2025 Year-End Financial Planning Guide
By Deborah A. Baker, CFP
Vice President and Senior Financial Planner
As the end of the year approaches, it is time to review your current financial situation and strategies for this year while also preparing for 2026 and beyond. Year-end financial planning is essential to ensure you stay on track to meet your financial goals and to take advantage of potential opportunities before 2026. This is particularly important this year, following the passage of the One Big Beautiful Bill Act (OBBBA) in July, which introduced new tax provisions impacting both this year and the future, along with several significant regulations from the Secure 2.0 Act that are now, or soon will be, in effect.
Below is a summary of a few newly introduced provisions or regulations to assist with your financial planning.
New for 2025:
- Starting this year, a new "Super Catch-Up" contribution limit of $11,250 is available for participants in employer-sponsored plans [401(k)s, 403(b)s, and 457(b)s] for those who are aged 60 to 63 by December 31. This Super Catch-Up amount is in addition to the current yearly limit of $23,500. However, it is important to note that offering this benefit is at the discretion of plan sponsors, so not all employers may provide this feature. The catch-up limit for participants aged 50 and older, as well as those aged 64 and older, is an extra $7,500. For those individuals needing to boost retirement savings, these catch-up amounts can prove quite beneficial.
- Inherited IRA penalties begin this year for those who fail to withdrawal the required minimum distribution (RMD). The penalty for not withdrawing the required minimum is 25% of the required amount, unless the withdrawal is completed “promptly,” which is typically within two years. The IRS had waived the distribution mandate from 2020 through 2024 as well as any resulting penalty; however, despite the withdrawal waivers, account balances must still be depleted by December 31 in the tenth year following the death of the original IRA owner. Given the complexity of distribution rules for inherited IRAs, it is advisable to consult with your financial advisor, financial planner, or qualified tax professional for guidance.
Time-Sensitive Issues for 2025:
- The Residential Energy Tax Credit expires 12/31/2025. This federal tax incentive allows homeowners and eligible renters to claim 30% of the cost of qualifying renewable energy systems installed in their homes, subject to certain limits. Given this deadline, taxpayers must act promptly to take advantage of these incentives.
- You might want to consider “bunching” or consolidating your donations this year to maximize deductions. Beginning in 2026, charitable deductions will be subject to a .5% floor on Adjusted Gross Income (AGI). For taxpayers who itemize, this means that the first 0.5% of their AGI in charitable gifts will be non-deductible.
- Additionally, there will be a new limitation on itemized deductions for taxpayers in the 37% marginal tax bracket, as the OBBBA caps the 2026 limit to 35% for charitable deductions. For example, high-income earners donating $1,000 will receive a $350 tax benefit next year and beyond, compared to the current benefit of $370.
If you are uncertain how much to donate and to whom, a Donor-Advised Fund (DAF) may be an ideal solution this year. A DAF is a vehicle which allows you to contribute enough funds (either cash or highly appreciated long-term securities) to generate an immediate deduction without the obligation of naming the recipient(s). Further, there are no annual distribution requirements from a DAF, which provides you with more time to consider your charitable interests while still maximizing your deduction. Opening a Donor-Advised Fund is a straightforward process and can be accomplished through Diamond Capital Management, subject to applicable minimums.
New for 2026:
- Per the Secure 2.0 Act, starting in 2026, workers turning 50 and older earning over $145,000 will have to make employer-sponsored plan [401(k), 403(b), 457(b)] catch-up contributions on a Roth basis instead of on a pre-tax basis. Employers will have until tax year 2027 to fully comply with this new regulation and are not required to offer a Roth component. If your employer-sponsored plan does not offer a Roth option, those affected by the specified age and income criteria may lose the ability to make catch-up contributions. For individuals aged 50 and older earning less than $145,000 (an amount that will be indexed annually), this mandatory Roth requirement does not apply. This means you can choose between pre-tax or Roth catch-up contributions, depending on what your employer’s plan allows.
- Charitable giving for non-itemizers taxpayers will change next year, as non-itemizers will be eligible for a charitable deduction of $1,000 for single filers and $2,000 for joint households. This deduction is in addition to the standard deduction, so it might be wise for non-itemizers who are inclined to donate to wait until next year to take advantage of this benefit. Note, however, that donations to entities such as Donor Advised Funds and Private Foundations are not eligible, and donations must be in cash.
Other Important Year-End Actions
- Review retirement contributions for both IRAs and Employer-Sponsored Plans to ensure that you have maximized the annual limits. Additionally, check your limits for Health Savings Accounts (HSAs) where applicable.
- Assess capital gains and losses in your investment portfolios and harvest losses as appropriate.
- Consider Roth conversions, particularly if in a lower-income year. Roth conversions can be beneficial for future planning, but they also create immediate tax implications and may impact other areas of planning such as Medicare surtax charges.
- Make sure to fully utilize funds in your Flexible Spending Account (FSA), as unused funds are often forfeited.
- Confirm that your wills, trusts, and beneficiary designations are current, especially if you have experienced a major life change this year (e.g., death of a loved one, divorce).
While the end of the year can be hectic, it is crucial to make time to review your investment portfolio, retirement accounts, and tax planning strategies, as this review will help you determine how well your strategies align with your long-term goals and objectives. Given the effective and impending legislative changes, now is an ideal time to meet with an investment advisor and/or a financial planner. At The National Bank of Indianapolis, our Wealth Management Department professionals are committed to providing guidance tailored to your specific needs.