2025 Tax and IRS Changes

Sean McCulloch |
Categories
Tax Planning

As we step into 2025, it’s important to stay informed about changes to IRS regulations that could impact your investing, saving, and tax filings. Each year, the IRS updates its policies, tax brackets, and deductions to reflect economic conditions and legislative adjustments – 2025 is no exception! This month, we’ve summarized the most important updates to help you stay ahead and stay aware. As always, our team is here to answer your questions. Don’t hesitate to reach out if you’d like more details!

401(k), 403(b), 457, and TSP Plans:

  • Contribution Limit Increase: The annual contribution limit has increased to $23,500, up from $23,000 in 2024.
  • Catch-Up Contributions for Employees Aged 50+: The limit remains $7,500. However, under an amendment to SECURE 2.0, employees aged 60 to 63 can now make a higher catch-up contribution of $11,250 in 2025.

IRA Contribution Limits:

  • Annual Contribution Limit: Remains at $7,000 for 2025.
  • Catch-Up Contributions for Ages 50+: Under the same amendment to SECURE 2.0, catch-up contributions will now include a cost-of-living adjustment (COLA), though the limit remains $1,000 for 2025.

IRA Phase-out Ranges:

Taxpayers who meet certain conditions can deduct contributions to a traditional IRA. If during that year, you or your spouse is covered by a retirement plan at work, the deduction amount may be reduced, or phased out, until it is eliminated, depending on income and filing status. Those updated phase-out ranges for 2025 are:

  • Single Taxpayers: the phase-out range has increased to $79,000-$89,000, up from $77,000-$87,000 in 2024.
  • Married Filing Jointly (covered by a plan): the phase-out range is increased to $126,000-$146,000, up from $123,000-$143,000.
  • Married Filing Jointly (spouse covered by a plan): the phase-out range has increased to $236,000-$246,000, up from $230,000-$240,000.
  • Married Filing Separately: the phase-out range remains unchanged at $0-$10,000.
  • The income phase-out ranges for taxpayers making contributions to a Roth IRA have increased as follows:
    • Single or Head of Household: increased to $150,000-$165,000, up from $146,000-$161,000 in 2024.
    • Married Filing Jointly: the range is increased to $236,000-$246,000, up from $230,000-$240,000.

Standard Deductions Increases:

  • Married Filing Jointly: $30,000, up $800 from 2024.
  • Heads of Household: $22,500, up $600.
  • Single/Married Filing Separately: $15,000, up $400.

Estate Tax Credits and Gift Exclusions:

  • Federal Estate Tax Exclusion: Increased to $13.99 million, up from $13.61 million in 2024.
  • Annual Gift Tax Exclusion: Increased to $19,000, up from $18,000.