2025: The Year of Intentionality
From electing a new president to the ongoing discussion about the future of our tax code, 2024 was a year that left Americans on the edge of their seats. And while the beginning of 2025 may not have brought all the answers yet, it has provided clear opportunities on how you can be intentional with your personal wealth plan for what’s to come.
But before we discuss where you can best focus your wealth planning efforts this year, let’s assess what’s new in 2025:
Super Catch-Up Contributions
For those with employer-sponsored retirement plans, regular catch-up contributions for workers aged 50 and older have long been an opportunity to super charge retirement savings. Beginning this year, employees aged 60-63 can also annually contribute an additional $3,750 to their 401(k) plan.
Finalization of Inherited IRA Distribution Rules
After years of back-and-forth, the IRS will now enforce that the majority of beneficiaries who inherited a retirement account in 2020 or later must:
- Take minimum distributions from that account this year (and in years following)
- Empty that account within 10 years of the owner’s death
Like many rules, there are quite a few exceptions to this – so if you’re the beneficiary of an IRA, contact your Baird Financial Advisor to determine exactly how these rules will impact you.
The Social Security Fairness Act
In early January, the Social Security Fairness Act was signed into law, eliminating Social Security provisions that previously reduced benefits for beneficiaries with certain pensions. With this act in place, many retirees will see larger benefits this coming year. The Social Security Administration has yet to announce how they will implement this law, but your advisor will keep you updated as more information becomes available.
Tax Adjustments for Inflation
Inflation has slowed a bit, but its impact on our tax system remains. This year, the income and capital gain tax brackets have shifted up, which means more income can be taxed at lower rates – but the adjustments don’t stop there. The most notable increases include the standard deduction, qualified retirement plan contribution limits, charitable contribution limits, annual gifting exclusion and the lifetime gift and estate tax exclusion. Your Baird Financial Advisor has access to the latest tools to evaluate your most recent tax return to ensure your plan is optimized against these changes.
All Eyes on Washington
If you’re wondering about the status of the Tax Cuts & Jobs Act’s scheduled 2026 sunset, you’re not alone. Significant changes to our income and estate tax systems could be on the horizon, but any new legislation will likely involve a lengthy process with multiple proposals and revisions. Proposed bills can change up until they’re passed, so it’s important not to make preemptive decisions. Plus, it’s unlikely changes will take effect this year, so you and your advisor will hopefully have plenty of time to plan accordingly.
In the world of wealth management, there will always be unknowns – but in any year, it’s important to focus on what you can control.
Setting Yourself Up for Success in 2025
In the world of wealth management, there will always be unknowns – but in any year, it’s important to focus on what you can control. By thoughtfully planning with your Baird Financial Advisor, you can leverage key developments in 2025 to intentionally maximize your opportunities in the new year.
Start by doing a quick check-in on your wealth plan and its risk exposure by evaluating your:
- Emergency fund and liquidity situation
- Insurance coverage
- Estate plan
Then, evaluate your long-term goals by:
- Ensuring you’re maximizing retirement savings
- Checking in on education savings goals
- Evaluating your tax exposure
No one can be certain of what 2025 will bring, but what we do know is that by…
- Only trying to control what is within your influence
- Basing financial decisions on facts rather than emotions
- Being intentional on where you focus your time and energy
…you can set yourself up for success. And when the media gets loud, or the markets get volatile, lean on your Baird Financial Advisor for a steady hand.
