Coming up quickly is the new year, and the Internal Revenue Service (IRS) has announced that it will be putting in place new rules that will let people put more money into their pension and retirement plans.
The Internal Revenue Service (IRS) implements this annually as part of the cost-of-living adjustments for retirement accounts and pension plans. It is also part of a larger effort to help older beneficiaries save more for retirement.
What Are the Increases proposed by the IRS?
The most popular retirement account, the 401(k), will raise the amount that workers can put into it in 2025. Instead of the $23,000 cap that was in place in 2024, workers will be able to put away up to $23,500. Contributions to other plans will also go up.
The most that people can put into 403(b) plans and the federal government’s Thrift Savings Plan each year will go up to $23,500 in 2025, from $23,000 in 2024.
The statement explained the new rules for individuals aged 50 and up, along with other changes. “For 2025, the catch-up contribution limit for workers aged 50 and up who participate in most 401(k), 403(b), government 457 plans.
The federal government’s Thrift Savings Plan will stay at $7,500.” So, starting in 2025, people aged 50 and up who are a part of most 401(k), 403(b), government 457 plans, and the federal government’s Thrift Savings Plan will be able to put away up to $31,000 a year.
The current limit will stay in place for one type of account: IRAs. For 2025, participants will still only be able to put in $7,000. The statement continued, “The SECURE 2.0 Act of 2022 (SECURE 2.0) changed the IRA catch-up contribution limit for people aged 50 and up to include an annual cost-of-living adjustment, but it will stay at $1,000 for 2025.”
Tax Deductions and income thresholds
In 2025, the IRS wants to make changes to more than just contributions to retirement accounts. In 2025, the IRS also intends to increase certain deductions to align with the fluctuations in salaries and the cost of living.
Together with a change in the income tax brackets, this will ensure that individuals whose incomes have remained constant due to inflation don’t continue to move up in tax brackets, thereby paying more taxes than they should.
Still, the standard deduction will go up to $15,000 in 2025 for single filers and married people filing separately, which is $400 more than the previous year.
The deduction for married couples filing jointly will go up to $30,000, which is an increase of $800. For people who are the heads of their own households, the deduction will go up by $600 to $22,500.
Changes to the tax breaks will also be important for individuals. It will include changes to the levels of income for all seven federal tax brackets. Remember, not all income is subject to taxation for individuals who work.
When you take your standard deductions or itemized deductions away from your adjusted gross income, the amount left over is your taxable income. This is why changing the standard deductions is essential for taxpayers.
Once the taxable income is found, it is split up into parts that are taxed at higher and higher rates based on your federal tax bracket. What are these brackets:
- 10% for incomes $11,925 or less ($23,850 or less for married couples filing jointly).
- 12% for incomes over $11,925 ($23,850 for married couples filing jointly).
- 22% for incomes over $48,475 ($96,950 for married couples filing jointly).
- 24% for incomes over $103,350 ($206,700 for married couples filing jointly).
- 32% for incomes over $197,300 ($394,600 for married couples filing jointly).
- 35% for incomes over $250,525 ($501,050 for married couples filing jointly).
- 37% for incomes over $626,350 ($751,600 for married couples filing jointly). This bracket will not change in 2025 and continues to be the same as in 2024.
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