Retirement

You may be able to make a deductible IRA contribution for last year this year

February 18, 2025

Easter Gold egg in nest on black background. Minimal concept.

If you’re getting ready to file your 2024 tax return and your tax bill is higher than you’d like, there may still be a chance to lower it. If you’re eligible, you can make a deductible contribution to a traditional IRA until this year’s April 15 filing deadline and benefit from the tax savings on your 2024 return.

Who’s eligible?

You can make a deductible contribution to a traditional IRA if:

You (and your spouse) aren’t an active participant in an employer-sponsored retirement plan, or
You (or your spouse) are an active participant in an employer plan, but your modified adjusted gross income (MAGI) doesn’t exceed certain levels that vary from year-to-year by filing status.

For 2024, if you’re a married joint tax return filer and you’re covered by an employer plan, your deductible traditional IRA contribution phases out over $123,000 to $143,000 of MAGI. If you’re single or a head of household, the phaseout range is $77,000 to $87,000 for 2024. The phaseout range for married individuals filing separately is $0 to $10,000. For 2024, if you’re not actively participating in an employer retirement plan but your spouse is, your deductible IRA contribution phases out with MAGI of between $230,000 and $240,000.

Deductible IRA contributions reduce your current tax bill, and earnings in the IRA are tax deferred. However, every dollar you withdraw is taxed (and subject to a 10% penalty before age 59½, unless one of several exceptions apply).

Traditional IRAs are different from Roth IRAs. You also have until April 15 to make a Roth IRA contribution. But while contributions to a traditional IRA are deductible, contributions to a Roth IRA aren’t. However, withdrawals from a Roth IRA are tax-free as long as the account has been open at least five years and you’re age 59½ or older. (There are also income limits to make contributions to a Roth IRA.)

If you’re married, you can make a deductible IRA contribution even if you don’t work. In general, you can’t make a deductible traditional IRA contribution unless you have wages or other earned income. However, an exception applies if one spouse has earned income and the other is a homemaker or not employed. In this case, you may be able to take advantage of a spousal IRA.

What are the contribution limits?

For 2024, if you’re eligible, you can make a deductible traditional IRA contribution of up to $7,000 ($8,000 if you’re age 50 or older). For 2025, these amounts remain the same.

In addition, small business owners can set up and contribute to Simplified Employee Pension (SEP) plans up until the due date for their returns, including extensions. For 2024, the maximum contribution you can make to a SEP is $69,000 (increasing to $70,000 for 2025).

How can you maximize your nest egg?

If you want more information about IRAs or SEPs, contact us. Or ask about tax-favored retirement saving when we’re preparing your return. We can help you save the maximum tax-advantaged amount for retirement.

Taming the tax tangle if you’re retiring soon

February 4, 2025

Retirement is often viewed as an opportunity to travel, spend time with family or simply enjoy the fruits of a long career. Yet the transition may bring a tangle of tax considerations. Planning carefully can help you minimize tax bills. Below are four steps to take if you’re approaching retirement, along with the tax implications.

1. Consider your post-career lifestyle

Begin by assessing what retirement might look like for you. For example, will you relocate to a different state or downsize by selling your home? Will you continue to work part-time?

Tax implications: Moving to a state with lower income or property taxes may stretch your retirement savings. If you sell your home and the capital gain exceeds $250,000 ($500,000 for married couples filing jointly), you’ll need to pay tax on the amount over the exclusion limit. And if you work part-time, your earnings could reduce your Social Security benefits (depending on your age) or push you into a higher tax bracket.

2. Assess your income sources

Social Security is a major income component for many retirees, and deciding when to start collecting benefits is crucial. The government will permanently reduce your monthly benefit if you begin collecting before your full retirement age. Conversely, if you delay benefits past your full retirement age (up to age 70), you’ll receive larger monthly payments.

Tax implications: Depending on your total income (including wages, retirement distributions and taxable investment income), up to 85% of your Social Security benefits could be taxable. Proper planning can help you manage taxable income and potentially reduce or avoid higher taxes on benefits.

If you’re fortunate enough to have a pension, find out your payout options. Some pensions offer lump-sum distributions, while others offer monthly annuity payments.

Tax implications: Most pension income is taxable at ordinary income tax rates.

In addition to retirement accounts, you may have savings and investments in brokerage accounts that can supplement your income.

Tax implications: Capital gains and dividends may be taxed differently than ordinary income, potentially at lower rates. Strategic withdrawals from taxable accounts and retirement accounts can help you manage your overall tax liability.

3. Develop a retirement account withdrawal strategy

Once you turn 73, you must take required minimum distributions (RMDs) from most tax-deferred retirement accounts such as traditional IRAs and 401(k)s. Failing to do so can result in hefty penalties.

