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2025: YOUR GUIDE TO CONTRIBUTIONS AND TAX LAW CHANGES

February 28th, 2025 by Blake Pinyan

2025, along with the enactment of SECURE Act 2.0, brings some significant changes to Plan Contribution Limits in addition to Tax Law Changes which could affect your Financial Plan.

CHANGES IN CONTRIBUTION LIMITS

401(k)/403(b)/457 Plans/SEP IRAs:

  • The maximum employee contribution limit for those under 50 has increased to $23,500 for 2025, marking a $500 rise from the previous year.
  • Individuals aged 50 or older can contribute an additional catch-up contribution of $7,500, allowing for max contributions of $31,000.
    • NEW in 2025! Under SECURE ACT 2.0, those that are 60, 61, 62, or 63 in 2025 are permitted a higher catch-up contribution of $11,250 instead of $7,500.
  • The maximum deposit allowed for most retirement accounts is now $70,000 for 2025, up by $1,000 from 2024. This encompasses employee contributions, employer matching contributions, and employee after-tax (non-Roth) contributions.
  • SEP IRA accounts have a maximum employer contribution of $70,000, as catch-up contributions are not applicable.

SIMPLEs:

  • The employee contribution limit has increased by $500 to $16,500, with a catch-up contribution of $3,500 for those 50 or older.
    • Under SECURE ACT 2.0, individuals can contribute a higher amount to certain applicable SIMPLE retirement accounts. For 2025, this higher amount remains $17,600. A different catch-up limit also applies for employees aged 50 and over who participate in certain applicable SIMPLE plans. For 2025, this limit remains $3,850.
    • Under SECURE ACT 2.0, those that are 60, 61, 62, or 63 in 2025 are permitted a higher catch-up contribution of $5,250 instead of $3,500.

Traditional and Roth IRAs:

  • The contribution limit has stayed the same at $7,000, with a catch-up contribution of $1,000 for those aged 50 or older.

IRA Deduction Limits:

  • Active participants of employer-provided retirement accounts should be cautious of contributing to both a retirement account through work and an IRA, as their IRA deduction may be limited or nullified depending on their adjusted gross income.
    • The phaseout thresholds have increased for 2025, with single filers starting to see their IRA deductions reduced once income surpasses $79,000 ($2,000 > 2024). For married filers, this is $126,000 ($3,000 > 2024) if both partners participate in a retirement plan. If one partner participates, the phaseout starts at $236,000 ($6,000 > 2024).

Roth IRA Contributions: 

  • Contributing the maximum to a Roth IRA is only possible if your income is below a specific threshold.
    • The phaseout limits for determining whether one can make a full or partial Roth IRA contribution have expanded in 2025, allowing single filers to make $4,000 more and married filers to earn $6,000 more.
  • Phaseouts now start at $150,000 of adjusted gross income for singles and $236,000 for married filers.

Social Security:

  • An estimated 72.5 million Americans will see a 2.5% increase in their Social Security benefits for 2025, which is lower than the 3.2% COLA in 2024.
  • The wage base for Social Security taxes has increased to $176,100 in 2025, up from $168,600 in 2024. In other words, Social Security no longer taxes 6.2% of employees’ incomes after their wages exceed $176,100.
  • The earnings limitations for Social Security benefits have been adjusted to $23,400 for individuals below Full Retirement Age and $62,160 for those in their Full Retirement Age year. This is the maximum amount that individuals can earn while claiming Social Security before their benefits are reduced. Previously, it was $22,320 and $59,520 respectively.

Estate and Gift Tax:

  • The annual gift tax exclusion has increased $1,000, to $19,000 for 2025. This is the amount that individuals can give to as many people as they would like without having to file a gift tax return.
  • The Estate and Gift Tax lifetime exemption amount has risen to $13,990,000, up from $13,610,000 in 2024. If someone were to pass away in 2025, they could have a taxable estate of up to $13,990,000 and not face any estate taxes. Married couples are afforded double this ($27,980,000) by virtue of a portability election.

Medicare:

  • The standard premium for Part B of Medicare is now $185 a month for 2025, an increase of about $10 a month compared to 2024.
  • The Income Related Monthly Adjustment Amount (IRMAA) threshold has increased to $106,000 for individual filers and $212,000 for married filers, based on adjusted gross income from 2023 (two years prior). This is $3,000 higher for single filers and $6,000 higher for married filers.
    • If income is higher than the threshold, you can expect to be hit with surcharges on your Medicare Part B and D premiums.

Tax Rates and Deductions:

  • Marginal and capital gain taxes have been adjusted for inflation, with marginal rates continuing to range from 10% to 37%, and long-term capital gain rates still at 0%, 15%, and 20%.
  • Standard deductions have increased for all filing statuses in 2025, with additional deductions for individuals aged 65 or blind. This was a $400 bump for single filers to $15,000, $800 increase for married filers to $30,000, and a $600 raise for head of household filers at $22,500. Those that are age 65 or blind get an additional standard deduction of $2,000 if they are single and $1,600 if they are married, $50 raises compared to 2024.
  • Standard mileage rates have not changed for business, medical, or charitable purposes. The business vehicle mileage deduction rate remains at 67 cents a mile, medical is still at 21 cents per mile, and charitable is still at 14 cents a mile.

