Key 2025 Financial and Tax Updates Every Optometrist Should Know

In this episode, your host, Evon Mendrin, CFP®, CSLP®, owner of Optometry Wealth Advisors, dives into the critical financial and tax updates optometrists need to know as we head into 2025. Whether you're an associate OD, a private practice owner, or planning to start your own practice, these updates are vital to helping you make informed financial decisions.

What You'll Learn in This Episode:

• Retirement Account Contribution Limits for 2025:
  Updates for 401(k), SIMPLE IRA, HSA, and IRA contribution limits, and how to adjust your contributions accordingly.
• SECURE Act 2.0 Changes Now in Effect:
  Automatic enrollment requirements for newer 401(k) plans, new rules for long-term part-time employees, enhanced catch-up contributions, and more.
• Key Tax Updates for 2025:
  Changes to tax brackets, standard deductions, Qualified Business Income (QBI) phaseouts, and the Social Security wage base.
• Student Loan Repayment Tips:
  How the timing of your tax filing can impact income-driven repayment plans, especially if you’re pursuing loan forgiveness.
• Inherited IRA RMDs:
  The return of required minimum distributions for inherited IRAs and what this means for beneficiaries in 2025.
• Things to Watch in 2025:
  Updates on Corporate Transparency Act reporting, SAVE plan court cases, and the potential sunset of the Tax Cuts and Jobs Act.

Resources Mentioned:

• 📄 Free 2025 Financial Numbers Guide:
  Click HERE to get your free copy of the guide to the most important financial and tax numbers for 2025.
• 🎙️ Learn More About the QBI Deduction:
  Check out this blog post and this podcast episode exploring how the QBI deduction works and how it impacts optometrists.
• 💼 Schedule a Free Consultation:
  Let’s chat about your financial goals and how Optometry Wealth Advisors can help you. Book a call here.

Connect With Evon and the Podcast:

• Website: Optometry Wealth Advisors
• Email: podcast@optometrywealth.com
• Submit Questions: Use the link in the show notes to text a question directly to the podcast!

Thank you for tuning in to this episode of The Optometry Money Podcast. If you found this episode helpful, please subscribe, leave a review, and share it with your fellow ODs. Let’s make 2025 your best financial year yet!

The Optometry Money Podcast is dedicated to helping optometrists make better decisions around their money, careers, and practices. The show is hosted by Evon Mendrin, CFP®, CSLP®, owner of Optometry Wealth Advisors, a financial planning firm just for optometrists nationwide.

