401(k) plans established on or after December 29, 2022, must implement an automatic enrollment feature in 2025 unless an exception applies. The automatic enrollment contribution amount must be at least 3% but no more than 10%. Employees are not required to enroll and can choose to change the rate or opt out.

     

    Update your retirement plan contributions in WealthTrace
    You can update your annual 401(k) and IRA contributions in WealthTrace.

    Year-End Reminders

  • You can continue to make 2024 IRA contributions up until April 15, 2025.
  • If you exceeded your 2024 IRA contribution limit, then you can withdraw the excess by the due date of your tax return to avoid penalties.
  • RMD’s must be taken by December 31, 2024, to avoid paying the 50% excise tax on the amount not distributed. Visit this page to calculate your RMD for 2024 (the RMD table has remained unchanged since 2022).
  • Update the following items in WealthTrace:
    • IRA/401(k) contributions
    • Social Security payments
    • Annual Expenses
    • Goals & Additional expenses
    • Current balance of assets & liabilities 

Will you have enough money to retire stress-free? If you aren’t sure, sign up for a free trial of WealthTrace to find out.


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Camille Blomdahl
Camille Blomdahl
Director of Client Services
WealthTrace