Happy New Year! As we step into 2025, it’s the perfect time to get informed about changes that may impact your finances and healthcare. Every year brings updates to these industries, and this year is no exception. In this article, we’ve outlined a concise and easy-to-understand list of changes to help you prepare for the year ahead.
- Social Security COLA Increase:
Social Security Checks will increase by 2.5% due to the Cost-of-Living Adjustment (COLA). However, this may feel offset by rising Medicare costs.
- Medicare Part B Premiums Increase:
Part B premium for Medicare raised from $174.70 in 2024 to $185 per month in 2025.
- Medicare Prescription Drug Cap:
The Inflation Reduction Act implemented a $2,000 annual cap to prescription drug costs for those on Medicare in 2025.
- High Contribution Limits for 401(k) Plans:
The maximum contribution amount for 401(k) plans has increased to $23,500. Other types of retirement plans have also seen increases including but not limited to SEP IRAs and Simple IRAs. Unfortunately, the maximum contribution to IRA and Roth IRAs has remained at $7,000 for 2025.
- Inflation Adjustment to Tax Brackets and Standard Deductions:
Federal tax brackets and standard deductions will adjust for inflation, slightly reducing the overall tax burden for many. Standard deductions are the amount an individual or married couple can earn before they pay taxes on that money.
- RMD Age Change:
If you turn 73 in 2025, you need to start taking Required Minimum Distributions from your retirement accounts. The Secure Act 2.0 increased this from 72 in 2024.
Past Changes:
- Stretch IRA Elimination:
The Secure Act of 2019 changed the way inherited IRAs work. Those who inherit an IRA, have 10 years to withdraw the entire balance instead of withdrawing the balance over the course of their life.
Future Changes:
- Tax Rates Increase:
Unless extended, the Tax Cuts and Jobs Act will expire in 2026 leading to tax rates reverting to 2018 levels. This will lead to most tax rates increasing by 2-3%.
- Standard Deductions Reducing:
The Tax Cuts and Jobs Act sunsetting (expiring) will also lead to standard deductions dropping significantly. This will also increase the taxable income that taxpayers show to the federal government.
All these changes have been consolidated and may not capture the full picture, as the goal of this piece was to highlight key updates while keeping it concise. For example, the 10-year rule under the Secure Act includes many exceptions, and not everyone will be affected by changes to standard deductions since some Americans choose to itemize their deductions.