As the IRS announces its annual inflation adjustments for the 2025 tax year, there are key updates that pre-retirees and retirees should be aware of, especially when planning for retirement. At Elevate Wealth Advisory, we emphasize the importance of lifetime tax planning, which plays a critical role in making sure your retirement savings can go the distance and help you meet your life goals.
Here are some key updates and how they may affect your retirement planning.
Standard Deduction and Marginal Rates: How They Impact You
For 2025, the standard deduction for single filers rises to $15,000, and for married couples filing jointly, it increases to $30,000. This small bump helps reduce your taxable income, providing some relief as you navigate retirement. If you usually claim the standard deduction on your tax return, you’ll be able to deduct a bit more next year, lowering your 2025 taxable income.
However, understanding your marginal tax rate is just as important. While marginal tax rates for 2025 remain unchanged from 2024, each income bracket has been adjusted for inflation. The highest bracket (37%) is reserved for individuals earning more than $626,350 and couples earning over $751,600. For many pre-retirees and retirees, the 12% or 22% brackets will be more relevant, covering income levels up to $48,475 for singles and $96,950 for married couples.
Being aware of where your retirement income falls within these brackets is crucial. Properly managing withdrawals from retirement accounts and taxable investments can help ensure you don’t unintentionally push yourself into a higher tax bracket. Smart tax planning can make a significant difference in the longevity of your retirement savings.
Retirement Accounts and Health Spending
For those with flexible spending accounts (FSAs) and medical savings accounts (MSAs), the 2025 adjustments provide some added benefits. Contributions to FSAs increase slightly to $3,300, and for MSAs, deductibles and out-of-pocket expenses have been adjusted upward. Health Savings Accounts (HSA) contribution limits have also been increased to $4,400 for individuals and $8,550 for family coverage.
Medical expenses can be a major concern during retirement, and utilizing tax-advantaged accounts like these can provide valuable savings. Planning ahead for healthcare costs while maximizing your contributions to FSAs or Health Savings Accounts (HSAs) can help stretch your retirement budget further.
Estate Planning and Gift Taxes
The estate tax exclusion has also increased to $13.99 million in 2025, offering higher thresholds for those planning to pass on wealth to their heirs. Additionally, the annual exclusion for gifts has increased to $19,000. This is important for retirees who are interested in estate planning strategies, such as gifting to children or grandchildren.
At Elevate Wealth Advisory, we encourage clients to think about their legacy and the most tax-efficient way to transfer wealth to future generations. With the higher exclusions, there is more flexibility in planning gifts or structuring your estate.
The Importance of Ongoing Tax Planning
Even small adjustments to tax laws can have a significant impact on your financial strategy, especially as you near retirement. At Elevate Wealth Advisory, we work closely with our clients to ensure that their retirement plans are aligned with tax strategies that maximize savings and minimize unnecessary tax burdens.
Tax planning is not just about reacting to changes—it’s about proactively adjusting your financial approach to optimize your retirement years. By taking advantage of higher standard deductions, managing income to stay within lower tax brackets, and leveraging tax-advantaged accounts, you can feel confident that your financial future is on track.
If you’re unsure about how these new tax changes affect your retirement strategy, Elevate Wealth Advisory is here to help. Our team specializes in tailoring tax-efficient strategies to ensure you have the right amount of money to retire and reach your life goals. Let’s ensure your wealth continues to work for you—today, tomorrow, and beyond. Contact us today!
Source: IRS.gov