Maximizing Tax Savings in Retirement: 2025 IRS Updates and Strategies
June 4, 2025
As we navigate 2025, understanding the latest IRS guidelines is crucial for optimizing tax savings in retirement. Recent updates, including changes from the SECURE 2.0 Act, offer new opportunities for retirees and those approaching retirement to enhance their financial strategies.
Updated Contribution Limits for 2025
The IRS has adjusted contribution limits for various retirement accounts:
401(k), 403(b), and 457 Plans: The annual contribution limit has increased to $23,500, up from $23,000 in 2024. Individuals aged 50 and over can make an additional $7,500 in catch-up contributions, bringing their total to $31,0001.
IRAs: The contribution limit remains at $7,000, with a $1,000 catch-up contribution allowed for those aged 50 and over1.
SIMPLE IRA Plans: The contribution limit is $16,500, with a catch-up contribution of $3,500 for individuals aged 50 and over2.
Enhanced Catch-Up Contributions for Ages 60–63
Under the SECURE 2.0 Act, individuals aged 60 to 63 can make higher catch-up contributions:
401(k), 403(b), and 457 Plans: An increased catch-up limit of $11,250 is available for this age group1.
SIMPLE IRA Plans: The catch-up contribution limit for individuals aged 60 to 63 is $5,2502.
Saver’s Credit: A Valuable Tax Incentive
The Retirement Savings Contributions Credit, commonly known as the Saver’s Credit, offers a tax credit for low- to moderate-income individuals contributing to retirement accounts:
Credit Amount: Up to $1,000 for single filers and $2,000 for married couples filing jointly3.
Eligibility: Adjusted Gross Income (AGI) limits for 2025 are:
Single Filers: Up to $39,500
Heads of Household: Up to $59,250
Married Filing Jointly: Up to $79,0003
Despite its benefits, only 44% of eligible taxpayers are aware of the Saver’s Credit4.
Strategic Roth Conversions
With anticipated tax rate increases in 2026, 2025 presents an opportune time to consider Roth conversions:
Tax Planning: Converting traditional IRA or 401(k) funds to a Roth IRA in 2025 can lock in current tax rates, potentially reducing future tax liabilities5.
RMD Exemption: Roth IRAs are not subject to required minimum distributions (RMDs), offering greater flexibility in retirement income planning5.
Working in Retirement: Tax Implications
Continuing to work during retirement can affect your taxes:
Social Security Benefits: Earnings above certain thresholds can make Social Security benefits taxable. For single filers, combined income over $25,000, and for married couples filing jointly, over $32,000, may result in taxation of benefits6.
Additional Income: Supplemental income may increase your tax bracket and impact the taxation of retirement withdrawals and other income sources6.
Required Minimum Distributions (RMDs)
The SECURE 2.0 Act has changed the RMD rules:
Starting Age: RMDs are now required to begin at age 73, up from 725.
Planning Impact: Delaying RMDs allows for continued tax-deferred growth, but it’s important to plan for the tax impact once distributions begin.
Conclusion
Staying informed about IRS updates and leveraging tax strategies can significantly improve your retirement outlook. Consult with a financial advisor to tailor these strategies to your personal goals and minimize your tax burden in retirement.
________________________________________
Sources
1. IRS Newsroom. "401(k) limit increases to $23,500 for 2025; IRA limit remains $7,000." Retrieved from irs.gov.
2. IRS. "COLA Increases for Dollar Limitations on Benefits and Contributions." Retrieved from irs.gov.
3. IRS. "Retirement Savings Contributions Credit (Saver’s Credit)." Retrieved from irs.gov.
4. The Sun. “Save thousands with this ‘secret’ tax credit.” Retrieved from the-sun.com.
5. Kiplinger. “Tax Planning and Your Retirement.” Retrieved from kiplinger.com.
6. Investopedia. “The Financial Impact of Working in Retirement.” Retrieved from investopedia.com.
This article was curated by Firstrust Financial Resources and is being provided for
formational purposes only based on our general understanding of the subject matter.
