A Look Ahead

While many of us are now focused on holiday plans, time with family and friends, and trying to enjoy the season as best we can, the world of finance is moving forward and already has some guidance for next year. We may not be making New Year’s resolutions yet, but your Charter Oak team is already looking to 2025 to ensure your financial goals and resolutions are achieved.

The IRS updates many financial figures each year based on pre-determined calculations, which we now know and will highlight below. However, we still do not know several things, as the Tax Cuts and Jobs Act of 2017 was set to expire at the end of 2025. Given the change in administration in the White House and a Republican majority in both the House and the Senate, we would expect those to be extended, but there is still much to be determined.

Let's review what we know and how it can help us and our clients plan for the year ahead and beyond.

Retirement Plan Contribution Limits

The IRS did adjust contribution limits for employer plans. As the table below illustrates, a worker over 50 could now contribute $31,000 ($23,500 + catch-up of $7,500) to their 401(k) plan, and an employee aged 60 to 63 could contribute $34,750.

Even though our younger clients (or younger family members) may not have the catch-up abilities, they have something more important: the Time Value of Money and the power of compounding! Please remember that we are also here to help early workers and savers, as starting early can be the best way to have financial freedom later in life.

The contribution limits for a Traditional IRA or Roth IRA increased in 2024 but remain steady for 2025.

You can contribute a maximum of $7,000 (same as 2024).
Catch-up contributions for taxpayers 50 and older are also subject to cost-of-living adjustments, but these limits remain unchanged for 2025 at $1,000 ($8,000 total).

Please remember that Roth IRA contributions have income limits based on your filing status and earned income. We can discuss your unique situation and determine whether you should contribute to a Roth IRA.

Gift Amounts

The gift tax annual exclusion is the amount you can gift to an individual each year without triggering the need to file a gift tax return or incurring gift taxes. For 2024, the annual exclusion amount is $18,000 per recipient. For 2025, the annual exclusion increases to $19,000 per recipient.

In 2025, you can give up to $19,000 to each person without paying gift taxes or filing a gift tax return. If you are married, you and your spouse can each give $19,000 to the same person for $38,000 per recipient without incurring gift tax.

If you exceed the annual gift tax limit, you will first have delighted gift recipients, and second, you will have to file a federal gift tax return, IRS form 709. However, exceeding the limit doesn't necessarily result in owing tax, thanks to a high lifetime estate and gift tax exemption (which was also set to revert to 2017 levels with the expirations of the Tax Cuts and Job Acts).

The lifetime estate and gift tax exemption will increase to $13.99 million per individual for 2025, up from $13.61 million in 2024.

This allows a married couple to shield up to $27.98 million from federal estate and gift taxes. However, it's important to note that under current law, this expanded exemption is set to expire at the end of 2025, potentially reverting to roughly half this amount in 2026 if Congress doesn’t act.

Health Savings Account Contributions

Health Savings Accounts (HASs) are a favorite of our former tax professionals here at Charter Oak because of their triple tax advantage. Contributions to an HSA go in pre-tax, grow tax-deferred, and are tax-free when used for qualifying medical expenses.

In 2025, you can contribute up to $4,300 if you are covered by a high-deductible health plan just for yourself or $8,550 if you have coverage for your family. At age 55, individuals can contribute an additional $1,000.

Medicare IRMAA Surcharge Amounts

Medicare IRMAA, or Income-Related Monthly Adjustment Amount, is a surcharge added to Medicare Part B and Part D premiums for higher-income people. The Social Security Administration (SSA) determines if someone owes an IRMAA based on their income tax information from two years prior. So, the figures below will be for your 2023 taxes.

2025 Look Ahead

While there is a lot here, know that more will be coming. Your Charter Oak team will digest all the information so we can give you personal and prudent advice and counsel in 2025 and beyond. Please get in touch with your Charter Oak team directly with further questions.

We wish you and yours a wonderful and healthy holiday season.