What's New for 2025: Social Security, Retirement Savings, Taxes, Deductions & Credits
Every year we publish a summary of the changes going into effect in the coming year that may affect your income, taxes, and savings. While there are positive upward adjustments across the board for all categories, the increases are more moderate than those of 2023 and 2024, reflecting a cooling inflation environment more similar to pre-pandemic levels.
Below is a list of 2025 provisions that may be relevant to you. You can click on each link for more details:
1. 2025 Social Security Benefits Increase by 2.5%
In 2025, more than 72.5 million Americans will receive a 2.5% bump up in monthly social security benefits, the lowest cost-of-living (COLA) adjustment in four years, reflecting a return to pre-pandemic inflation trends. The cost-of-living adjustment (COLA) is intended to help retiree incomes keep up with inflation. So, while certainly helpful, it can be considered more of a catch-up payment than an income boost.
The average retired worker will see their monthly social security check rise by $49 to $1,976 starting in January 2025. The maximum amount of earnings subject to the payroll tax is also increasing by 4.4% from $168,600 to $176,100. Earnings above that are not subject to social security taxes.
If you were born in 1959, your full retirement age (FRA) to begin taking social security benefits without penalty is age 66 and 10 months and is reached in 2025. However, there may be good reasons to delay filing social security beyond FRA, which we are happy to discuss with you.
2. 2025 Savings Limits Increase for Workplace Retirement Plans—Plus a New “Super Catch-up” Category for Workers Ages 60 to 63
The contribution limit for employees below age 50 who are participating in their workplace retirement plan increases by $500 in 2025 to $23,500. Employees between the ages of 50 and 59 can make an additional “catch-up” contribution of $7,500 for a maximum contribution of $31,000.
Starting in 2025, the IRS is introducing a new “super catch-up” category for employees between the ages of 60 and 63, who can contribute an additional $11,250 on top of the base $23,500 deferral limit.
The contribution limit for employees age 64 or older returns to the regular “catch-up” maximum contribution of $31,000.
3. 2025 Traditional and Roth IRA Contribution Limits Remain Flat
The IRS did not increase the contribution limits for traditional and Roth IRAs for 2025, which remain at 2024 levels. As a reminder, IRA contributions for tax year 2024 can still be made up until April 15, 2025 or before you file your taxes, whichever is earlier.
4. 2025 IRA Income Limits Adjust Upward
The income limits governing eligibility for Roth IRAs and deductibility for traditional IRAs also saw moderate upward adjustments for 2025.
They are as follows:
5. 2025 Tax Bracket Income Ranges Increase
The IRS has adjusted the income limits for each tax bracket based on inflation.
The new income bands are as follows:
Head of Household is defined as someone who is unmarried and provides housing and financial support (at least half) for a child, parent, or other relative who lives with them for 6+ months in a year.
6. 2025 Standard Tax Deductions Increase
The standard deduction is a defined amount the IRS allows taxpayers to subtract from their taxable income. Some people find it makes sense to take the standardized deduction instead of itemizing deductions, based on the higher value of the standard deduction.
In 2025, the base standard deductions are increasing by 2.7%.
To be eligible for the age-based additional standard deduction, you must turn 65 by the end of the tax year.
Head of Household is defined as someone who is unmarried and provides housing and financial support (at least half) for a child, parent, or other relative who lives with them for 6+ months in a year.
NOTE: If you are being claimed as a dependent on another person's tax return, your 2025 standard deduction is limited to the greater of $1,300 or your earned income plus $450 (the total can't be more than the basic standard deduction for your filing status).
7. 2025 Long-Term Capital Gains Tax Rate Thresholds Increase
The IRS adjusted the taxable income brackets that determine the amount of capital gains taxes investors pay on profits made from the sale of stocks, mutual funds, or other capital assets held for more than a year.
The new taxable income brackets are as follows:
Head of Household is defined as someone who is unmarried and provides housing and financial support (at least half) for a child, parent, or other relative who lives with them for 6+ months in a year.
8. 2023 Annual Gift Tax Exclusion Increases
The annual gift exclusion amount that any individual can gift another without filing a gift tax return is increasing from $18,000 (2024) to $19,000 in 2025. Spouses can both gift $19,000 to an individual, doubling the overall gift to $38,000.
The gift exclusion is especially relevant to 529 college savings contributions; each parent (or grandparent) can contribute up to $19,000 to an individual child. Direct payments for medical and/or education expenses can be unlimited.
9. 2025 Lifetime Estate and Gift Tax Exemption Increases
The lifetime estate and gift tax exemption will increase in 2025 to $13.99 million per individual (up from $13.61 million in 2024). The exemption amount is double for a married couple.
This provision is currently set to expire on December 31, 2025 and revert back to previously lower levels. However, it is anticipated that the incoming administration will extend—and perhaps expand—the current estate and gift tax rules.
10. Required Minimum Beneficiary Distributions (RMBDs) Begin for Some Inherited IRAs
The IRS recently clarified the SECURE Act rules governing inherited IRAs. These rules apply to any inherited pre-tax IRA where the original IRA owner’s date of death was after December 31, 2019.
Such inherited IRAs are governed by the 10-year rule, which says they must be emptied by the end of the 10th year after the original IRA owner’s death. Up until now, distributions could be made at the inheriting IRA owner’s discretion, with no annual minimum distribution requirement.
Starting in 2025, however, the IRS has clarified that anyone who inherited an IRA after 2019 must also start taking annual required minimum beneficiary distributions (RMBDs) IF the original owner had already started taking required minimum distributions (RMDs) before his or her death. The RMBD will be calculated each year based on the inheriting IRA owner’s life expectancy (as defined in the IRS Single Life Expectancy Table 1).
Any opinions in this newsletter are those of Estes Wealth Strategies and John Estes and not necessarily those of RJFS or Raymond James. Expressions of opinion are as of this date and are subject to change without notice. The information presented herein has been obtained from sources considered to be reliable, but we do not guarantee that it is accurate or complete. It is not a statement of all available data necessary for making a recommendation, nor does it constitute a recommendation.
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While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors of RJFS, we are not qualified to render advice on tax or legal matters. You should discuss tax or legal matters with the appropriate professional.