Tax implications: RMDs are treated as ordinary income for tax purposes. If you don’t need them for living expenses, you might consider a qualified charitable distribution (QCD) to lower your taxable income. With a QCD, funds go directly from your retirement account to a qualified charity. They can count toward your RMD but aren’t included in your taxable income.

Distributions from Roth IRAs and Roth 401(k)s are generally tax-free (if holding-period requirements are met), making them valuable tools for reducing taxes in retirement. If you have traditional and Roth accounts, you might choose to take withdrawals from Roth accounts in years when you want to manage your tax bracket more carefully.

Tax implications: Roth accounts don’t require RMDs during the original owner’s lifetime.

4. Plan for health care expenses

Medical costs can significantly impact retirees. Medicare premiums, hospital visits, prescriptions and potential long-term care are just some of the expenses that can eat into your retirement savings without careful planning.

Tax implications: Health Savings Accounts (HSAs) allow for tax-deductible contributions, tax-free growth and tax-free withdrawals for qualified medical expenses. If you’re retiring soon and have a high-deductible health plan, maximizing HSA contributions can be a smart move. In addition, qualified medical expenses can sometimes be deducted if they exceed a certain percentage of your adjusted gross income (AGI).

Final thoughts

Retirement can span decades, and tax laws frequently change. By combining various withdrawal strategies and staying proactive about tax changes, you can tame the tax tangle. These are only some of the tax issues and implications. Contact us. We can help forecast tax outcomes under different scenarios and advise on strategies that complement your retirement goals.

Many business tax limits have increased in 2025

February 4, 2025

A variety of tax-related limits that affect businesses are indexed annually based on inflation. Many have increased for 2025, but with inflation cooling, the increases aren’t as great as they have been in the last few years. Here are some amounts that may affect you and your business.

2025 deductions as compared with 2024

Section 179 expensing:
- Limit: $1.25 million (up from $1.22 million)
- Phaseout: $3.13 million (up from $3.05 million)
- Sec. 179 expensing limit for certain heavy vehicles: $31,300 (up from $30,500)
Standard mileage rate for business driving: 70 cents per mile (up from 67 cents)
Income-based phaseouts for certain limits on the Sec. 199A qualified business income deduction begin at:
- Married filing jointly: $394,600 (up from $383,900)
- Other filers: $197,300 (up from $191,950)

Retirement plans in 2025 vs. 2024

Employee contributions to 401(k) plans: $23,500 (up from $23,000)
Catch-up contributions to 401(k) plans: $7,500 (unchanged)
Catch-up contributions to 401(k) plans for those age 60, 61, 62 or 63: $11,250 (not available in 2024)
Employee contributions to SIMPLEs: $16,500 (up from $16,000)
Catch-up contributions to SIMPLEs: $3,500 (unchanged)
Catch-up contributions to SIMPLE plans for those age 60, 61, 62 or 63: $5,250 (not available in 2024)
Combined employer/employee contributions to defined contribution plans (not including catch-ups): $70,000 (up from $69,000)
Maximum compensation used to determine contributions: $350,000 (up from $345,000)
Annual benefit for defined benefit plans: $280,000 (up from $275,000)
Compensation defining a highly compensated employee: $160,000 (up from $155,000)
Compensation defining a “key” employee: $230,000 (up from $220,000)

Social Security tax

Cap on amount of employees’ earnings subject to Social Security tax for 2025: $176,100 (up from $168,600 in 2024).

Other employee benefits this year vs. last year

Qualified transportation fringe-benefits employee income exclusion: $325 per month (up from $315)
Health Savings Account contribution limit:
- Individual coverage: $4,300 (up from $4,150)
- Family coverage: $8,550 (up from $8,300)
- Catch-up contribution: $1,000 (unchanged)
Flexible Spending Account contributions:
- Health care: $3,300 (up from $3,200)
- Health care FSA rollover limit (if plan permits): $660 (up from $640)
- Dependent care: $5,000 (unchanged)

Potential upcoming tax changes

These are only some of the tax limits and deductions that may affect your business, and additional rules may apply. But there’s more to keep in mind. With President Trump back in the White House and the Republicans controlling Congress, several tax policy changes have been proposed and could potentially be enacted in 2025. For example, Trump has proposed lowering the corporate tax rate (currently 21%) and eliminating taxes on overtime pay, tips, and Social Security benefits. These and other potential changes could have wide-ranging impacts on businesses and individuals. It’s important to stay informed. Consult with us if you have questions about your situation.

Looking ahead to 2025 tax limits as you prepare to file your 2024 return

January 29, 2025

Chances are, you’re more concerned about your 2024 tax return right now than you are about your 2025 tax situation. That’s understandable because your 2024 individual tax return is due to be filed by April 15 (unless you file for an extension).

