As 2025 comes to a close, individuals and families are urged to reflect on their financial health and prepare for the new year. A series of economic and legislative changes have shaped the landscape this year, revealing the importance of ongoing financial planning. Events such as persistent inflation, shifts in tax policy, and new retirement regulations underscore that effective financial management is an evolving process requiring regular attention.
SignatureFD, a financial advisory firm, emphasizes the importance of taking advantage of the remaining weeks of the year for financial assessments. This period is crucial for making informed decisions that will influence financial well-being as we move into 2026. Notably, while personal situations vary widely, several key themes are emerging as individuals prepare for the upcoming year.
Health Care and Tax-Efficient Strategies
Health care costs remain a significant concern for retirees, making tax-efficient strategies increasingly vital. Individuals who have Flexible Spending Accounts (FSAs) must be aware that most unused funds need to be spent by December 31. Some plans do offer limited rollover options, but the urgency remains. On the other hand, Health Savings Accounts (HSAs) continue to excel as long-term planning tools. Contribution limits for HSAs have increased for 2025, and individuals can continue to contribute until April 15, 2026.
The end of the year also presents an opportunity for gifting and charitable planning. The annual gift exclusion has risen to $19,000 per recipient, while the estate tax exemption stands at $13.99 million per person, set to increase to $15 million in 2026 due to the One Big Beautiful Bill Act (OBBBA). Given the potential for tax law changes, individuals are encouraged to consider making larger gifts or transfers now while the thresholds are historically high.
Families focused on educational funding can benefit from 529 plans, which allow for significant contributions and flexibility. The option to “superfund” with up to five years of gifts in a single year amplifies savings potential, especially as the allowable annual distribution for K-12 education will double to $20,000 in 2026.
Retirement Planning and Regulatory Changes
The reinstatement of required minimum distributions (RMDs) for certain inherited accounts marks a significant shift in 2025. Beneficiaries of retirement accounts inherited after December 31, 2019, must now adhere to RMD guidelines, which require full distribution within a ten-year window. This change may come as a surprise to some, highlighting the necessity of reviewing inherited IRA strategies. For many, exceeding the minimum distribution could be beneficial, particularly with anticipated increases in future income or if managing tax brackets is a priority.
For retirees and those nearing retirement, traditional RMDs remain a critical component of financial planning. Individuals aged 73 or older must ensure that 2025 distributions are completed by December 31, unless it is their first RMD year. Additionally, Qualified Charitable Distributions (QCDs) allow individuals aged 70½ or older to direct up to $108,000 of IRA distributions to charity, potentially lowering taxable income.
As we look toward 2026, various themes are expected to influence the financial landscape, including evolving tax rules and rising health care costs. Business owners should reassess qualified business income (QBI) deductions, a valuable yet often underutilized planning tool. Furthermore, individuals should ensure that beneficiary designations, insurance information, and estate documents are current, especially following significant life changes.
In conclusion, effective financial planning transcends mere reaction to annual changes. It involves creating a long-term strategy that adapts to life’s complexities. As 2025 draws to a close, individuals are encouraged to reflect not only on their financial tasks but also on the goals and values that shape their decision-making processes.
