Here’s How Social Security, Retirement Planning, and Taxes are Changing in 2025
Happy 2025!
At Keen Wealth, we're often of two minds at the beginning of the New Year. On the one hand, Tax Day is just around the corner, so we're helping folks put a bow on last year's financials and making sure they not missing out on any potentially advantageous moves.
But this New Year also means a new president, a new congress, new laws, new facts and figures, and lots of new legislative proposals.
On today's show, we discuss some important changes coming to Social Security and retirement accounts in 2025, as well as the items that could be at the top of President-elect Trump's economic agenda.
1. The Social Security Fairness Act
On January 5th, President Biden signed the Social Security Fairness Act, which repeals two provisions—the Windfall Elimination Provision (WEP) and the Government Pension Offset (GPO)—that previously reduced Social Security benefits for certain public-sector retirees. This new Act allows affected individuals, such as teachers, police officers, firefighters, and other public servants, to receive their Social Security benefits without reductions due to their government pensions.
Essentially, many public workers have state pension contributions automatically deducted from their monthly pay. Some states, including Missouri, exempt these workers from paying Social Security tax. This can reduce -- and even eliminate -- the eventual benefits for folks who move from a job that requires them to pay FICA to a job that doesn't, as well as the survivor benefits for their spouses.
The Social Security administration hasn't announced how these adjusted benefits are going to work, so for now there's nothing for affected workers to do. But this is a good reminder that it's worth visiting the Social Security website at least annually to make sure your income -- and your benefits -- are being recorded and calculated correctly.
2. Changes to Retirement Accounts
The contribution limit for your 401(k) in 2025 is $23,500; for IRAs, the limit is $7,000.
However, the Secure Act 2.0 of 2022 created an increase to the annual "catch-up" contributions that folks 50 and older can make into their 401(k)s. In 2025, if you're 50-59 or 64 and older, you can contribute up to an additional $7,500. While you’re 60-63, you can contribute up to an additional $11,250.
It's hard to say why the government decided to let older workers make these "super" catch-up contributions during a four-year window. But it is definitely worth discussing with your financial advisor if you should consider planning ahead to top off those accounts when you’re eligible.
The contribution limits for Health Savings Accounts are also going up in 2025. The maximum contribution for individuals is $4,300 and $8,550 for families. And if you're 55 and older, you can make an additional $1,000 catch-up contribution as well. These accounts can create some great tax advantages while making it easier to pay for out-of-pocket expenses, especially as your healthcare costs rise later in retirement. Talk to your advisor to see if you meet the requirements for an HSA and if contributing to an account will help you secure the care you need.
3. The Tax Cuts and Jobs Act 2.0?
The tax cuts established in the 2017 Tax Cuts and Jobs Act are set to expire this year. In the weeks after President-elect Trump's inauguration, expect to hear more about proposals to renew those cuts. A broader package might also include eliminating federal taxes on Social Security benefits, as well as raising or removing the state and local tax (SALT) deduction cap that the 2017 law established.
My team at Keen Wealth is always monitoring potential changes to tax law and retirement planning, and if anything moves beyond the proposal stage, we'll be sure to discuss it in a future episode. But while the specifics are still up in the air, I think it's pretty clear that one general trend is going to continue in 2025: our government will pass laws that encourage folks to take more personal responsibility for their financial planning, especially retirement. Make an appointment to visit Keen Wealth, and let’s make sure your comprehensive plan is ready for whatever happens in Washington this year and whatever happens in your life.
About Bill
Bill Keen is a financial advisor with over 30 years of industry experience. As the founder and CEO of Keen Wealth Advisors, a registered investment advisory firm, he focuses on providing personalized retirement planning designed to help people thrive before and during their retirement years. With a passion for educating others, Bill regularly blogs about retirement planning, hosts the podcast Keen on Retirement, and has contributed to Forbes, U.S. News and World Report, Reuters, Wall Street Journal’s Market Watch, Yahoo Finance, and other publications. Based in Overland Park, Kansas, Bill and his team work with clients throughout the greater Kansas City area and across the nation. To learn more, connect with him on LinkedIn or visit www.keenwealthadvisors.com.
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