How the Changes of 2025 Could Impact Your Current Financial Plan

Regardless of any outside influences, the only real path to financial security is one you create for yourself: your financial plan. However, it’s important to remain proactive and nimble when it comes to managing your plan. Stay focused on what you can control – long-term saving and investing, tax management, estate planning, expenses and budgeting. This will allow you to take positive steps when opportunities arise.

While it is impossible to predict what the potential long-term effects of changing conditions can have on the broader economy, your financial plan should be reviewed regularly. Let’s review some possible areas to prioritize in 2025:

1. Tax code changes:

A quickly approaching deadline for congressional action on taxes has many taxpayers feeling uncertain about the future. Many provisions of the Tax Cuts and Jobs Act (TCJA) are set to expire at the end of 2025. If nothing is done to avoid this, it could lead to higher tax burdens for many, which will require adjustments to current tax strategies. We will be watching this closely over the next several months.

No matter what Congress decides over the next year, it is more important than ever to stay informed. As we follow the actions of Congress in the coming weeks, we will analyze how potential tax law changes might affect your taxable income and deductions, and offer appropriate strategies if necessary. For example, charitable giving can be an effective means of cutting your tax bill. Recently, we have been having more conversations about Qualified Charitable Distributions and Donor Advised Funds with clients.

If there is an extension of the tax cuts, it will buy time for investors and retirement savers to create a compelling long-term strategy that includes retirement savings accounts. It is also important to remember that tax laws are always changing, so anything that is decided in 2025 could very well change by the time most of us retire. This is another good argument for constant vigilance in our financial planning efforts.

2. Retirement account strategies:

Contribution limits for 401(k)s increased in 2025, providing an even greater opportunity to maximize retirement savings. For 2025, the 401(k) annual contribution limit is $23,500, up from $23,000 in 2024. For employees over 50, there are also catch-up contributions. The total catch-up contribution allowed in 2025 is still the same as it was in 2024 at $7,500. If you are aged 60-63, you can contribute up to $11,250 in catch-up contributions in 2025.

IRA contributions remained the same for 2025. The maximum amount you can contribute to a Roth IRA in 2025 is $7,000 (unchanged from 2024). You’re allowed to increase that to $8,000 if you’re age 50 or older. These same limits apply to traditional IRAs. Check if your current investment allocations align with your risk tolerance and time horizon, and consider making necessary adjustments. Of course, also be aware of whether your income level precludes you from contributing directly to a Roth IRA or if backdoor contributions are necessary.

3. Evaluation of your emergency fund:

Ensure your emergency fund is adequately funded to handle unexpected changes. If you anticipate significant events in 2025, like buying a home, starting a family, or entering retirement, you may want to consider appropriate adjustments in your planning. You may also want to factor in potential changes to healthcare subsidies if the Affordable Care Act is replaced, as has been discussed by the new administration. This could impact healthcare expenses, requiring reevaluation of health insurance costs and coverage. This could also include long-term care coverage.

Summary

Even though the changes discussed above may take time, it is important to remain prepared. Proactive planning can allow for flexibility to act as necessary while keeping your plan on track. While some changes for 2025 aren’t formalized or guaranteed, the goal of planning is to be prepared for both the expected and unexpected.

If you would like to discuss the status of your financial plan as we prepare for the changes ahead, we would love to hear from you.

Thank you for reading.