New year tax changes, JR’s favorite cheat codes, new IRA and 401(k) limits   

By J.R. Robinson, Founder/Financial Planner (December 1, 2024)

The purpose of this post is to help you get your financial plan off on the right foot for 2025 by raising awareness of helpful tax planning guides, new rules, and inflation-adjusted limits.  While this article does not list every new rule change, I have tried to highlight the ones that are most relevant to our readers.

Cheat Codes – My Favorite 2025 Tax Planning Resources

• Straight from the Horse’s Mouth – Notable Changes and Inflation Adjustments for 2025 Personal Income Tax Planning (IRS.gov)

• Best Overall Tax Planning Guide – Keiter 2024-2025 Tax Planning Guide

• Best Cheat Sheets – Schwab 2025 Quick Reference Tables

Highlights of New Limits and Tax Rules for 2025

The annual Gift Exclusion Limit has increased to $19,000 from $18,000 for the calendar year 2025.

The lifetime federal estate and gift tax exemption limit has risen to $13,990,000 per person ($27,980,000 per couple).

The standard deduction for IRS Form 1040 is $15,000 for single filers, $30,000 for married filing jointly, and $22,500 for single head of household.

The Social Security taxable wage maximum for 2025 is $176,100. This is a 4.4% increase over the 2024 $168,600 maximum.

2025 May Be Your Last Chance for Pre-tax Catch-up Contributions – Beginning in 2026, catch-up contributions made by taxpayers age 50+ with taxable income over $145,000 (indexed annually for inflation) will only be permitted as after-tax Roth contributions. This change was included in SECURE Act 2.0.

Extra Catch-up Contributions – Beginning in 2025, taxpayers ages 60 to 63 (weird, I know) will be able to make catch-up contributions to most employer-sponsored plans up to the greater of $10,000 ($5,000 for SIMPLEs) or 150% of the amount allowed for those age 50 and over.

No RMDs for Roth 401(k)s, 403(b)s and 457 Plans – This rule actually went into effect for 2024 as part of SECURE Act 2.0 (Roth IRAs have never been subject to RMDs).

Definitive Rules for Non-Spouse Beneficiaries of Inherited IRAs (Finally!) – In July 2024, the IRS issued definitive guidance regarding  RMDs for designated beneficiaries (as opposed to “eligible beneficiaries”). The RMD requirements begin in 2025. Key points are as follows:

• Inherited Roth IRAs are subject to the 10-year distribution rule but not to RMDs.
• If the decedent was less than the RMD age (73) upon death, then no RMDs are required for Traditional IRAs and only the 10-year distribution rule applies.
• If the decedent passed after RMD age, then RMDs from traditional IRAs must continue, and the account must be depleted within 10 years of the original owner’s death.

RELATED READING

IRS Issues Final SECURE Act Regulations: Controversial Annual RMD Requirement During 10-Year Rule Stands (Ed Slott & Co.)

The Roth IRA Advantage Under the Final RMD Rules (Ed Slott & Co.)

Notable Qualified Plan and IRA Contribution Limits for 2025

• The annual contribution limits for 401(k), 403(b), governmental 457 plans, and the federal government’s Thrift Savings Plan are now $23,500, up from $23,000.

• The catch-up contribution limit that generally applies to employees aged 50 and over who participate in most 401(k), 403(b), governmental 457 plans, and the Thrift plan, which will stay at $7,500.

• There is a special new  catch-up contribution limit for employees aged 60,61,62, and 63. It is 50% more than the catch-up limit for employees age 50-59.  For 2025 this catch-up limit is $11,500 (instead of $7,500.

• The total combined employee/employer contribution limit for defined contribution plans (profit sharing, has been increased to $70,000 from $69,000 in 2024.  For employees aged 50-59, the limit is $77,500.  For employees aged 60-63, the limit is $81,500.  NOTE: These figures may be particularly relevant for high-earning employees participating in plans that permit after-tax deferral contributions over and above the deferral limits.

• The annual contribution limit for IRAs and Roth IRAs is unchanged at $7,000.

• The age 50+ catch-up contribution limit for IRAs and Roth IRAs is unchanged at $1,000.

John H. Robinson is the owner/founder of Financial Planning Hawaii and Fee-Only Planning Hawaii. He is also a co-founder of fintech software maker Nest Egg Guru and the new personal finance website NestEggPF.com.