In late 2024, the IRS released its inflation adjustments for 2025 related to personal income tax, retirement contributions, estate taxes and Social Security benefits. And in July of 2025, Congress passed the “One Big Beautiful Bill” Act, which prompted a few additional changes that will impact many Americans’ tax bills in 2025. Here’s what you need to know, and how you can work with your advisor to stay prepared:
Personal Income Tax
The standard deduction has increased in 2025, which means a bigger tax break for you, as more of your income is automatically exempt from tax.
The new standard deductions for 2025:
Married filing jointly: $31,500
Single taxpayers and married individuals filing separately: $15,750
Heads of households: $23,625
Additionally, retired married couples receive an additional standard deduction of $1,600 for each spouse age 65+ (single individuals receive an additional $2,000). Along with that, Congress’ new reconciliation bill created a bonus deduction of $6,000 per year (from 2025-2028) for each taxpayer aged 65+ at the end of the year. This applies to both those who itemize and take the standard deduction, and phaseout ranges apply.
Takeaway:The increase in the standard deduction will make it more difficult for some to itemize their deductions in 2025, which means your tax payments, mortgage interest and charitable contributions are less likely to provide you a tax benefit. However, the increased limit to the state and local tax deduction could have the opposite effect, making it easier to itemize. While bunching your charitable contributions may be an effective strategy to use here, new provisions created by Congress’ reconciliation bill make techniques around mitigating taxes very dependent on each individual situation – so be sure to connect with your Baird Financial Advisor to develop the best strategy for your situation.
Retirement Savings Contributions
The 401(k) contribution limit has risen by $500, to $23,500. The overall savings limit, referred to as the 415 limit, has also increased $1,000 to $70,000. This includes your own savings plus any matching or profit-sharing contributions from your employer. While catch-up contributions for participants aged 50 and up remain at $7,500, the IRS has introduced a new “super catch-up” contribution limit for older employees. New in 2025, individuals aged 60-63 can contribute an additional $3,750 to their employer-sponsored retirement plans, for a total catch-up amount of $11,250.
Traditional and Roth IRA contribution limits hold at $7,000, though the thresholds on who can qualify for a Roth contribution have changed: Married couples with income below $236,000 can make a full Roth contribution in 2025, as can singles with income below $150,000. Those are up from $230,000 and $146,000, respectively, in 2024.
Takeaway:Make sure you assess your retirement contributions to ensure you’re maximizing your benefits. Keep in mind the phaseout ranges have changed; couples with income over $246,000 (and singles over $165,000) are not eligible to contribute to a Roth IRA in 2025. Barring any legislative or other changes, it remains an option for those under the applicable income levels.
Social Security
Social Security and Supplemental Security Income (SSI) benefits have increased 2.5% in 2025, an average increase of almost $48 per month. This adjustment is notably smaller when compared to the recent years’ 5-8% increases that were in response to high inflation.
Takeaway:While inflation has slowed compared to the start of 2024, prices continue to be higher than previous years and may require you to review your cash flow strategy for the year to come.
As always, retirees have many factors to consider when choosing their start date for benefits – including how your start date could impact the surviving spouse – so it’s best to weigh all your options with your Baird Financial Advisor before deciding when to begin benefits.
Estate Taxes and Gifting
The gift tax annual exclusion has increased from $18,000 to $19,000 for 2025 – the fourth consecutive year the gift limit has increased. Individuals can gift up to this amount to any number of individuals in 2025 without incurring gift tax or using any of the taxpayer’s lifetime exemption. Married couples can each use this exemption, allowing them to gift up to $38,000 annually to each recipient in 2025.
In addition, the lifetime exemption amount increased $380,000 per person, up to $13.99 million per individual. This increase means that a married couple can shield a total of $27.98 million from federal estate or gift tax. Those individuals who used their full exemption in recent years will now be able to make an additional tax-free gift to family members or others.
Takeaway: Before the passing of the “One Big Beautiful Bill” Act, the lifetime gift and estate tax exemption was set to drop to $7 million in 2026. Now, instead of decreasing, that exemption amount will increase to $15 million in 2026, with inflation adjustments after that. This increase is especially helpful if your net worth is between $7 million and $15 million (or between $14 and $30 million for couples). If that’s you, you no longer have to rush to make large gifts in 2025 to avoid future taxes. Planning around gift and estate taxes will now be most vital for families with very large estates. However, basic estate planning – such as reviewing powers of attorney and beneficiary designations – is still important for all individuals.
Although these changes won’t affect you until you file your 2025 taxes in the spring of 2026, they can be of tremendous help in your tax planning over the course of the year. Remember that certain kinds of planning strategies can take months or even years to implement. To get out in front of your taxes for next year and beyond, reach out to your Baird Financial Advisor.
Editor’s Note: This article was originally published November 2024 and was updated August 2025 with more current information.
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