Health Savings Account (HSA):

  • The minimum deductible for individual HSA plans is now $50 higher at $1,650, with family plans $100 higher at $3,300.
  • The maximum out-of-pocket amounts have increased to $8,300 for individual plans and $16,600 for family plans, a $250 and $500 raise respectively.
  • Contribution limits have risen $150 for individual plans to $4,300 and $250 for family plans to $8,550, with a $1,000 catch-up contribution available for those aged 55 and older.

MAJOR SECURE ACT 2.0 CHANGES BEING IMPLEMENTED IN 2025

  1. Automatic Enrollment & Expanded Coverage in Defined Contribution Plans
  2. Increased Catch-Up Contributions for Ages 60-63
  3. Required Minimum Distributions (RMDs) for Inherited IRAs

Automatic Enrollment & Expanded Coverage in Defined Contribution Plans

Automatic Enrollment:

As part of SECURE Act 2.0, defined contribution plans (such as 401(k)s and 403(b)s) established after December 29, 2022, will be required to implement automatic enrollment starting in 2025. This means that eligible employees will be enrolled in their workplace retirement plan by default, rather than having to opt in voluntarily.

Under this provision, the initial contribution rate will be set between 3% and 10% of an employee’s salary. Additionally, contributions will automatically increase by 1% each year, reaching a minimum of 10% but no more than 15% over time. Employees will automatically contribute to their retirement accounts even if the plan is a safe-harbor, to where the employer is contributing 3%.

This change is a significant step forward in improving retirement savings participation across the U.S. By making enrollment the default choice, more Americans are expected to contribute to their retirement accounts, helping address the ongoing savings gap. The automatic annual increase aligns with cost-of-living adjustments, further supporting long-term financial security. While employees will still have the option to opt out, behavioral trends suggest that most will remain enrolled, benefiting from the power of consistent, growing retirement savings.

Expanded Coverage in Defined Contribution Plans:

Beginning in 2025, long-term part-time employees will be eligible to participate in 401(k) and 403(b) plans if they have worked at least 500 hours per year for two consecutive 12-month periods and are at least 21 years old by the end of the second period.

While employers may offer matching or non-elective contributions to these employees, they are not required to do so.

In October 2024, the IRS finalized 403(b) regulations related to this provision. Final regulations for 401(k) plans are still in progress and are expected to take effect starting in 2026. Until then, employers offering 401(k) plans in 2025 should refer to the proposed regulations for guidance.

Increased Catch-Up Contributions for Ages 60-63

Starting in 2025, individuals aged 60, 61, 62, or 63 will be eligible for higher catch-up contributions to their employer-sponsored retirement plans, such as 401(k)s and 403(b)s. Their annual catch-up limit will increase from $7,500 to $11,250, allowing an additional $3,750 in contributions for the 2025 tax year.

For all other eligible participants—those aged 50-59 and 64+—the standard $7,500 catch-up contribution remains unchanged.

Participants in SIMPLE Plans within the same 60-63 age group will also benefit from increased limits, with their catch-up contribution rising from $3,500 to $5,250.

Required Minimum Distributions (RMDs) for Inherited IRAs

One of the most significant changes introduced by the SECURE Act of 2019 was the elimination of the stretch IRA for most non-spouse beneficiaries. Previously, individuals who inherited retirement accounts—such as children or siblings—could stretch distributions over their lifetimes, minimizing their annual tax burden by spreading out taxable withdrawals over decades.

However, under SECURE Act 1.0, for retirement account owners who passed away after December 31, 2019, most non-spouse beneficiaries must now withdraw the entire balance within 10 years of inheriting the account. This means larger annual Required Minimum Distributions (RMDs) and, consequently, a higher tax liability over that period.

The Affected:

The 10-year rule applies to non-eligible designated beneficiaries, including:

  • Adult children and other descendants
  • Individuals more than 10 years younger than the deceased account holder
  • Certain see-through trusts

Eligible designated beneficiaries, who are exempt from this rule and can still take distributions over their lifetimes, include:

  • Surviving spouses
  • Individuals with disabilities or chronic illnesses
  • Beneficiaries less than 10 years younger than the decedent
  • Minor children (until they reach adulthood)
  • Certain see-through trusts

New RMD Requirement for Non-Eligible Beneficiaries in 2025:

Initially, the IRS did not clarify whether non-eligible designated beneficiaries had to take annual RMDs during the 10-year withdrawal period. In proposed regulations, the IRS stated that if the original account holder was already taking RMDs before passing, then the non-eligible beneficiary would also need to take annual RMDs. However, enforcement of this rule was delayed, and the IRS waived penalties for tax years 2021-2024.

As of July 18, 2024, final regulations confirm that starting in tax year 2025, non-eligible designated beneficiaries must take annual RMDs if they inherit a retirement account from someone who had already begun taking RMDs before their death.

Key Takeaways for Inherited IRAs:

  • If you inherit an IRA from a parent or other non-spouse after 2019, and they were already taking RMDs before passing, you must take annual RMDs starting in 2025 and empty the account by the end of year 10.
  • If the original account holder had not yet started RMDs, you are only required to withdraw the full balance by the end of year 10—annual RMDs are not required.
  • Understanding whether the deceased was RMD age at the time of passing is crucial, as it determines whether annual distributions are mandatory.

This change underscores the importance of proactive retirement planning, especially for those inheriting accounts from parents or siblings, as the withdrawal strategy can significantly impact tax liability.