However, it’s a good time to familiarize yourself with tax amounts that may have changed for 2025 due to inflation. Not all tax figures are adjusted annually for inflation, and some amounts only change when Congress passes new laws.

In addition, there may be tax changes due to what’s happening in Washington. With Republicans in control of both the White House and Congress, we expect major tax law changes in the coming months. With that in mind, here are some Q&As about 2025 tax limits.

I haven’t been able to itemize deductions on my last few tax returns. Will I qualify for 2025?

Beginning in 2018, the Tax Cuts and Jobs Act eliminated the ability to itemize deductions for many people by increasing the standard deduction and reducing or eliminating various deductions. For 2025, the standard deduction amount is $30,000 for married couples filing jointly (up from $29,200 in 2024). For single filers, the amount is $15,000 (up from $14,600 in 2024) and for heads of households, it’s $22,500 (up from $21,900 in 2024). If the total amount of your itemized deductions (including mortgage interest) is less than the applicable standard deduction amount, you won’t itemize for 2025.

If I don’t itemize deductions, can I claim charitable deductions on my 2025 return?

Generally, taxpayers who claim the standard deduction on their federal tax returns can’t deduct charitable donations.

How much can I contribute to an IRA for 2025?

If you’re eligible, you can contribute up to $7,000 a year to a traditional or Roth IRA. If you earn less than $7,000 during the year, you can contribute up to 100% of your earned income. (This is unchanged from 2024.) If you’re 50 or older, you can make an additional $1,000 “catch up” contribution (for 2024 and 2025).

I have a 401(k) plan with my employer. How much can I contribute to it?

In 2025, you can contribute up to $23,500 to a 401(k) or 403(b) plan (up from $23,000 in 2024). You can make an additional $7,500 catch-up contribution if you’re age 50 or older (for 2024 and 2025). However, there’s something new this year for 401(k) and 403(b) participants of certain ages. Beginning in 2025, those who are age 60, 61, 62 or 63 can make catch-up contributions of up to $11,250.

I occasionally hire a cleaning person. Am I required to withhold and pay FICA tax on the amounts I pay him or her?

In 2025, the threshold for when a domestic employer must withhold and pay FICA for babysitters, house cleaners, etc. who are independent contractors is $2,800 (up from $2,700 in 2024).

How much of my earnings are taxed for Social Security in 2025?

The Social Security tax “wage base” is $176,100 for this year (up from $168,600 in 2024). That means you don’t owe Social Security tax on amounts earned above that. (You must pay Medicare tax on all amounts you earn.)

How much can I give to one person without triggering a gift tax return in 2025?

The annual gift tax exclusion for 2025 is $19,000 (up from $18,000 in 2024).

How will the changes in Washington affect taxes this year and in the future?

We obviously can’t predict the future with certainty. The specifics of any new tax legislation depend on various political and economic factors. However, there are likely to be many changes in the next few years. President Trump and Republicans have signaled that they’d like to extend and possibly make permanent the provisions in the Tax Cuts and Jobs Act that expire after 2025. They’ve also discussed raising or eliminating the cap on the state and local tax deduction. Other proposals include expanding the Child Tax Credit and making certain types of income (tips, overtime and Social Security benefits) tax-free. Some of these tax breaks could become effective for the 2025 tax year.

Changes ahead

These are only some of the tax amounts and potential changes that may apply to you. Contact us if you have questions or need more information.

DOL rolls out new self-correction tool for employer-sponsored retirement plans

January 27, 2025

Qualified employer-sponsored retirement plans have become a fundamental fringe benefit for many employers today. However, if your organization sponsors one, you know how complex administration and compliance can be. It’s not uncommon for plan sponsors (such as employers) or administrators to make mistakes.

In 2002, the U.S. Department of Labor (DOL) introduced the Voluntary Fiduciary Correction Program (VFCP). It allows plan sponsors and administrators to voluntarily correct violations of the Employee Retirement Income Security Act (ERISA) and Internal Revenue Code committed under qualified plans, including 401(k)s and pensions. On January 14, the DOL’s Employee Benefits Security Administration (EBSA), which runs the VFCP, announced an important update.

Program mechanics

Historically, the VFCP has enabled plan sponsors and administrators to correct eligible transactions within 19 categories. Examples include:

Participant loans that fail to comply with plan provisions for amount, duration or level amortization,
Purchase or sale of assets from or to parties in interest,
Sale and leaseback of property to sponsoring employers,
Purchase or sale of assets from or to nonparties in interest at more or less than fair market value,
Payment of duplicate, excessive or unnecessary compensation, and
Improper payment of expenses by the plan.

To correct these violations, the program requires applicants to follow a series of steps. First, plan sponsors or administrators must identify ERISA violations and determine whether they fall within VFCP-covered transactions. Second, sponsors or administrators need to obtain a qualified valuation of plan assets.

