2025 rule changes for taxes, retirement, and estate planning

In 2025, there are a number of changes coming that could impact your financial plan, including updates to tax policies, retirement accounts, and estate planning.

It’s important to stay up-to-date so you can carefully optimize your savings and investing plan and ensure it’s aligned with your current goals — and an evolving legislative landscape.

As financial advisors, we keep an eye on these changes and how they could impact our clients. Here’s a roundup of the most noteworthy changes for 2025 and their potential impact on investors and consumers.

2025 retirement account contribution limits

Each year, the contribution limits for retirement savings accounts — like your 401(k) — are subject to change, and many of them are in 2025.

• Contribution limits for employer-sponsored retirement plans, like 401(k), 403(b) and 457(b) plans will increase to $23,500 (from $23,000) for people under age 50. The additional catch-up contribution for people age 50 to 59 or 64 or older will remain at $7,500 for 2025.
• NEW for 2025: If you’re age 60 to 63, you can contribute up to $11,250 in catch-up contributions, bringing your individual contribution limit to $34,750.
• Contribution limits for SIMPLE IRA accounts are set to increase to $16,500 (from $16,000) for people under age 50. The additional catch-up contribution for people age 50 to 59 or 64 or older remains at $3,500 for 2025. Similar to 401(k)s, there is a new higher catch-up contribution if you are between age 60 and 63. For 2025, the higher catch-up contribution limit is $5,250.
• Contribution limits for IRAs and Roth IRAs will remain at $7,000 for people under age 50 and $8,000 for people who are 50 years and older.
• Contribution limits for Health Savings Accounts (HSAs) — which are not technically a type of retirement account but do offer triple-tax advantages and can be used strategically for retirement savings — will increase to $4,300 for individuals and $8,550 for families. People who are 55 years and older can contribute an additional $1,000 (for both individuals and families). Note: To contribute to an HSA, you must be enrolled in an HSA-eligible high deductible health plan.

Key takeaways and action items

• Double-check your recurring retirement account and HSA contributions. If you’re planning to maximize your contributions to these accounts, you’ll likely need to make some adjustments to your contribution amounts so you reach the limits for 2025. 
• If your compensation has changed and your retirement account contributions are based on a percentage of your earnings, then you may need to take a closer look and do some fine-tuning to ensure you reach your planned savings targets.
• If you’re turning 50 at any time in 2025, or if you’re between age 60 and 63, you can max out the applicable catch-up contributions. You don’t have to prorate the limit or wait until your birthday to start making those contributions.

Income phase-outs for Roth IRA contributions

Roth IRA contributions are different from pre-tax 401(k) and traditional IRA contributions because they grow tax-free. That means you won’t have to pay tax on any of the growth when you distribute funds from your Roth IRA in retirement.

Because this is such a massive tax benefit, the contribution limits for Roth IRAs are lower than employer-sponsored accounts and the government imposes income phase-outs, restricting who can make direct contributions to a Roth IRA.

To account for inflation, the income limits to determine eligibility for Roth IRA contributions will increase in 2025. The Modified Adjusted Gross Income phaseouts for 2025 are:

• $165,000 for single tax filers; and 
• $246,000 for married joint tax filers

This is up from $161,000 and $240,000 in 2024.

Key takeaways

• If you think you may be approaching the income limit for Roth IRA contributions, we recommend calculating your Modified Adjusted Gross Income (MAGI). With an increase in compensation, it could be that you’re now beyond the income limit and should stop making contributions to a Roth IRA. 
• On the other hand, if your compensation has not changed significantly since 2024, it could be that you were not eligible in 2024 but are eligible in 2025. In that case, and if you’re able, you may consider contributing to your Roth IRA for tax-free growth opportunities.
• If your income is higher than the income limit for direct Roth IRA contributions, but you’re still interested in earning tax-free growth on your retirement savings, we suggest looking into backdoor Roth IRA contributions. It’s possible for you to do this on your own, but you may also consult a financial advisor or tax professional to help.

Tax bracket increases

The income limits for federal tax brackets will increase in 2025.

The tax rates, which range between 10% to 37%, are not changing. 

Tax brackets are ranges of income that are subject to the same income tax rate. When tax brackets increase but your income remains relatively unchanged, you might fall into a lower tax bracket than you did the year before. 

