Saving for retirement 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 for Social Security and Medicare worth noting.
Here's a summary of some of the key retirement-related changes to watch out for in the new year.
Employer-sponsored retirement plans have significant contribution limits – not everyone can save up to put that much away – and they're increasing a bit. For 2025, you will be able to increase your annual contribution to your 401(k), 403(b), government 457 plans, and the federal government's Thrift Savings Plan to $23,500, up from $23,000.
The catch-up contribution limit, for those aged 50 or over, remains fixed at $7,500. There's an extra layer of icing for workers aged 60 to 63, thanks to the Secure 2.0 law — and higher catch-up contribution limit of $11,250.
“People at this stage of life often have college finances 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,” Christine Benz, director of personal finance and retirement planning for Morningstar, to Yahoo Finance.
The contribution limit on individual retirement accounts (IRAs) will remain at $7,000, and the catch-up contribution limit for individuals aged 50 and over remains at $1,000 for 2025.
IRA deductions for single people covered by a retirement plan at work phase out for adjusted adjusted gross income (MAGI) between $79,000 and $89,000, up from $77,000 to $87,000. The deduction is phased out for married couples filing jointly between $126,000 and $146,000, up from $123,000 to $143,000.
Some good news for Roth IRA fans: The income limit range for contributing will increase to between $150,000 and $165,000 for singles and heads of households, up from $146,000 to $161,000. For married couples filing jointly, the range increases to between $236,000 and $246,000, up from $230,000 to $240,000.
Finally, the income limit for the Saver's 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 households, up from $57,375; and $39,500 for single individuals and married individuals 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
How much you can contribute to your health savings account or HSA — considered an important retirement tool by financial advisors — is hair-raising.
The new annual limit for 2025 for individuals 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 aren't meant to replace your traditional retirement account, HSAs offer a retirement benefit down the road 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 for eligible health care costs. That said, for now, “investing in a health savings account — rather than spending from it — is the best way to harness the big tax benefits that come along with an HSA,” Benz said.
One caveat: You must be enrolled in a high-deductible health care plan (HDHP) in order to contribute to an HSA. You can also open an account as a self-employed freelancer or business owner if you have an eligible 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 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 benefit of about $1,900.
Heftier Medicare premiums will take more out of those retirement checks.
The Centers for Medicare and Medicaid Services (CMS) announced that Part B will be monthly in 2025 premiums climbs to $185, up $10.30. And the annual Part B deductible, which most people must pay before their Medicare coverage begins, will rise $17 to $257.
Starting January 6, the SSA will ask anyone who wants to speak face-to-face with a person to make an appointment.
Customers who are unable to handle 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 people away for service who are unable to make an appointment or who do not want to make an appointment,” Dawn Bystry, the SSA's associate commissioner, wrote on the agency's website. “By scheduling appointments, we will try to reduce waiting times, simplify the services provided, 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 will be reached for people born on May 2, 1958, through February 28, 1959. Called that is your Full Retirement Age or FRA. Under current law, it will settle at 67 for people born in 1960 and after.
You can start collecting retirement benefits before your ATA, at age 62, but your monthly check will be permanently reducedas much as 30%.
If you can push your benefits back from your ATA until age 70, you'll earn deferred retirement credits. Those come to about an 8% annual increase in your benefit for each year until you reach 70. The credits don't accumulate at that point, but the biggest checks continue for the rest of your yes
The Social Security Administration office is seen in Mount Prospect, Ill., Oct. 12, 2022. (AP Photo/Nam Y. Huh) ·THE SOCIAL PRESS
Social Security is funded primarily by payroll taxes, currently 12.4%, split equally between employees and employers. If you are salaried, you pay 6.2% (via FICA withholding from your paycheck) and your employer pays 6.2%. Self-employed people pay both portions as part of their annual tax return.
The amount of income subject to the tax is adjusted annually. In 2025, you will pay the tax on work income up to $176,100 (up from $168,600 in 2024). Earnings above that threshold are not taxed for Social Security funding purposes, nor is it investment income.
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 between 3% and 10% of their salary, and the rate must increase every year by 1%, until the participant hits at least 10%, and no more than 15%.
Automatic enrollment doesn't mean you have to go along with it. Employees can change the rate or opt out.
A core provision in the Secure 2.0 Act revised the eligibility requirements for long-term part-time employees. Employees who 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 is coming sooner than ever before.
Starting in 2025, if you inherited an individual retirement account after 2019, you must withdraw the required amount each year until the account is cleaned out in the 10th year after the original account owner's death . The rule applies to most non-spousal beneficiaries if the original owner of the account had reached the required distribution age (RMD) before their death.
Until now, you could “stretch out” inherited IRA withdrawals during your lifetime, which helped cut the annual tax bill owed on those funds.
If you miss annual RMDs or don't take enough, there is a 25% penalty on the amount you should have withdrawn.
