IRS Releases 2025 Lifetime Exemption and Annual Gift Exclusion Amounts, Retirement Account Contribution Limits

On October 22, 2024, the IRS issued Revenue Procedure 2024-40, providing the annual inflation adjustments for tax provisions to be used by individual taxpayers for the 2025 calendar year. The adjustments include the following:

• The estate, gift, and generation-skipping transfer tax exemptions for 2025 are $13,990,000, an increase from $13,610,000 for transfers in 2024.
• The annual exclusion for gifts is $19,000 for calendar year 2025, an increase from $18,000 for 2024.
• For 2025, the first $190,000 of gifts to a spouse who is not a citizen of the United States (other than gifts of future interests in property) are not included in the total amount of taxable gifts made during that year, an increase from $185,000 for 2024.

On November 1, 2024, the IRS released Notice 2024-80, providing annual inflation adjustments for retirement accounts. For 2025, the annual contribution limit for employees who participate in 401(k), 403(b), governmental 457 plans, and the federal government’s Thrift Savings Plan is $23,500, an increase from $23,000 in 2024. However, the limit on annual contributions to an IRA is $7,000 ($8,000 for those 50 and older) for 2025—the same as the contribution limit for 2024.

Takeaways: These adjustments reflect the decreased inflation rate during 2024 compared to 2023. The increase in basic exclusion amount means that an individual will be able to transfer $380,000 more free of transfer tax liability in 2025 than they could in 2024. The $19,000 annual exclusion amount for gifts represents the fourth increase in four years: the exclusion amount for gifts was increased to $18,000 in 2024, following increases to $17,000 in 2023 and $16,000 in 2022 after remaining at $15,000 from 2018 through 2021. Estate planning attorneys should work with clients to determine if they should take advantage of the planning opportunities provided by these increases, especially in light of the scheduled sunset of the enlarged exemption amounts at the end of 2025.

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