Retirement savings will get a modest boost in 2025 thanks to higher contribution limits and the phase-in of provisions stemming from the Secure 2.0 Act, which became law in late 2023.
For retirees, there are also changes to Social Security and Medicare worth noting.
Here’s a rundown of some of the key pension changes to watch out for in the new year.
Employer-sponsored retirement plans have significant investment limits, not everyone can set aside that much, and they’re increasing slightly. For 2025, you’ll be able to increase your annual contribution to your 401(k), 403(b), govt. Up to $23,500 from $23,000 in 457 plans and the federal government Thrift Savings Plan.
The refundable contribution limit for those 50 and older remains at $7,500.Thanks to the Safeguard 2.0 Act, there is an extra layer of ice for workers age 60 to 63; higher cap on replenishment contribution in the amount of 11250 US dollars.
“People at this stage of life often have college funding in the rearview mirror, so if they’re able to turbocharge their retirement plan payments before retirement, they should take advantage of it,” Christie Benz. director of personal finance Retirement planning for Morningstar, Yahoo Finance said.
The contribution limit for Individual Retirement Accounts (IRAs) will remain at $7,000, and the contribution limit for those 50 and older will remain at $1,000 in 2025.
IRA deductions for singles enrolled in a working retirement plan top out for modified adjusted gross income (MAGI) between $79,000 and $87,000. The deduction phases out for married couples filing jointly asking $126,000 to $146,000, $123,000 to $143,000.
Some good news for Roth IRA fans. The income limit for contributions will increase from $150,000 to $165,000 for singles and from $146,000 to $161,000 for married couples filing jointly, and the range will increase from $236,000 to $246,000. 240,000 USD.
Finally, the income limit for the Saver’s Credit, which is worth up to $1,000 ($2,000 if married filing jointly) for taxpayers, is $79,000 for married couples, up to $76,500; $59,250 for heads of household, up from $57,375; and $39,500 for single and married individuals filing separately, up from $38,250.
The new annual limit for a health savings account in 2025 will be $4,300, up from $4,150 (Getty Creative). ·FatCamera via Getty Images
How much you can contribute to your health savings account, or HSA, which financial advisors consider an important retirement tool, is hair-raising.
The new annual limit for individuals will be $4,300, up from $4,150 in 2025. The HSA contribution limit for family coverage rises to $8,550 from this year’s $8,300.
While these accounts aren’t meant to replace your traditional retirement account, HSAs offer retirement benefits thanks to their triple tax advantage: You put money in tax-free, it accumulates tax-free, and it comes out tax-free quality health care costs. That said, for now, “investing in a health savings account, rather than spending from it, is the best way to take advantage of the big tax benefits that come with an HSA,” Benz said.
One caveat. you must be enrolled in a high-deductible health plan (HDHP) to contribute to an HSA.You can also open an account as a self-employed professional or business owner if you have a qualified HDHP.
It cost of living adjustment (COLA) increase in Social Security benefits next year will be small. The Social Security Administration (SSA) announced a 2.5% cost-of-living adjustment (COLA) for 2025. That’s down from 3.2% this year, but in line with the 2.6% average over the past two decades.
Starting in January, the increase will add just under $50 to the average monthly cost of about $1,900.
Higher Medicare premiums will take a bigger bite out of those retirement checks.
The Centers for Medicare and Medicaid Services (CMS) announced that by 2025 premiums will rise to $185, an increase of $10.30. And the annual deductible for Part B, which most people must pay before starting Medicare coverage, will rise by $17 to $257.
Starting January 6, the SSA will require that anyone who wants to speak with a person face-to-face must make an appointment.
Customers who cannot conduct their business online or by phone can call their local Social Security office or national telephone contact to schedule an appointment.There are currently more than 1,200 field offices.
“We want to make it clear that we will not turn away people who are unable or unwilling to make an appointment,” SSA Associate Commissioner Dawn Bystry wrote on the agency’s website wait times, streamline service delivery and improve the overall customer experience.”
In 2025, the age at which you are eligible to claim 100% of the pension benefit calculated on your lifetime earnings will be 1958. from May 2 to 1959 Under current law, it will be set at age 67 for those born in 1960 and later.
You can start collecting retirement benefits before your FRA, at age 62, but your monthly check will be: permanently reducedby 30%.
If you can push back your FRA benefits until age 70, you’ll earn deferred retirement credits that increase by about 8% per year until you reach 70. At that point, the credits stop accruing. but heavier checks remain for the rest of your life.
The Social Security Administration office in Mount Prospect, Ill., on Oct. 12, 2022. (AP Photo/Nam Y. Huh) ·ASSOCIATED PRESS
Social Security is primarily funded by payroll taxes, currently 12.4%, split equally between employees and employers. pays 6.2% Self-employed people pay both shares as part of their annual tax return.
The amount of taxable income is adjusted annually. You’ll pay up to $176,100 in earned income tax in 2025 (up from $168,600 in 2024). Earnings above that threshold are not taxed for Social Security purposes, nor is any investment income.
Beginning in 2025, 401(k) and 403(b) plans established after December 29, 2022 must automatically enroll all eligible employees in a default deferral of between 3% and 10% of their salary. rate, and the rate must increase each year by 1% until the participant reaches at least 10% and no more than 15%.
Auto-enrollment doesn’t mean you have to go in. Workers can change the rate or opt out.
A key provision of the Secure 2.0 Act revised eligibility requirements for long-term, part-time employees.Employees who have worked at least 500 hours annually for two consecutive years are now eligible for an employer-provided 401(k).
Inheriting money is great, but tax comes sooner than ever.
Starting in 2025, if you inherited an individual retirement account after 2019, you must make the required withdrawals each year until the account is cleared in the 10th year after the original account owner’s death. The rule applies to most non-spousal beneficiaries. if the original account holder reached their minimum distribution (RMD) age before their death.
Until now, you could “stretch” inherited IRA withdrawals over your lifetime, which helped reduce the annual tax bill you paid on those funds.
If you miss annual RMDs or don’t take enough, there’s a 25% penalty on the amount you should have withdrawn.
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