Sarah Ruef-Lindquist, JD, CTFA
By Sarah Ruef-Lindquist for Pen Bay Pilot
I’ve said it before, and I’ll say it again: The only things that are sure in this life are death and taxes…we need to be mindful of change, at least as it pertains to taxes.
Retirement Savings
A variety of plans can be used to save money on a tax-deferred basis. Those include 401(k)s, IRAs SEP and SIMPLE plans. The great thing about tax deferral is it allows accounts to not pay taxes on their dividends, income and capital gains for years and years, until funds are withdrawn, presumably in retirement. This tax deferral can allow for significantly higher levels of appreciation due to growth in market value without the negative impact of taxes on that growth.
It’s important to maximize saving for retirement and take advantage of the provision of the tax law that allow taxpayers to save funds in tax-deferred accounts…for 2025, the contribution limit for most plans (401(k), 403(b) and 457 plans) increases from $23,000 to $23,500 with another $7,500 for those age 50 – 59 or those older than 63. For those age 60, 61 or 62, the amount is now $11,250. That means that certain taxpayers can add as much as $34,750 to their plans in 2025, the highest amount ever allowed.
Similarly, in 2025 SIMPLE plans will have new elective deferral limits: $16,500 up from $16,000 and a catch-up amount of $3,500 for those 50 – 59, and $5,250 if there are 26 or more employees. For those with 25 or fewer employees, the catch-up amount is $3,850 for those age 50-59 or older than 63, and $5,250 for those 60, 61 or 62.
IRAs will continue to have a 2025 contribution limit of $7,000 with an unchanged catch-up amount of $1,000 for those age 50 and older.
There are other changes for SEPs in store for 2025. For those who participate in them, taxpayers should consult their accountants and financial advisors for more details.
Why maximize savings in these types of plans and accounts? Earnings in these plans are tax free until withdrawn, which for many is not required until age 73 or if born in 1960 or later, age 75.
Please remember that financial and tax situations differ widely from person to person, and there is no one-size-fits-all for most of these situations. Consult with your financial and tax advisors for how any of these or other provisions that are changing in 2024 may affect you.
