The Tax Blotter - Nov. 2024 - CPA Practice Advisor

The Tax Blotter is a selection of briefs on the latest tax legislation and Tax Court rulings.

The IRS has announced its annual inflation adjustments for qualified retirement plans and IRAs for 2025 in conjunction with recent tax law changes.

Salt away more in 401(k)s. The limit on employee deferrals to 401(k) plans, the most popular type of employer-provided qualified retirement plan in the land, is increasing from $23,000 in $2024 to $23,500 in 2025. If you’re age 50 or older, you can kick in an extra $7,500 “catch-up contribution” (the same as in 2024). The deferrals grow and compound without any current tax. Tax bonus: Under the SECURE 2.0 law, 401(k) participants who are age 60 through 63 can defer up to an extra $11,250, beginning in 2025,

Contribute to an IRA. An IRA can be a valuable retirement savings supplement to a 401(k) or other qualified retirement plan. The annual limit for both traditional and Roth IRA deferrals for 2025 remains the lesser of annual income or $7,000 for most individuals and $8,000 if you’re age 50 or older (the same as in 2024). Note that each spouse can contribute up to $7,000 per year for a total of $14,000 (or $16,000 if both are age 50 or older). The deadline for contributions for the 2024 tax year is April 15, 2025, even if you obtain a six-month filing extension.

Stay within the limits. Both types of IRAs are affected by other inflation changes. Deductions for contributions to traditional IRAs are phased out if you actively participate in an employer plan and adjusted gross income (AGI) exceeds an annual limit. But deductible contributions and earnings are taxable when paid out. For 2025, the phase-out begins at $79,000 of AGI for single filers and $126,00 for joint filers. Roth IRA contributions are never deductible, but payouts may be 100% tax-free. The ability to contribute to a Roth in 2025 begins to phase out at $150,00 for single filers and $236,000. Other rules may apply.

Taxes