Highlights of this Special Edition Newsletter:
Inflation-Mandated Tax Changes for 2025:
Estate and Lifetime Exemption
Annual Exclusion Gifts
Standard Deduction Adjustments
Cost-of-Living Adjustment (COLA)
Qualified Charitable Distributions (QCDs)
Maximize Retirement Contributions
Other Items to Discuss with Your Financial Advisor
What This Means for You
Inflation-Mandated Tax Changes for 2025
As we usher in a new year, it’s essential to understand the tax changes driven by inflation adjustments for 2025. These updates have a significant impact on financial and estate planning strategies. Here are the key changes to keep in mind:
Estate and Lifetime Exemption
The estate and lifetime exemption amount has risen to $13.99 million, up from the 2024 figure. This increase presents an opportunity to revisit your estate planning to maximize the benefits of this higher exemption. Annual Exclusion Gifts
The annual exclusion for gifts has increased to $19,000 per recipient, allowing you to transfer more wealth tax-free each year.
Standard Deduction Adjustments
The standard deduction has also been adjusted for inflation, providing higher thresholds across the board:
• Single filers and married people filing separately: $15,000
• Heads of household: $22,500
• Married couples filing jointly and surviving spouses: $30,000
• Additional deduction for those over the age of 65: $1,600
Cost-of-Living Adjustment (COLA)
The cost-of-living adjustment (COLA) for 2025 is set at 2.5%, impacting various benefits and thresholds.
Qualified Charitable Distributions (QCDs)
The limit for Qualified Charitable Distributions (QCDs) has increased to $108,000 for 2025, providing more flexibility for charitable giving. IRA owners over the age of 70 ½ may make a direct transfer to a qualified charity. If the IRA owner is subject to a Required Minimum Distribution (RMD), the QCDs are allowed to satisfy all or a portion (up to $108,000) of their RMD. Unlike regular IRA withdrawals, QCDs are excluded from your taxable income, which can lower overall taxes paid and may help you keep certain tax credits. Managing your tax bracket may also help reduce future Medicare premiums. The December 1 distribution timeline also applies for QCDs. If you are writing checks directly from the IRA, they must clear before year-end.
Maximize Retirement Contributions
In 2025, you can contribute $23,500 to your 401(k) or other employer-sponsored retirement plan. An extra $7,500 in “catch-up” contributions is allowed if you will be at least age 50 this year. New this year is a catch-up provision of $11,250 for ages 60-63. Even if you do not have an employer- sponsored plan, you may still be able to contribute up to $7,000 ($8,000 if you’re 50 or older) to a traditional IRA. These rules also apply to nondeductible IRA and Roth IRA contributions. “Backdoor” Roth contributions are also available for higher-income earners if you are phased out from making direct contributions to a Roth IRA. Defined contribution plans allow higher contributions of up to $70,000 or 25% of your qualified income (whichever is less).
Other Items to Discuss with Your Financial Advisor
• College education savings options, including potential contributions to 529 plans
• Health Savings Account (HSA) contributions ($4,300 per person plus $1,000 for 55 and older “catch-up” provision)
• Making gift-tax exclusion gifts to non-charitable recipients (children, grandchildren, other family or friends) using the above noted annual exclusion gift limit of $19,000/recipient ($38,000/recipient from a couple)
• Reviewing life insurance coverage and estate planning documents, including Trusts, Wills, Health Care Proxy, and Financial Power of Attorney
• Required Minimum Distributions (RMDs), which you are required to begin taking from your IRA or employer-sponsored retirement account starting in the year you reach your “applicable age” and continue annually for the rest of your life. The Secure Act 2.0 increased the applicable age to 73 for those born between January 1, 1951, and December 31, 1958, and to 75 for those born on or after January 1, 1960.
What This Means for You
These adjustments present an excellent opportunity to optimize your financial strategies. Whether it’s making larger annual gifts, contributing more to retirement accounts, or revising your estate plan, these changes can enhance your wealth management approach. If you have questions or want to explore how these changes impact your unique situation, we’re here to help.
Reach out to our team to discuss strategies tailored to your goals for 2025 and beyond.
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