Here are the marginal tax rates for 2025:

• 37%: Taxable income over $626,350 ($751,600 for married couples filing jointly).
• 35%: Taxable income over $250,525 ($501,050 for married couples filing jointly).
• 32%: Taxable income over $197,300 ($394,600 for married couples filing jointly).
• 24%: Taxable income over $103,350 ($206,700 for married couples filing jointly).
• 22%: Taxable income over $48,475 ($96,950 for married couples filing jointly).
• 12%: Taxable income  over $11,925 ($23,850 for married couples filing jointly).
• 10%: Taxable income of $11,925 or less ($23,850 or less for married couples filing jointly).

Because the federal tax rates are progressive, the amount of tax you owe is calculated, in part, by dividing your income into different segments based on the corresponding tax brackets. That means you don’t pay the same tax rate on all your income. The marginal tax rate is the tax rate you pay on your last dollar of taxable income.

So, for example, if you’re a single filer and your taxable income is $100,000, you are in the 22% tax bracket. However, you won’t owe 22% on all your income. Instead, it will be segmented according to the brackets above:

• The first $11,925 in income will be taxed at 10%
• The next $36,550 will be taxed at 12%
• The final $51,525 will be taxed at 22%

This example is over-simplified for presentation purposes and does not take into account other tax considerations which could affect your tax bill, such as tax credits and tax deductions.

Related to deductions, the standard deduction is also changing in 2025. 

• For single taxpayers and married individuals filing separately for tax year 2025, the standard deduction will rise to $15,000 for 2025, an increase of $400 from 2024. 
• For married couples filing jointly, the standard deduction will increase to $30,000, an increase of $800 from tax year 2024. 

The standard deduction is important. If you believe your tax deductions add up to more than the standard deduction, you should consider itemizing your deductions for the lowest tax liability.

Key takeaways and action items

• Review the updated tax brackets. Based on your income, you may need to evaluate and adjust your tax withholdings to make sure you aren’t withholding too much — or too little —from your paycheck.
• Because increased income limits for tax brackets also affect capital gains taxes, the higher thresholds could present an opportunity for you to sell appreciated securities without any long-term capital gains taxes. For 2025, single filers with taxable income less than $48,350 (or less than $96,700 for married couples filing jointly) fall into the 0% long-term capital gains tax rate. 
• With higher tax bracket thresholds, you may consider a Roth conversion for your existing traditional IRA and 401(k) account balances. Because the amount you convert will be taxed as ordinary income, higher thresholds could present an opportunity to implement Roth conversions without pushing you into a higher tax bracket — a key consideration for any Roth conversion analysis.

Other key financial planning updates coming in 2025

• Social Security will receive a 2.5% cost-of-living adjustment (COLA) for 2025. A smaller adjustment than 2024,this indicates inflation is slowing and getting closer to the Fed’s 2% target rate.
• If you’re over age 70.5, charitably inclined, and subject to RMDs, the qualified charitable distribution (QCD) limit will increase to $108,000 for 2025 (up from $105,000 in 2024). A QCD can help satisfy your RMD and does not count as taxable income. 
• The lifetime estate tax exemption will increase to $13.99 million per person. It’s important to note that the Tax Cuts and Jobs Act provisions are set to sunset at the end of 2025, which would drastically reduce the estate tax exemption. If the law sunsets, the lifetime exclusion is projected to decrease to $7 million in 2026.
• The annual gift tax exclusion will increase to $19,000 per person for 2025.
• The Fed has hinted it may continue to gradually cut the federal funds rate in 2025. If this happens, you should expect to see decreases in savings account rates and some loan rates, affecting borrowers and savers alike.

Conclusion

Laws, regulations, and public policies are always evolving. By staying informed, you can avoid costly mistakes and identify ways to make optimal decisions for your financial plan — like maximizing your savings, protecting your wealth for future generations, and reducing your lifetime taxes.

In light of the updates we’ve covered here, take some time to revisit and fine-tune your financial plan and leverage any new opportunities. Whether it’s slightly increasing your planned savings or finding ways to improve your after-tax returns, some minor changes made along the way can lead to big impacts over time.

Connect with a Financial Advisor in Athens, GA

If you’re uncertain about or overwhelmed by complex, ever-changing tax and financial laws, you don’t have to navigate them alone. As a fiduciary financial advisor, we stay up-to-date on all important legislative and regulatory updates. We proactively take action for our clients, so they never have to worry about this year’s (or any future) changes. If you’re interested in learning more, please reach out to us today.