Third, applicants must calculate and restore any losses or profits with interest, if applicable, and distribute any supplemental benefits to participants. They also need to pay all expenses incurred for correcting erroneous transactions, such as appraisal costs and fees for recalculating participants’ balances.

Finally, plan sponsors or administrators must file an application with the appropriate EBSA regional office that includes documentation showing evidence of the corrective action taken. If plan corrections satisfy the VFCP’s terms, the EBSA will issue a “no action” letter. This essentially means that the agency accepts the correction and won’t impose any further sanctions.

Self-correct tool

This year’s update to the VFCP introduces what the EBSA calls the “Self-Correction Component” (SCC). It’s essentially a tool that allows plan sponsors or administrators to fix certain transactions without going through the traditional VFCP application process. Instead, self-correctors can submit an SCC Notice through the EBSA’s web tool and provide the required information.

Only two types of transactions are currently eligible for the SCC. They are:

Delinquent participant contributions and loan repayments to pension plans, and
Qualifying inadvertent participant loan failures.

An EBSA fact sheet provides further details about each type of transaction. On the fact sheet, the agency also notes that it has made several other improvements to the VFCP. For example, additional correction options will soon be available for prohibited loan transactions and prohibited purchase and sale transactions involving plans. As of this writing, the effective date for all the EBSA’s 2025 VFCP revisions — including the SCC — is March 17, 2025.

Complexity and challenges

The forthcoming addition of the SCC represents an important, if incremental, improvement to the VFCP. It also highlights the complexity of offering a qualified retirement plan and the challenges of complying with ERISA and the Internal Revenue Code. Contact us for help identifying and assessing the costs, risks and potential upsides of any fringe benefits you’re administering or considering.

Important 2025 amounts for employer-sponsored retirement plans

January 14, 2025

Does your organization sponsor a qualified retirement plan for employees? If so, the new calendar year will likely bring inflation-based adjustments to more than one limit or threshold associated with your plan. Here are some important 2025 amounts to be aware of:

Contribution limits to 401(k)s and other defined contribution plans. The annual limit on contributions to 401(k), 403(b) and 457 plans will increase to $23,500 (up from $23,000 in 2024). The annual limit for Savings Incentive Match Plan for Employees (SIMPLE) IRAs will rise to $16,500 (up from $16,000 in 2024).

Catch-up contributions. The annual limit on catch-up contributions for 401(k), 403(b) and 457 plans, which are available to participants age 50 or over, will generally remain at $7,500. However, under a provision of the SECURE 2.0 law, a higher catch-up contribution limit of $11,250 will apply to participants who are 60, 61, 62 or 63 in 2025.

The annual catch-up contribution limit for those age 50 or over with SIMPLE IRAs will generally remain at $3,500. However, also under SECURE 2.0, a higher catch-up contribution limit of $5,250 will apply to SIMPLE IRA owners who are 60, 61, 62 or 63 in 2025.

Contribution limit to Simplified Employee Pension Individual Retirement Accounts (SEP-IRAs). The annual limit for SEP-IRAs will be 25% of an employee’s total compensation, up to $70,000 (an increase from $69,000 in 2024). Catch-up contributions aren’t allowed for these accounts.

SEP-IRA participation. The threshold for determining participation in a SEP-IRA will remain at $750.

Compensation for qualified retirement plan purposes. The annual limit on the maximum compensation that can be taken into account for certain retirement plan contributions and deductions will rise to $350,000 (up from $345,000 in 2024).

Highly compensated employees. The threshold for determining who’s a highly compensated employee will increase to $160,000 (up from $155,000 in 2024).

Key employees. The threshold for defining who’s a key employee under the top-heavy rules will rise to $230,000 (up from $220,000 in 2024).

The retirement savings contributions credit. The adjusted gross income limit for determining whether certain individuals are eligible for this tax credit, which is also known as the saver’s credit, will increase to:

$79,000 (up from $76,500 in 2024) for taxpayers who are married and filing jointly,
$59,250 (up from $57,375 in 2024) for those filing as a head of household, and
$39,500 (up from $38,250 in 2024) for all other taxpayers.

“Control” employees. The amounts for determining who’s a control employee, a classification relevant to valuations of employer-sponsored fringe benefits, will increase to $140,000 (up from $135,000 in 2024) for officers and $285,000 (up from $275,000 in 2024) for other employees.

Social Security taxable wage base. The annual cost-of-living adjustment to the maximum amount of earnings subject to Social Security tax, which is relevant for various benefit purposes, will increase to $176,100 (up from $168,600 in 2024).

As you can see, most of these amounts have been adjusted upward to account for inflation. Carefully note any changes that apply to the plan you sponsor and, as necessary, revise employee communications, plan procedures and administrative forms. Contact us for further information, as well as for help identifying and analyzing costs associated with your plan.