Amid the global turmoil of this new year comes a number of exciting developments that will help many people – especially retirees and those close to retirement – tap into their savings, reduce prescription drug costs, keep more of their income and, potentially, grow it. their credit score.
Fair warning, though: It’s complicated.
The details of the changes, related in part to the phasing out of provisions from SECURE 2.0 and the 2022 Deflation Act, can be confusing. But the payoff — and, in some cases, the possible fine — can be huge.
Here’s a roundup of the most important changes to retirement savings plans, Medicare, Social Security and consumer laws that could affect your finances in 2025.
Boost Thanks to Retirement
For the first time, people ages 60 to 63 will be able to increase catch-up contributions to 401(k)s and similar workplace plans above the average for other savers age 50 and older, fueling the push to accelerate savings in later years. retirement.
The new contribution limit for this age group in 2025: $11,250, compared to $7,500 for workers age 50 to 59 or 64 and older. That’s up from an average of $23,500 in 2025 for savers under 50, bringing the total allowed for workers ages 60 to 63 to $34,750 this year.
“People in this stage of life may be in their prime earning years, may have their mortgages paid off and often have college funding in the rearview mirror,” said Christine Benz, director of personal finance and retirement planning at Morningstar. “That would create a path for more savings.”
However, the new high-tenure offer may be difficult to afford for many workers, as traditional tenancy offers already exist. Just 15 percent of all eligible 401(k) savers made follow-up contributions in 2023, compared to more than half of those who earned $150,000 or more, Vanguard reports.
“Unfortunately, the people who are most equipped to make these extra contributions don’t need it as much, and the people who need it most are the least able to do so,” said Ms. Benz, author of “How to Retire.”
There are several other changes to tax-advantaged accounts that will benefit retirement savers this year. Includes a small increase in income limits to qualify for Roth retirement accounts, health savings accounts, and deductible IRAs for people covered by a workplace retirement plan. The income limit also increases for the saver’s credit, costing up to $1,000 for singles earning $39,500 or less, and $2,000 for married couples filing jointly making $79,000 or less.
In addition, the standard contribution limit for 401(k) plans increased by $500, up from $23,000 last year.
“Individually, these are great changes, but, taken together, they provide a real boost for people saving for retirement,” said Amber Brestowski, head of advice and client experience at Vanguard Investment Group.
Cap on Medicare Drug Bills
In the real version of the game for millions of Medicare enrollees — especially those who take expensive specialty drugs to treat health conditions, such as rheumatoid arthritis, multiple sclerosis and some cancers — the out-of-pocket costs of prescription drugs covered under Part D will be billed. limited to $2,000 this year.
The new cap, which went into effect last year, replaces a system where people with Medicare Part D typically had to spend more than $3,000 before qualifying for catastrophic coverage, where the insurer would pick up most of the drug’s cost, leaving patients with a 5 percent co-pay. The average price of specialty drugs is about $7,000 a month and many run $10,000 a month or more.
“Five percent of the grand total is still a big number,” says Philip Moeller, author of “Get What’s Yours for Medicare.”
Another 3.2 million Medicare enrollees are expected to save money by 2025 because of the cap, and about 1.4 million enrollees will save $1,000 or more, according to AARP. The impact is expected to increase over time, as drug prices rise and more expensive new drugs come to market.
“In addition to those who will benefit directly, people who do not use expensive drugs will have peace of mind knowing that if, heaven forbid, they get cancer or another incurable disease where expensive drugs are used for treatment, they will succeed. “They have to go to the pharmacy empty-handed because they can’t pay the cost of the medicine or put it on a credit card and end up in huge medical debt,” said Juliette Cubanski, deputy director of the Medicare policy program at KFF, a nonprofit that researches health care policy.
Also new this year: People with Part D have the option to spread their payments over the year. But if you can’t swing, Mr. Moeller said, pay all expenses upfront to get annual drug bills out of the way and avoid paperwork.
Maximum Income Limits for Newly Retired Persons
Some 60 percent of workers take Social Security before they reach the age when they can collect full benefits (66 and 10 months in 2025). With a small break for many of those who continue to work full-time or part-time, the amount that most can earn before the government temporarily cuts their benefits rises modestly to $23,400, up from $22,320 in 2024.
The income limit is more generous for those who will reach full retirement age this year: $62,160, up from $59,520 in 2024.
Here’s how the program works: For every $2 early retirees earn above the income limit, they lose $1 in Social Security benefits until they reach full retirement age. Then in the calendar year they reach full retirement age, they will lose $1 in benefits for every $3 in earnings from work. When they reach full retirement age, Social Security pays back the withheld money, adding it over time to the monthly benefit.
“It is important to remember that the reduction in benefits is temporary and will be refunded during your retirement,” said Mr. Moeller, author of “Aging in America.” “It’s an inconvenience, it’s not a permanent loss, and it shouldn’t stop you from working.”
New Rules for Withdrawing Inherited IRAs
The prize – the booby prize may be more appropriate – for the most confusing financial changes of 2025 to the newly clarified IRS rules governing how you need to withdraw money from an inherited IRA ” said Ms. Brestowski.
The rules apply to IRAs inherited after 2019 by people other than a spouse, a minor child or someone with a disability or terminal illness — typically, older children and grandchildren — and require that all money in the account be withdrawn within 10 years from the start. death of owner.
Under the guidelines, if the deceased was not required to take minimum distributions from the account (starting at age 73, currently), the heir can withdraw money at any time during the 10-year period as long as there is no expiration date. But if the original owner was to take distributions every year, the beneficiary of the account must, too, beginning the year after the original owner’s death.
Penalty for not withdrawing correctly: 25 percent of the amount you should have withdrawn, or 10 percent if you correct the error within two years.
Deciding how much to withdraw from the account, and when, during the 10-year withdrawal period is also complicated. Research from Vanguard suggests that withdrawing the same amount every year for each of the 10 years usually results in a much lower tax rate. But that may not be the best strategy for heirs whose priority is to maximize the value of the account.
“The most important thing for people with IRAs to do, honestly, is to get customized advice from a financial professional based on your situation,” Morningstar’s Ms. Benz said.
Medical Debt From Credit Report
There’s a last-minute gift from the Biden Consumer Financial Protection Bureau to the one-quarter of Americans who owe money on past-due health care bills: a ban on including medical debt on credit reports. In a decision announced this month, the agency also barred creditors from considering certain medical information in loan decisions.
The new rules, according to the White House, are expected to erase nearly $50 million in medical debt from the credit reports of more than 15 million Americans. It would also raise their credit scores by an estimated 20 points and could lead to 22,000 more loan approvals per year, White House officials said.
“This change provides a more accurate picture of creditworthiness by eliminating debt that people have no control over,” said Allison Sesso, president and CEO of the nonprofit Undue Medical Debt.
However, there may be unintended consequences. “In the long run, the biggest benefit for consumers is that they no longer have to worry about medical debt hurting their credit scores,” said Craig Antico, CEO of ForgiveCo, a nonprofit that works with companies to forgive consumer debt. “Over time, however, this could lead to prepayment requirements as providers face patient collection challenges.”
Then again, what the authorities give, others may take away. President-elect Donald J. Trump and Republicans in Congress have already signaled their intention to roll back certain regulations and their displeasure with the CFPB. Two lawsuits challenging the decision have already been filed against members of the debt collection industry.
As a result, the changes, which were expected to go into effect in 60 days, may be delayed – or, possibly, put in place. “Our hope is that the incoming administration realizes that medical debt is a trap that almost anyone can fall into,” said Ms. Sesso. “Only time will tell.”
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