The new year brings significant changes to tax laws, retirement savings provisions, Medicare premiums, and Social Security benefits. These updates provide opportunities to optimize your financial plan. Here's what you need to know.
Major Social Security Changes: Who Is Impacted and What to Do
The Social Security Fairness Act, signed into law on January 5th, eliminates the Windfall Elimination Provision (WEP) and Government Pension Offset (GPO), which have long reduced benefits for public sector employees and their families.
Who Is Impacted?
Public employees with pensions from non-Social Security-covered work, along with their spouses and surviving spouses, are the most affected. This includes teachers, firefighters, police officers, and federal employees under the Civil Service Retirement System (CSRS). Federal employees covered under the Federal Employees Retirement System (FERS) are generally not impacted.
• WEP: This provision reduced benefits for individuals receiving pensions from non-Social Security-covered work while also paying into Social Security through other employment. Affected individuals can expect an average monthly increase of $360 in their Social Security benefits, according to the Congressional Budget Office (CBO).
• GPO: This offset reduced Social Security benefits for spouses, widows, and widowers who received income from their own government pensions. Spouses impacted by the GPO may see an average increase of $700 monthly, while surviving spouses may receive up to $1,190 more.
What Do You Need to Do?
Although the law is in effect, implementation will take time as the Social Security Administration evaluates the process. To prepare:
1. Verify that your contact information is up to date through your my Social Security account.
2. If you believe you’re newly eligible for benefits, apply online at ssa.gov/apply or schedule an appointment with your local SSA office.
3. Stay informed by subscribing to updates from Social Security here.
New in 2025: Key Updates
Retirement Accounts
• 401(k) Contribution Limits: Annual contributions increase to $23,500, with a $7,500 catch-up for those aged 50+. Individuals aged 60-63 can now make enhanced catch-up contributions of $11,250, allowing a total of $34,750.
• IRA Contribution Limits: Unchanged at $7,000, with a $1,000 catch-up for individuals aged 50+.
• Health Savings Accounts (HSAs): Individual contribution limits increase to $4,300, and family contributions rise to $8,550. Those aged 55+ can add $1,000 more.
Taxes
• Standard Deduction Increases: Married couples can claim $30,000, and single filers $15,000, up from $29,200 and $14,600, respectively, in 2024.
Charitable Contributions
• Qualified Charitable Distributions (QCDs): The annual limit for QCDs increases to $105,000, up from $100,000 in 2024.
• Charitable Contribution Deduction Limit: Taxpayers can continue to deduct cash charitable contributions up to 60% of adjusted gross income (AGI) through 2025, before the limit reverts to 50% in 2026.
Medicare
• Part B Premiums: The standard monthly premium increases to $185, up from $174.70 in 2024. The annual deductible rises to $257, up from $240.
Prepare for the Year Ahead
These changes provide valuable opportunities to boost retirement savings, manage taxes effectively, and plan for rising healthcare costs. For tailored advice, consult a financial planner or tax professional. With the right strategies, 2025 can be a year to take full advantage of these new opportunities and set yourself up for greater financial success.
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