The new year offers a great opportunity to reassess your financial strategies, especially considering recent IRS updates and anticipated policy changes under the new administration. Implementing informed financial practices now can lead to a prosperous future.
1. Set Clear Financial Goals
Defining your financial objectives can provide direction and help prioritize your actions. According to Ballentine, in creating a successful financial plan is to set obtainable financial objectives. Consider categorizing your goals into:
- Short-Term Goals
- Building an emergency fund, saving for a vacation, or paying off credit card debt.
- Mid-Term Goals
- Purchasing a home, starting a business, or funding education.
- Long-Term Goals
- Planning for retirement, wealth accumulation, or estate planning.
2. Employer-Sponsored Retirement Plans
If you have access to a 401(k), 403(b), or 457 plan through your employer, now is the time to ensure you’re maximizing contributions and leveraging any available employer match.
- Contribution Limits:
- For 2025, you can contribute up to $23,500.
- If you’re 50 or older, take advantage of the additional $7,500 catch-up contribution, allowing a total contribution of $31,000.
- Special Catch-Up Contributions:
- Workers aged 60 to 63 can contribute an additional $11,250 under the SECURE 2.0 Act, further enhancing their retirement savings.
- Employer Match:
- Many employers offer a matching contribution, effectively doubling a portion of your contributions. For example, if your employer matches 50% of the first 6% you contribute, that’s additional money added to your account.
- To maximize this benefit, contribute at least the percentage required to receive the full match.
3. Options for the Self-Employed
If you’re self-employed, you have several retirement account options tailored to your needs.
· Solo 401(k):
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- Contribution limits are the same as traditional 401(k)s, allowing up to $23,500 in employee contributions, plus an additional $7,500 for catch-up contributions if you’re 50 or older.
- As the employer, you can contribute up to 25% of your net earnings, up to a combined total limit of $70,000 in 2025 (or $77,500 for those 50 and older). Those from the age of 60 to 63 can have aggregate contributions to up to $81,250.
· SEP IRA:
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- A Simplified Employee Pension (SEP) IRA allows contributions of up to 25% of your net earnings from self-employment, with a cap of $70,000 in 2025.
· Traditional and Roth IRAs:
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- Contribution limits for 2025 remain at $7,000, with an additional $1,000 catch-up contribution for those 50 and older, totaling $8,000.
- A Roth IRA may also provide tax-free growth and withdrawals in retirement, depending on your income eligibility.
Why It Matters
Taking full advantage of these contribution limits not only helps you build a robust retirement fund but also provides significant tax benefits:
- Pre-tax contributions to traditional accounts reduce your taxable income for the year.
- Roth accounts grow tax-free, offering benefits in retirement when you make qualified withdrawals.
Whether you’re an employee or self-employed, the updated 2025 contribution limits offer an opportunity to strengthen your retirement strategy.
Whether you’re an employee or self-employed, the updated 2025 contribution limits offer an opportunity to strengthen your retirement strategy. Consider meeting with your HR department to adjust your contributions or consult with us to explore the best options for your unique situation.
4. Build or Strengthen Your Emergency Fund
An emergency fund acts as a financial safety net for unforeseen expenses. Aim to save three to six months’ worth of essential living expenses. Starting with small, regular contributions can gradually lead to a substantial fund.
5. Pay Down High-Interest Debt
High-interest debts can impede financial progress. Develop a repayment plan using strategies such as:
- Debt Snowball Method- Focus on paying off the smallest debts first to build momentum.
- Debt Avalanche Method- Prioritize debts with the highest interest rates to minimize overall interest payments.
6. Automate Your Savings
Automating contributions to your savings account can ensure consistency and discipline. These effortless, regular contributions can lead to a large fund over a period of time.
7. Stay Informed on Tax Changes
The IRS has released inflation adjustments for tax year 2025, including updates to tax brackets and standard deductions.
- Standard Deductions
- Single filers: $15,000, up from $14,600 in 2024.
- Married couples filing jointly: $30,000, an increase from $29,200.
- Heads of households: $22,500, up from $21,900.
8. Possible Policy Changes Under the New Administration
With President-elect Donald Trump set to take office, several tax policy changes are possible.
- Extension of 2017 Tax Cuts: Plans to make the individual tax provisions of the 2017 Tax Cuts and Jobs Act (TCJA) permanent, which are set to expire at the end of 2025.
- Corporate Tax Adjustments: Proposals to reduce the corporate income tax rate from 21% to 20%, or as low as 15% for companies manufacturing domestically.
- SALT Deduction Cap: Consideration of increasing the State and Local Tax (SALT) deduction cap from $10,000 to $20,000 for married couple filers.
9. How We Can Help
We can provide personalized strategies tailored to your financial goals. Work with us to explore:
- Optimizing investments.
- Retirement planning.
- Tax-efficient strategies.
- Estate planning.
10. Reflect and Stay Motivated
Regularly review your financial progress and adjust your plans as necessary. Celebrate milestones and remain adaptable to changes in your financial situation or goals.
Start Your Journey Today
Embarking on your financial journey in 2025 with informed decisions and strategic planning can lead to significant long-term benefits. Stay updated with IRS announcements and consider speaking with us to help you navigate the complexities of financial planning.
Sources located at the bottom of the article
Copyright © 2025. Ballentine Capital Advisors. All rights reserved.
Our mailing address is:
Ballentine Capital Advisors
15 Halton Green Way
Greenville, SC 29607
Sources:
- Ballentine, B. (2023) Wealth on Purpose: Your Path to Grow, Protect, and Keep Real Wealth
- IRS Newsroom: 401(k) Limit Increases to $23,500 for 2025; IRA Limit Remains $7,000
- IRS Newsroom: IRS Releases Tax Inflation Adjustments for Tax Year 2025
- Tax Foundation: Overview of TCJA Provisions Expiring in 2025
- CBH Insights: Trump Tax Policy Changes in 2025 and What to Expect
- MarketWatch: SALT Deduction Cap Discussions Under New Administration
- Consumer Financial Protection Bureau: Paying Down Debt
- Federal Reserve: Economic Well-Being of U.S. Households Report
- Congressional Research Service: SECURE 2.0 Act Summary
Disclosure:
Ballentine Capital Advisors is a registered investment adviser. The advisory services of Ballentine Capital Advisors are not made available in any jurisdiction in which Ballentine Capital Advisors is not registered or is otherwise exempt from registration.
Please review Ballentine Capital Advisors Disclosure Brochure for a complete explanation of fees. Investing involves risks. Investments are not guaranteed and may lose value.
This material is prepared by Ballentine Capital Advisors for informational purposes only. It is not intended to serve as a substitute for personalized investment advice or as a recommendation or solicitation or any particular security, strategy, or investment product.
No representation is being made that any account will or is likely to achieve future profits or losses similar to those shown. You should not assume that investment decisions we make in the future will be profitable or equal the investment performance of the past. Past performance does not indicate future results.
