Saving for retirement will get a modest boost in 2025 thanks to higher contribution limits and the gradual implementation of provisions stemming from the Secure 2.0 Act, which becomes law at the end of 2023.
For retirees, there are also changes to Social Security and Medicare worth noting.
Here’s a summary of some of the key retirement-related changes to watch for in the new year.
Employer-sponsored retirement plans come with significant contribution limits — not everyone can save to put that much aside — and they add up quite a bit. For 2025, you’ll be able to increase your annual contribution to 401(k), 403(b), 457 plans and the federal government’s Thrift Savings Plan to $23,500, up from $23,000.
The catch-up contribution limit, for those 50 or older, remains constant at $7,500. There’s an extra layer of encouragement for workers ages 60 to 63, thanks to the Secure 2.0 Act — a Maximum catch-up contribution limit Valued at $11,250.
“People at this stage of life often have college funding in the rearview mirror, so if they are in a position to increase their retirement plan contributions before retirement, they should take advantage of it,” Kristen Benz, Personal finance manager and retirement planning for Morningstar, he told Yahoo Finance.
The contribution limit for individual retirement accounts (IRAs) will remain constant at $7,000, and the catch-up contribution limit for individuals age 50 or older will remain at $1,000 for 2025.
IRA deductions for individuals covered by a work retirement plan for modified adjusted gross income (MAGI) between $79,000 and $89,000 are phased out, from $77,000 to $87,000. The deduction phases out for couples filing jointly between $126,000 and $146,000, from $123,000 to $143,000.
Some good news for Roth IRA fans: The contribution income limit range will increase to between $150,000 and $165,000 for individuals and heads of household, from $146,000 to $161,000. For married couples filing jointly, the range increases to between $236,000 and $246,000, from $230,000 to $240,000.
Finally, the income limit for the Savings Credit, a non-refundable tax credit worth up to $1,000 ($2,000 if married filing jointly) for taxpayers who contribute to a retirement account, is $79,000 for married couples, up from $76,500; $59,250 for heads of household, up from $57,375; and $39,500 for individuals and married couples filing separately, up from $38,250.
The new 2025 annual limit for a health savings account will be $4,300, up from $4,150. (Getty Creative) ·FatCamera via Getty Images
The amount you can contribute to your health savings account, or HSA — considered an important retirement tool by financial advisors — is generating a lot of interest.
The new annual limit for individuals for 2025 will be $4,300, up from $4,150. For family coverage, the HSA contribution limit rises to $8,550 from $8,300 this year.
While these accounts are not intended to replace your traditional retirement account, HSAs offer a future retirement benefit thanks to their triple tax advantage. You put money in on a tax-free basis, it accumulates tax-free, and it comes out tax-free Qualified health care expenses. However, for now, “investing in a health savings account — rather than spending from it — is the best way to harness the significant tax benefits that come with a health savings account,” Benz said.
One caveat: You must be enrolled in a high-deductible health plan (HDHP) in order to contribute to an HSA. You can also open an account as a freelancer or employer if you have a qualifying HDHP.
the Cost of living adjustment (COLA) The increase in Social Security benefits next year will be small. The Social Security Administration (SSA) announced a cost-of-living adjustment of 2.5% 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 benefit of roughly $1,900.
Heftier Medicare premiums will take a bigger cut from those retirement checks.
The Centers for Medicare and Medicaid Services (CMS) announced Part B monthly for 2025 Insurance premiums It will rise to $185, an increase of $10.30. The annual Part B deductible, which most people must pay before their Medicare coverage begins, will rise by $17 to $257.
Starting January 6, the Social Security Administration (SSA) will ask anyone who wants to talk face-to-face with someone to make an appointment.
Customers who cannot handle their business online or by phone can contact 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 clear that we will not deny service to people who are unable to make an appointment or do not want to make an appointment,” Don Bestre, assistant commissioner of the Social Security Administration, wrote on the agency’s website. “By scheduling appointments, we will aim to reduce wait times, simplify service delivery, and improve the overall customer experience.”
In 2025, the age at which you become eligible to claim 100% of the retirement benefit calculated from your lifetime earnings for people born on May 2, 1958, will be until February 28, 1959. This is known as full retirement age, or FRA. Under current law, it will settle at 67 for people born in 1960 or later.
You can start collecting retirement benefits before your FRA, at age 62, but your monthly check will be Permanently reducedby up to 30%.
If you can defer taking your FRA benefits until age 70, you’ll get delayed retirement credits. This results in an approximately 8% annual increase in your benefits for each year until you reach age 70. The credits stop accumulating at that point, but the larger checks remain for the rest of your life.
Social Security Administration office in Mount Prospect, Illinois, October 12, 2022. (AP Photo/Nam Y. Huh) ·Associated Press
Social Security is funded primarily through payroll taxes, which currently stand at 12.4%, split evenly between employees and employers. If you are a wage earner, you pay 6.2% (through FICA withholding from your paycheck) and your employer pays 6.2%. Self-employed people pay both shares as part of their annual tax returns.
The amount of taxable income is adjusted annually. In 2025, you’ll pay business income tax of up to $176,100 (compared to $168,600 in 2024). Earnings above this limit are not subject to tax for the purpose of funding Social Security, nor is any income from investments.
Beginning in 2025, 401(k) and 403(b) plans established after December 29, 2022, must automatically enroll all eligible employees at a default deferral rate of 3% to 10% of their paychecks, and the rate must increase each time. One year at a rate of 1%, until the participant reaches at least 10%, and not more than 15%.
Automatic enrollment does not mean you have to continue with it. Workers can change the price or cancel the subscription.
One of the key provisions in the Secure 2.0 Act revised eligibility requirements for long-term, part-time employees. Employees who have worked at least 500 hours per year for two consecutive years are now eligible for an employer-provided 401(k) plan.
Inheriting money is great, but the tax man comes sooner than ever.
Beginning in 2025, if you inherit an individual retirement account after 2019, you must make required withdrawals each year until the account is liquidated in the 10th year after the original account holder’s death. The rule applies to most non-spousal beneficiaries if the original account holder reached the Required Minimum Distribution Age (RMD) before his or her death.
So now, you can “roll over” inherited IRA withdrawals over your lifetime, which has helped lower your annual tax bill on that money.
If you miss your annual RMDs or don’t take enough out, you’ll be charged a 25% penalty on the amount you should have withdrawn.
