No one can predict the future with certainty, but when it comes to retirement planning and your finances for 2025, some trends and strategies are easier to foresee. Here's what you need to know to stay ahead.
Retirement Planning 2025: Lower Income Tax Rates
More than 20 provisions of the Tax Cuts and Jobs Act of 2017 are set to expire at the end of 2025. But now that Republicans control the House of Representatives, the Senate and the White House, experts believe that many of the provisions will either be extended or made permanent.
"It's looking like a lot of these expiring tax provisions that came in 2017 with the Tax Cuts and Jobs Act may not be expiring after all," said Noah Harden, the national wealth planning manager at Comerica Wealth Management. "There's a decent chance that the Republicans will want to extend a lot of these."
The TCJA reduced the top income tax rate for individuals from 39.6% to 37% through 2025. And that, said Harden, is a "meaningful reduction" in that marginal tax bracket.
After 2025 however, if Congress doesn't act, the reduced rates revert to the pre-TCJA levels, which will increase the top tax rate back to 39.6%, according to Harden, who wrote sections of Comerica Wealth Management's 2024 Year-End Planning Guide.
What should taxpayers do if they could be affected by this increase? Harden recommends accelerating the recognition of income before the tax rate increases and delaying harvesting losses until 2026.
Rethink Roth IRA Conversions
But with the potential for this provision to be extended or even made permanent, the urgency to rush into a full or partial Roth IRA conversion (which would accelerate the recognition of income) may no longer be as pressing.
A Roth IRA conversion is the process of transferring money from a traditional IRA — or another pretax retirement account — into a Roth IRA. This strategy involves paying taxes on the converted amount now, allowing the funds to grow tax-free and be withdrawn tax-free in the future.
Read About The Best Money Moves You Can Make In 2025
Before the presidential election, many experts advised owners of traditional IRAs to consider converting as much as possible by 2025. That was in anticipation of the return of the 39.6% top marginal tax bracket in 2026. The thinking was simple: Take advantage of today's relatively lower tax rates while they last.
If the current tax provisions are extended, the window of opportunity for conversions at these historically low rates could remain open longer. Retirees and pre-retirees might have more flexibility to pace their conversions over several years. That could minimize the risk of being pushed into a higher tax bracket in any given year.
2025 Tax Brackets and Federal Income Tax Rates
| Tax Rate | Single Filers | Married Individuals Filing Joint Returns | Heads of Households |
|---|---|---|---|
| 10% | $0 to $11,925 | $0 to $23,850 | $0 to $17,000 |
| 12% | $11,925 to $48,475 | $23,850 to $96,950 | $17,000 to $64,850 |
| 22% | $48,475 to $103,350 | $96,950 to $206,700 | $64,850 to $103,350 |
| 24% | $103,350 to $197,300 | $206,700 to $394,600 | $103,350 to $197,300 |
| 32% | $197,300 to $250,525 | $394,600 to $501,050 | $197,300 to $250,500 |
| 35% | $250,525 to $626,350 | $501,050 to $751,600 | $250,500 to $626,350 |
| 37% | $626,350 or more | $751,600 or more | $626,350 or more |
Source: Internal Revenue Service, Revenue Procedure 2024-40
Harden said Republicans might be inclined to lower other taxes, perhaps even the net investment income tax (NIIT) and the Medicare surcharge. Those are additional taxes that primarily affect higher-income individuals and families. The NIIT is a 3.8% tax on certain types of investment income, such as interest, dividends, capital gains, rental income, and other passive income. The Medicare surcharge is an additional 0.9% tax on earned income above certain thresholds. "Generally speaking, if you're looking at the Republican agenda, I think they are all for reducing tax and reducing overall government spending," said Harden.
Retirement Planning: Increased Standard Deduction
The standard deduction, which increased significantly with the TCJA (currently $14,600 single and $29,200 married filing joint), will decline in 2026 to $8,300 and $16,600, making itemized deductions more attractive for many taxpayers, according to Harden. If Congress doesn't act to extend or make permanent this provision, Harden recommends considering putting off deductible expenses until 2026, to maximize one's itemizations.
SALT Deduction Caps
The TCJA capped the state and local tax (SALT) deduction at $10,000 per tax return from 2018 to 2025. This cap is set to expire in 2026, potentially restoring the full deduction for state and local taxes. This change would primarily benefit high-income taxpayers in states with high taxes, such as California, New York and New Jersey.
Some experts speculate that Congress may allow the current cap to expire, while President-elect Donald Trump's economic advisors are reportedly considering a proposal to double the SALT deduction limit to $20,000.
Retirement Planning With Estate, Gift Tax Exemption
Another key factor in retirement planning: The TCJA significantly increased the current estate and gift tax exemption, according to Harden. For 2025, the federal estate tax exemption will increase to $13.99 million per person, or $27.98 million for a married couple. However, on Jan. 1, 2026, the exemption rules are scheduled to sunset. That would decrease the exemption to around $7 million. Should that happen, Harden noted that high net-worth families could realize a significant increase in transfer tax. And, taxpayers facing estate tax liability should consider whether to use their exemption before it's reduced in 2026.
Experts generally agree that this provision is likely to be extended or made permanent, reducing the urgency to take advantage of the exemption before 2026.
According to Harden, if the expiring TCJA provisions are extended for a specific amount of time, instead of a permanent change, taxpayers above the exemption amount, whatever it might be, will still need to consider a variety of tools and techniques, including gifts and transfers to irrevocable trusts, as well as disclaimer trusts, spousal lifetime access trusts, or special power of appointment trusts.
