The incoming Republican Administration has floated a range of ideas related to taxes – some are more likely to be implemented, others less so.
Changes to tax law must go through the legislative process, and since Republicans will control both houses in the 119th Congress, substantive change to tax law is likely in 2025.
Also, there are several adjustments to the tax law relating to retirement plans that will go into effect on January 1, 2025.
Possible changes to tax law, and upcoming tax-related changes for retirement plans are discussed below.
Tax Policy Under a New Administration
Many of the provisions from the 2017 Tax Cuts & Jobs Act which lowered taxes for individuals are set to expire at the end of 2025, including: lower individual income tax rates, a larger child credit, higher standard deductions, and the bigger lifetime estate and gift tax exemption.
Tax policy ideas floated by Republicans during the presidential campaign include:
- Make the 2017 tax cuts permanent
- Raise the child tax credit
- Drop the corporate tax rate
- Impose across-the-board tariffs
- End green energy breaks
- Tax-free overtime pay
- Exempt Social Security from taxes
The tax experts at The Kiplinger Tax Letter believe that the last two bullet points (tax free overtime pay and exempting Social Security from taxes) are unlikely to gain enough support to pass Congress.
Current expectations are that Congress will pass a big tax bill in the fall or winter of 2025, with most tax changes starting in 2026.
One potential hurdle to enacting all the proposed tax breaks is cost: if all the changes are implemented, the revenue loss for the federal government is estimated to be about $9 trillion, according to financial magazine Barron’s.
We expect to be sifting through a lot of new information in the months ahead and reporting back to you as we get clarity on changes to the tax situation – especially changes related to individual income taxes and exemptions.
Retirement Plans: Upcoming Changes for 2025
The following key dollar limits on retirement plans are set to increase in 2025.
401(k) Plans
- Contribution limit rises to $23,500
- People aged 50 and older can contribute an extra $7,500
- People aged 60 – 63 can contribute a larger “catch up” of $11,250
SIMPLE IRAs
- Contribution cap rises to $16,500
- People aged 50 and older can contribute an extra $3,500
- People aged 60 – 63 can contribute a larger “catch up” of $5,250
Traditional IRAs
- Contribution cap remains $7,000
- Catch-up for people aged 50 and older is an additional $1,000
- Couples deduction phaseout: Adjusted Gross Income (AGI) of $126-000 – $146,000
- Singles deduction phaseout: AGI of $79,000 – $89,000
- Note that phaseouts apply to people covered by a workplace retirement plan
- If only one spouse is covered by a plan, phaseout for the uncovered spouse is: AGI of $236,000 – $246,000
Roth IRAs
- Contribution cap remains $7,000
- Catch-up for people aged 50 and older is an additional $1,000
- Couples contributions phase out at AGI of $236,000 – $246,000
- Singles contributions phase out at AGI of $150,000 – $165,000
Qualified Charitable Distributions (QCDs)
- People aged 70.5 and older can transfer up to $108,000 from an IRA directly to charity
- QCDs can count as Required Minimum Distributions (RMDs), but they are not taxable and are not added to AGI
-RK