New and updated 2025 tax laws
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Happy New Year, and welcome to 2025! With the dawn of a new calendar year, some tax laws have been updated, some have changed, and others are set to end. You may want to bookmark this article and reference it as you move through the year.
Retirement account contributions
For 2025, the maximum IRA or Roth IRA contribution is $7,000. If you are age 50 or older, your maximum is $8,000. The maximum retirement plan contribution (401k, 403b) is $23,500. If you are age 50 or older, you can contribute $31,000. But, for the first time we have a very special group of people. If you are between 60 and 63, congratulations, as your maximum is $34,750! If you want to know why this loophole exists, look at the number of Congress members or their children in this age range.
If you want to change your deductions to fund a retirement plan, let your payroll people know as soon as possible.
Retirement account distributions
The big change for 2025 is with inherited IRAs. If you receive an inherited IRA from a non-spouse who is already taking the required minimum distributions, you must take a minimum distribution annually.
In addition, if the original owner of the IRA passed away on or after January 1, 2020, you must fully deplete the inherited IRA within 10 years beginning the year after the death. If the original owner passed away before 2020, you also have an annual distribution requirement without the 10-year depletion rule.
The required distribution laws for original retirement account owners have not changed. Those 73 and older are required to take a minimum distribution, with some exclusions for those with earned income.
Gifting to Individuals
In 2025, you can give $19,000 to any individual without reporting requirements and no gift-tax consequences. In addition, estates of individuals who pass away in 2025 can have up to $13,990,000 excluded from estate tax consideration. This rule is set to end on January 1, 2026. If it is allowed to end with no changes, we revert to tax laws from 2016, which would lower the exclusion amount to $7 million or less.
Expiring tax laws
In addition to the expiring estate exclusion amount, the tax laws that significantly impact the standard tax deduction are also set to expire. With no changes, standard deductions will revert to their 2016 levels in 2026. If this happens, charitable deductions would potentially be of greater benefit next year instead of this year. If this is important to you, you will want to keep a close eye on Congress throughout the year and consider postponing charitable gifts into 2026.
Procrastination for the Win
A few years ago, my son was getting far behind on his Spanish class assignments. Eventually, after succumbing to significant parental pressures for several weeks, he finally completed his 20+ assignments in the last week of school. So impressed by his “determination”, his teacher gave him a special award to which my son replied, “procrastination for the win!”
If you have been late with some 2024 actions, you can still make IRA, HSA, and 529 contributions before April 15, which count toward the 2024 tax year. Lest you think you’re getting away with something, had those contributions been made in early 2024, they could have benefited from a strong stock market performance.
If you make a 2024 contribution in 2025, be sure it is documented to reflect that it is a 2024 contribution.
Since nothing regarding tax laws is ever simple, there is often greater nuance than outlined above. Seek advice if you have any questions about your specific situation.
A new year brings new opportunities. Do yourself a favor and start taking advantage of them right away!
Bill Wendling is a Sr. Portfolio Manager with Bedel Financial Consulting, Inc., a wealth management firm located in Indianapolis. For more information, visit their website at www.bedelfinancial.com or email Bill at BWendling@bedelfinancial.com.