New year, new financial landscape. As we step into 2025, CPA practice owners are facing a mixed bag of changes that could reshape their retirement strategies. While the IRS opens up some generous new contribution opportunities, they’re also tightening the belt on high earners through Social Security adjustments. Let’s unpack what these changes mean for your practice and your future.
Updates to IRA Income Limits for 2025
The IRS has increased the income phase-out limits for Traditional IRAs. The phase-out refers to the gradual reduction of your tax-deductible contributions once your income exceeds certain thresholds, eventually eliminating the deduction entirely at higher income levels. For example, if you earned $78,000 last year, you would have faced a reduced deduction. This year, assuming you earn the same amount, you won’t face any deduction limitations.
Alternatively, if you faced limitations last year when contributing to a Roth IRA, this year may be your chance to take advantage of the higher limits. Higher thresholds mean more CPA practice owners may qualify to contribute directly to a Roth IRA in 2025, especially if their adjusted gross income is near the previous thresholds.
| Tax Filing Status | Old Range | New Range |
|---|---|---|
Single Taxpayers Covered by a Workplace Retirement Plan |
$77,000 - $87,000 |
$79,000 - $89,000 |
Married Couples Filing Jointly (Spouse Making Contribution Covered by a Workplace Retirement Plan) |
$123,000 - $143,000 |
$126,000 - $146,000 |
| Tax Filing Status | Old Range | New Range |
|---|---|---|
Singles and Heads of Household |
$146,000 - $161,000 |
$150,000 - $165,000 |
Married Couples Filing Jointly |
$230,000 - $240,000 |
$236,000 - $246,000 |
2025 Workplace Retirement Plan Contribution Increases
As a practice owner, you have multiple retirement vehicles available. For 2025, here are the key numbers you need to know:
| Contribution Type | 2025 Limit |
|---|---|
|
Standard Contribution
401(k), 403(b), and 457(b) plans
|
$23,500
+$500 from 2024
|
|
Standard Catch-Up (Age 50+)
Additional contribution allowed
|
$7,500
Same as 2024
|
|
Super Catch-Up (Ages 60-63)
Replaces standard catch-up amount
|
$11,250
New for 2025
|
|
Maximum Total (Ages 60-63)
Base + Super catch-up combined
|
$34,750
Highest possible contribution
|
|
Standard Contribution
SIMPLE IRA
|
$17,500
+$500 from 2024
|
|
Catch-Up Contribution (Age 50+)
SIMPLE IRA
|
$4,500
Unchanged
|
|
Maximum Contribution
SEP IRA
|
$70,000
+$1,000 from 2024
|
|
Percentage of Compensation Limit
SEP IRA
|
25%
|
Supersize Catch-Up Provision
One of the most significant updates is a new “supersize” catch-up provision for ages 60-63, which increases the standard catch-up amount from $7,500 to $11,250.This timing often coincides with the peak earning years for many CPAs, presenting a potentially lucrative opportunity to accelerate retirement savings.
Be aware, though, that as of 2025, for those who earn at least $145,000 per year, all ‘catch-up’ contributions must be made to a ‘Roth’ account–and that’s not the only change in regards to limits.
So, if you’re in the 60-63 bracket, you can contribute up to $34,750 to your 401(K), TSP, 457, or 453 plan. That’s about an additional $3,750 in catch-up contribution space during these crucial earning years. Keep in mind, if your practice sponsors a retirement plan like a 401(k), you’ll need to ensure the Roth catch-up rule we mentioned earlier gets incorporated into plan administration starting in 2025.
So what kind of difference could an extra $3,750 a year for four years mean?
Real Impact Analysis
Assuming a 6% annual return and maximum contributions made from age 50 until retirement at age 65, how do regular contributions compare to standard catch-up contributions and supersize catch-up contributions? Additionally, how much would each scenario grow by ages 67, 77, and 87 if the funds were left to continue compounding after retirement?
To calculate these figures, each month, contributions are added to the balance (if under age 65), and the total is grown by 0.5% to reflect monthly investment returns. This compounding process continues each month until each target age.
| Retirement Age | No Catch-Up Contributions | With Standard Catch-Up | With Super Catch-Up | Additional Wealth from Super Catch-Up |
|---|---|---|---|---|
Age 67 |
$648,375 |
$855,304 |
$875,737 |
$20,433 over standard catch-up |
Age 77 |
$1,179,652 |
$1,556,137 |
$1,593,313 |
$37,176 over standard catch-up |
Age 87 |
$2,146,255 |
$2,831,230 |
$2,898,869 |
$67,639 over standard catch-up |
The table above is for educational purposes only. Keep in mind that investment returns are never guaranteed. Your situation and results will differ.
As we can see in the above table, the four-year supersize window can add nearly $70,000 more compared to standard catch-up contributions by age 87, which could be used, among other ways, to improve one’s lifestyle, help pay for medical costs, or leave as an inheritance for a loved one.
Social Security Updates
The Social Security Administration has also dropped new numbers for 2025, and there are some important updates you’ll want to know about. Let’s break down the two big ones:
Cost-of-Living Adjustment (COLA): Retiring this year or already retired? Social Security checks are getting a bump in 2025. However, with inflation finally cooling down to what the Fed’s been aiming for, benefits will only increase by 2.5%. For most people, that means about $50 extra in their monthly check. Nothing to write home about, but better than nothing. And at least inflation is under control!
Maximum Taxable Earnings: Here’s the flip side – if you’re a higher earner, you’ll be paying Social Security taxes on a bigger chunk of your income next year. The tax cap is jumping from $168,600 to $176,100. Simply put, if you make more than the current cap, you’ll be contributing a bit more to the system in 2025–about $458.80 more. While it may not be a lot, it may still warrant an adjustment in your financial plan.
Looking Ahead
Let’s be realistic—tax season is approaching, and your calendar is already filling up with client meetings and compliance deadlines. While these 2025 retirement updates offer potentially improved opportunities to boost your savings strategy, finding time to optimize your own financial plan might feel impossible right now, at least on your own. Fortunately, we’re here to help you adjust your plan as necessary and help you make the most of 2025.
Ready to discuss how these changes affect your specific situation before tax season is in full swing? Let’s talk about integrating these new limits into your overall retirement strategy while maintaining focus on what you do best – serving your clients. Just click the button below!
