With a new year often comes tax changes, and those who save money in tax-advantaged retirement accounts like IRAs and 401(k) plans may be wondering what is in store for these accounts in the coming year.
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For one thing, this is the last year that tax cuts associated with President-elect Donald Trump’s 2017 prior Tax Cuts and Jobs Act will remain if his second administration doesn’t pass legislation to keep them alive.
Christine Mueller Coley, a CFP, certified divorce financial analyst (CDFA) and a wealth advisor with SteelPeak Wealth Management, explained what you can expect this coming year and who will be most affected.
Contribution Limit Changes
Most tax advantaged retirement accounts allow adults over a certain age to “catch up” — adding extra into these accounts in a lump sum. For 2025, Coley said that the contribution limits and catch-up provisions for traditional IRAs and Roth IRAs did not change, remaining at $7,000 for regular contributions and $1,000 for catch-up contributions for participants ages 50 and over.
For employer-sponsored plans like a 401(k), 403(b), Thrift Savings Plan and some 457 plans, however, Coley said, “There was a modest increase to the standard contribution rates.” She explained that the 2025 standard contribution limit was raised $500 from $23,000 to $23,500. The catch-up contribution rate for participants ages 50 and over stayed the same as 2024 and remains at $7,500, with a maximum contribution of $31,000 for 2025.
Simple IRAs and Simple 401(k) plans also had a slight contribution increase from $16,000 in 2024 to $16,500 in 2025, Coley shared. However, the catch-up provision for participants over 50 did not change — it stays at $3,500.
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Super Catch-Up
Coley said, “The biggest change in 2025 comes from the SECURE ACT 2.0 and applies to participants ranging from age 60 to 63 and allows for a super catch-up contribution of $11,250 versus the normal catch-up contribution of $7,500 for participants age 50 and over.”
For plans like a 401(k), 403(b), Thrift Savings Plan, some 457 plans and Simple IRAs and 401(k) plans, the total contribution limit for participants age 60 to 63 in 2025 is $34,750. This “super catch-up” provision is indexed to inflation and may increase over the years.
Required Minimum Distributions
If you’re 73 and older, thus have to take required minimum distributions (RMDs), there are some changes on certain types of inherited IRAs starting in 2025, Coley said.
“Previously there were several changes surrounding rules on inherited IRAs that came from the SECURE ACT in 2019 and SECURE ACT 2.0 in 2022 and there wasn’t much clarity at first. Starting in 2025, you must take an RMD from an inherited IRA that is subject to the 10-year distribution rule when the original account holder was already required to take their standard RMDs,” she said.
She said you should be aware that RMDs from “stretch” inherited IRAs (where the decedent passed away prior to Jan. 1, 2020) were always required each year aside from rare exceptions like provisions that waived them for a certain time period (for example the CARES Act allowed you to skip an RMD in 2020 during COVID-19).
“The biggest takeaway around these provisions is that they are very confusing — there are so many different factors that come into play on how RMDs on inherited IRAs are taken depending on the relationship to the decedent and the difference in age. As a planner with over 21 years of experience, I can tell you that I still pause when I review what is required of certain inherited IRAs as the rules have changed, or have not been fully clarified by the IRS, over the past five years.”
She recommended you always consult a tax advisor and/or your financial professional for assistance on what is required as an RMD and what type of penalty applies for missing an RMD.
COLA Adjustments
For anyone already receiving Social Security benefits, Coley said there is a Social Security cost of living adjustment (COLA) of 2.5%. And the base rate for Medicare Part B is going up by about 6% for 2025.
Charitable Donations
If you’ve got money to put toward qualified charitable donations each year, you will be allowed to give a little bit more in 2025 with tax benefits. The limit is going up from $105,000 in 2024 to $108,000 in 2025, Coley said.
“These are donations made directly from your pretax retirement account to a charity to help you reduce your taxable income, which is a nice provision now that many retirees may only be able to take the standard deduction on their taxes versus itemizing charitable contributions due to changes in tax law under the Tax Cut and Jobs Act in 2017.”
Donations of this sort are a great way to reduce taxable income if you normally give to charity and aren’t otherwise able to itemize the charitable contribution. However, she did warn, “Note one confusing portion of this rule is while it is a great way to exclude the taxable income that would come from RMDs, you can start doing this at age 70 1/2 versus the standard age of 73 for RMDs.”
Health Savings Account (HSA) Limits
Another limit increase that doesn’t just benefit retirees is that for health saving accounts (HSA). Coley pointed out, “For individuals it went from $4,150 in 2024 to $4,300 in 2025, for families it went from $8,300 in 2024 to $8,550 in 2025.”
Who Will Be Most Affected?
Most of these changes apply to retirees, but nothing is terribly specific to couples, singles or those with a change in marital status, Coley explained. “Most of these rules are based on age, income or tax filing status. There are some increases to various limits like income eligibility to make a Roth IRA contribution — all of these limits tend to increase slightly over time and are based on your tax filing status for the year — single, married filing jointly, etc.“
Tips To Prepare
If you’re wondering what these changes mean for you, Coley suggested that “the most important thing to jump on is the ‘super catch up’ contributions for participants ages 60 to 63.”
She recommended retirees take advantage of all the increases in retirement savings, especially in light of rising inflation over the last several years.
“Is inflation slowing? Yes. But that does not mean prices are dropping, it means they aren’t rising as fast. Also, there has been a lot of chatter around reducing Social Security COLAs and decreasing benefits in the future to keep the Social Security Trust Fund solvent. It’s more important than ever to try to increase your savings for retirement.”
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This article originally appeared on GOBankingRates.com: 6 IRA and 401(k) Changes To Know About for 2025
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