RETIREMENT TAX CHANGES IN 2025
How Secure 2.0 and OBBBA will affect 2025 retirees
Secure 2.0’s planned updates, in addition to the “One Big Beautiful Bill” Act (OBBBA) changes to the tax landscape, will continue to shift retirement planning rules in 2025 and beyond. Below are several key areas high-net worth retirees should consider to optimize their taxable income and tax liability.
GIFT AND ESTATE TAXES
Prior Tax Cuts and Jobs Act (TCJA) extensions raised the federal lifetime gift and estate tax exemption to nearly $14 million per individual and approximately $28 million for married filing join (MFJ). This limit was scheduled to sunset for 2025 and revert to pre-TCJA amounts, cutting them by about half in 2026. The OBBBA made the limit permanent (unless otherwise directly altered in the future) and raised the exemptions to $15 million for individuals and $30 million for MFJ filers. Note that these limits are only federal. States impose their own limits on gifts and estates.
Key Takeaway: Elimination of uncertainty to the gift and estate limits allows high-net-worth individuals to plan ahead; optimizing the funding of their trusts efficiently and accelerating gifting.
REQUIRED MINIMUM DISTRIBUTIONS
The Internal Revenue Service (IRS) finalized regulations applying to Required Minimum Distributions (RMDs) in 2025. Under SECURE 2.0, the RMD age is now increased to 73 for taxpayers born from 1951 to 1959. In addition, beginning in 2033, the RMD age for those born in 1960 and after will be 75.
Key Takeaway: The RMD age increase to 73 allows retirees to wait longer before they are required to start withdrawing money from their retirement accounts. This strategy can help reduce taxable income in the short term, keeping you in a lower tax bracket or avoiding extra taxes on social security; however, if you wait too long, your retirement account balance keeps growing, which means your future required withdrawals will be larger.
QUALIFIED CHARITABLE DISTRIBUTIONS LIMITS
For the 2025 tax year, the annual limit on qualified charitable distributions (QCDs) made outright to a qualified charity is $108,000, and the limit for a one-time QCD donation to a charitable remainder trust (CRT) or charitable gift annuity (CGA) is $54,000.
Key Takeaway: Taxpayers that have earned significant savings in their IRAs may be required to make larger RMDs, which could bump them into a higher tax bracket and increase tax liability. If you are 70½ or older and plan to make significant charitable donations, a strategy is to do so with QCDs, which are not included in taxable income. The limit increases allow you to donate more to charity directly from your IRA without paying income tax on the withdrawal.
ENHANCED CATCH-UP CONTRIBUTIONS (2025)
Under Secure 2.0, 401(k) filers aged 60-63 receive an enhanced catch-up limit for 2025. It is important to note that catchups are optional, and you need to verify whether your plan allows for such contributions.
For plans that do allow for catchups, these special 60-63 provisions will be as follows:
| 401(k), 403(b), and 457(b) Contribution Limits in 2025 by age range | |||
|---|---|---|---|
| Participant Age in 2025 | 2025 Standandard Annual Deferral Limit | Catch-Up Contribution for 2025 | Total 2025 Annual Contribution Limit |
| Below 50 | $23,500 | – | $23,500 |
| 50-59 | $23,500 | $7,500 | $31,000 |
| 60-63 | $23,500 | $11,250 | $34,750 |
| 63 and Older | $23,500 | $7,500 | $31,000 |
NEW SENIOR BONUS DEDUCTION
Beginning in 2025 and through 2028 tax years, taxpayers age 65 or older may claim a new Senior Bonus Deduction of up to $6,000 per person ($12,000 for married couples when both are 65+).
Key Takeaway: This deduction is in addition to the regular standard deduction and the existing age-65 add-on—even for taxpayers who itemize.
Example for 2025 (Married, both 65+):
- Standard Deduction: $30,000
- Existing Age-65 Add-On: $6,200 ($3,100 each)
- Senior Bonus Deduction: $12,000
Total possible deductions are up to $48,200 before any other adjustments. This creates a meaningful increase in available deductions through 2028.
TAX-FREE 529 TO ROTH IRA ROLLOVERS
SECURE Act 2.0 allows unused 529 plan funds to be rolled into a Roth IRA for the same beneficiary, up to a $35,000 lifetime limit, provided the 529 has been open for at least 15 years. Something to consider is that the rollover amount is subject to the annual Roth IRA contribution limits (for 2025: the limit is $7,000 for taxpayers under 50 and for taxpayers 50 and older the limit is $8,000.) This means that if you want to roll over the full $35,000, it will take several years to do so, depending on the annual limits. Also, the beneficiary must have earned income at least equal to the amount being transferred in any given year.
Key Takeaway: Families can redirect leftover education savings toward a retirement plan for the beneficiary that is tax-free and penalty-free, rather than making unqualified withdrawals from the 529, which typically incur taxes and penalties.
LOOKING AHEAD
EXPANDED DISABILITY ELIGIBILITY AGE REQUIREMENTS FOR ABLE ACCOUNTS (2026)
Starting in 2026, eligibility for 529 ABLE (529A) accounts expands to individuals who Became disabled before age 46 (up from the current age-26 requirement). This change will significantly broaden access to these tax-advantaged accounts.
PENALTY-FREE QUALIFIED LONG-TERM CARE DISTRIBUTIONS (2026)
Beginning in 2026, employer-sponsored retirement plans [e.g., 401(k), 403(b)] may allow penalty-free withdrawals for long-term care insurance premiums.
- Maximum annual amount: $2,500 (indexed for inflation) or
- 10% of the vested account balance, whichever is less
- Applies only to employer plans, not IRAs
MANDATORY ROTH CATCH-UP CONTRIBUTIONS (2026)
Employees age 50+ earning more than the IRS threshold in the prior year (currently $145,000, indexed) will be required to make Roth (after-tax) catch-up contributions to their employer retirement plan.
Key Takeaway: High-income earners will pay tax on catch-up contributions now but benefit from tax-free growth and retirement withdrawals later.
PLAN AHEAD FOR THESE CHANGES
With multiple new provisions taking effect between 2025 and 2028, early planning is critical. These updates may impact your tax liability, retirement savings strategy, and long-term financial planning.
The Price Kong team is here to help you evaluate opportunities, adjust your strategy, and make the most of these new rules. Contact us to get started.