For his part, Ian Weinberg, a certified financial planner with Family Wealth and Pension Management, also recommends that individuals move assets into vehicles such as irrevocable trusts. "We do not recommend giving heirs assets outright," he said. "A married couple can gift $27.98 million estate-tax and gift-tax free if planned properly. Perhaps even more. Plus, they can still enjoy the income from those assets while they're alive."
Also, wealthy individuals could even get a discount on certain assets such as closely held business interests, real estate, private investments and the like. So, they could shield even more than the exemption amount.
SECURE Act 2.0: Higher Catch-Up Contributions
Several provisions of the SECURE 2.0 Act will go into effect in 2025.
In 2024, you can contribute up to $23,000 to a 401(k), 403(b) or 457(b) plan, with an extra $7,500 if you are age 50 or older, according to Lisa Featherngill, the national director of wealth planning at Comerica Wealth Management.
But starting in 2025, some employees can take advantage of what Featherngill calls a "super catch-up."
Employees who turn 60, 61, 62, or 63 by the end of the year will be eligible for higher catch-up contributions in 401(k), 403(b), and governmental 457(b) plans, according to a report by Ian Berger, an IRA analyst with Ed Slott & Co. The special catch-up amount for 2025 will be at least $11,250, which is the greater of $10,000 or 150% of the 2024 regular catch-up limit.
For those unable to contribute the maximum, Howard Pressman, a certified financial planner with Egan, Berger and Weiner, said he always encourages his clients to increase their retirement contributions by 1% per year until they hit the maximum.
For SIMPLE IRA participants in the same age group, Berger noted in another report that the special catch-up amount will be at least $5,250, which is the greater of $5,000 or 150% of the 2025 regular catch-up limit.
Retirement Planning And Annual Withdrawals For Some Inherited IRAs
Starting in 2025, individuals inheriting an IRA will generally no longer be able to wait until the 10th year to withdraw the funds, according to Featherngill. New regulations clarify that if the original owner had already begun taking distributions, the inheritor must withdraw funds at least as quickly as the original owner was doing. This change takes effect in 2025.
As noted, under the current 10-year required distribution rules for non-spousal beneficiaries, beneficiaries must fully withdraw the account's value within a decade, paying ordinary income tax on those distributions. "Leaving behind large deductible IRAs to your loved ones isn't the greatest asset to do it with," he said. "Your kids will have to pay ordinary income tax on distributions of the value of the account over 10 years, then it's gone."
A better strategy may be to leave non-qualified assets, such as stocks, ETFs, or mutual funds. These assets receive a step-up in basis upon your death. This allows your heirs to avoid capital gains taxes on the appreciation.
Weinberg's bottom line advice: Start taking income from your IRAs earlier than the RMD requirement. Begin enjoying the funds now rather than leaving them subject to both estate and income taxes later. That scenario is "not a great deal" for your children and other heirs.
High Earners And Roth-Only Catch-Up Contributions
The SECURE 2.0 Act introduced a significant change to catch-up contributions for high-income earners, according to Featherngill. Beginning in 2026, if your wages from your current employer exceeded $145,000 in the prior year (adjusted annually for inflation), any catch-up contributions will need to go into a designated Roth account. That means they'll be made with after-tax dollars. Featherngill advises maximizing pretax 401(k) contributions in 2025 if this new rule will apply to you in 2026. That will help you take full advantage of the current tax benefits while they last.
This change is good news to Pressman. "I welcome the change to Roth," he said. "I love Roth IRAs and am still contributing 50/50 between pretax and Roth myself. Forcing more high earners to adopt Roth contributions will benefit them in the future."
When the time comes, Pressman recommends that higher earners who have been contributing on a pretax basis should review their W4 withholding and lower their deductions. That's so they aren't surprised when April comes around. "Losing the deduction will result in higher taxes," said Pressman.
Student Loan Payments And Employer Retirement Matches
The SECURE Act, says Featherngill, addresses a critical challenge faced by many young workers. That's balancing student loan repayment with saving for retirement.
Starting in 2024, employers can treat student loan payments as retirement plan contributions for the purpose of providing an employer match, she said. This allows individuals paying off student loans to receive matching contributions in their retirement accounts. This solves the "really important dilemma" young people often face. Should they choose repaying student debt or saving for their future?
Retirement Planning To Maximize HSA Tax Benefits
Featherngill also recommends, if you're eligible, maximizing your contribution to a health savings account, or HSA. That's even true if you don't plan to use the entire amount for health care expenses currently.
Why? HSAs can be used to pay qualified health care expenses during retirement. In 2025, you can contribute up to $4,300 ($8,550 for married individuals).
The catch-up contribution limit for employees age 50 and over remains at $1,000 for both individual and family plans.
HSAs Have Triple-Tax Benefits
Contributions to an HSA are made pretax, allowing you to lower your taxable income. The funds grow tax-free. When used for qualified health care expenses, withdrawals are also tax-free. That makes HSAs a triple tax-advantaged savings vehicle.
"The thing I really like about HSAs is that they can grow tax-free," said Featherngill. Plus, you can invest the money for long-term growth. That's crucial in retirement planning. "I intentionally try not to ever touch my HAS because you let the money grow. Then, in retirement, you can access it for medical expenses and not pay tax when the money comes out." Read more on HSAs: IBD's Best Health Savings Accounts For 2025.
To be fair, some HSA owners might wonder how best to pay for out-of-pocket medical expenses if not from their HSA. Pressman's solution? HSA owners who have a good emergency fund have options. They can use that fund to cover small, routine health care needs. "Letting the HSA grow is a great strategy," he said. "The HSA must be invested, and I typically don't recommend that until the balance exceeds the deductible."