Transcript

Evon: 0:04

Hey, everybody. Welcome back to The Optometry Money Podcast. Where we're helping OD's all over the country make better and better decisions around their money, their careers and their practices. I am your host, Evon Mendrin Certified Financial Planner(TM) practitioner, and owner of Optometry Wealth Advisors, an independent financial planning firm just four optometrists nationwide. And thank you so much for listening. I am excited to be back happy new year. I can't believe it's already January 2025, but we are going to dive right into it today. And we're going to talk all about important financial updates and tax updates that every optometrist needs to know as we go into the new year. We're going to talk about retirement plan changes. We're going to talk about tax law changes and more. So let's go ahead and dive right in. And as I get started, want to let you know, I have a free guide to the most important numbers you need to know about for your finances and tax planning in the show notes. So you can head to the show notes on whatever app or website you're using, click on the link in the show notes, and you can get access to the 2025 guide to the most important numbers you need to know. And you can even reference that as you're going through the episode. So hopefully that's helpful for you as you are planning for the year. So first update, we need to talk about our contribution amounts towards retirement accounts and. perhaps you had gone through 2024 you had set your contributions, each pay period to get to a certain point. Maybe it's a, maybe you are trying to max out your contributions for the year in the different retirement accounts. And so January 2025 is another opportunity to look at your pay for the year. calculate the amounts that you're trying to target for the year and then break that down per pay period. And as we look at the maximum amounts, you can contribute to your retirement accounts. They have changed. They've increased over the last year. So for 2025 tax year, SIMPLE IRA contributions are going to be increasing to$16,500 as an employee. If you are under 50, if you are 50 or older, you have a$3,500 catch up for the year. And one thing I just haven't seen, talked about very much, within the, the Optometry groups I'm in is that if you have a SIMPLE IRA plan due to the SECURE Act 2.0, you have a 10% bump to the employee amount that you can contribute to if you are in a practice with 25 or fewer employees. So, if you are in one of those practices, you have 25 or fewer employees maybe you're the owner, you are sponsoring a SIMPLE IRA plan you have a 10% bump on the employee amounts that you can put in, including that catch-up. So for example, if you're under 50, that would be$17,600 that you can put in for the year. If you are 50 or older, that's an additional$3,850. So. A nice bump there. If you have 26 or more employees, there's a particular matching formula you have to do to qualify for that, but something to keep in mind, if you are in a 25 or fewer employee team. take a look at that. So SIMPLE IRA plan contributions have gone up, 401k plan contributions have gone up. So in terms of the employee amount, you can put in. That's$23,500, a$500 bump. the catch up is$7,500. And the total amount, meaning all of the different contribution layers that can go into a 401k plan for you is$70,000 per plan. So if you're adding in, for example,$23,500 as an employee, perhaps you are receiving the employer match as well, and then let's say perhaps the employer is doing profit sharing contributions into the plan. The most, the very most that you can put into that particular plan for the year, including all of those different layers is$70,000. What about IRAs? Traditional IRAs, Roth IRAs. The contribution limit is$7,000, once again, with a$1,000 catch-up if you are age 50 or older. For health savings accounts, the 2025 maximum for health savings accounts is$4,300 as an individual. Or$8,550 as a family maximum. And of course HSA's have a$1,000 catch-up contribution, but that starts when you are 55 or older. So this is a great time to look at those maximums. Look at the amount that you are contributing to these accounts. How many pay periods are throughout the year? And then adjust your contributions to account for that. And of course, in terms of your 2024 IRA And health savings account contributions. Those can be made up into the upcoming tax filing deadline. So for 2024's contributions, you can still make those contributions up to the tax filing deadline here. and profit sharing contribution. So if you're the practice owner, And your 401k plan allows for profit sharing contributions. You can make those profit sharing contributions up to your practice's tax filing deadline. Including the extension. So if it's in a partnership or S-corporation, and you're looking at March or September, if it is a schedule C meaning you're taxed as a sole proprietor. That means you have until April or into October, if you're finally that extension. And just a random reminder if you're filing an extension for tax filing, that does not give you an extension to pay the anticipated tax due. Right. So you still need to pay that tax. That extends your ability to file the tax return. So some things you can do there to impact your 2024 taxes. Still some time to do that. So those are contribution limits. There are also specific parts of the SECURE Act 2.0 that are becoming effective, that are going live in 2025. And if you remember the SECURE Act 2.0, was this massive list of small adjustments to retirement accounts. that were implemented over several years. So we had a big chunk of those rules going live last year, 2024. And now we have a separate set of those rules. Those adjustments. going live in 2025. the first adjustment is that 401k plans are now. required to have automatic enrollment for employees for plans that were started or established after December 29th, 2022. So if your plan was started essentially 2023 and beyond then you are required going into this year. You're required to have automatic enrollment on your 401k plan. And what that is is that, you are automatically enrolling employees as they're becoming eligible and you're giving them the option to opt out of the plan rather than opt into the plan. And you need to do that with a default contribution rate of between 3% and 10% of their income. And that contribution rate has to go up every year automatically at a rate of 1% per year. So it has to increase 1% per year. Up to at least 10% of their income. So for example, if it's at 3% over the next seven years, That will eventually hit 10% of their income. or if you want to go beyond 10%, you can't go more than 15%. So this auto enrollment feature, it needs to be established for those, for those practices that are impacted by that with some certain rules in terms of the contributions and of course, Employees can choose to opt out of contributing to the plan. So they're not forced to, they can also change their contribution rate. Right? So these are just the default automatic options that are going to need to be added to your plan. And this is required unless, so here are some practices that are not required to do this. it's required unless your 401k plan was established on December 29th, 2022 or before. So, if you have an older 401k plan, that's been around a while. If you normally employ 10 employees or less you may be excluded from these requirements. If you have 11 employees or more than, of course you have to look at these requirements. or if your practice is less than three years old. So if you are a recent cold start within the last three years, Then you may not necessarily need to do this. If you have a SIMPLE IRA plan. So if you have a SIMPLE IRA plan, you are not required to do this. this is for those 401k plans that are relatively newer after the end of 2022. And for those that have employees have 11 or more? or if have you ever practice? That's older than three years. If you have a safe Harbor 401k plan, this potentially will impact the matching formula that you select. If you run the math, it may actually make sense to consider the QACA match. The QACA match. this is the matching formula for safe Harbor plan that has that auto enrollment and those employees have to opt out of the plan. And the matching formula is up to three and a half percent. So if the employees contribute 6% of their pay, You as the employer or your employer will match up to three and a half percent. So it might make sense to consider some other matching formulas if you're a safe Harbor plan, or if you are starting a safe Harbor plan, maybe in anticipation of this, this might make sense as well. What's great about that is that there is a vesting schedule. On this type of safe Harbor, a matching formula. That is not allowed in some of the other ones. So something to consider there. The next change coming up as a part of the SECURE Act 2.0 is the reduced service requirements for long-term part-time employees. So if you have part-time employees that have been around a while, they may be eligible to participate in your 401k plan. So this was something that had started originally in 2024 part-time employees that are age 21 or older, who worked at least 500 hours per year for three consecutive years. Right? So these are part-time employees of at least three years consecutively. Must be allowed to make employee contributions to your practices, 401k plan. Right. So they have to at least contribute. As employees. Not necessarily subject to the match, but as employees, they have to have that eligibility. which is something that you'd want to know as a practice owner if your plan has to administer much smaller accounts and it's going to impact the pricing of the plan. starting in 2025, that three consecutive year requirement has been brought down to two years. So those part-time employees, at least 500 hours. Age 21 or older, they have to have, they have to meet those requirements at least two consecutive years. Right. So something to keep in mind. If you are employing part-time employees and perhaps you were anticipating, or, not anticipating that they would be able to, that they would be contributing to the 401k plan. Something to keep in mind there. And then lastly we have in enhanced, catch-up allowed. So this is something that isn't required to be added to plans. You have the option now either as the practice owner who is able to make adjustments or amendments to your plan. or your employer has the option to add this feature to your 401k plan. But essentially the enhanced match moving forward is that employees ages 60 through 63, very specific there, 60 through 63 can make higher catch-up contributions to retirement plan. And there's a bit of some odd math here. So the new catch-up contribution limit is the greater of$10,000 or 150% of the regular catch-up limit, including inflation adjustments. So. Getting down to the facts here for 2025 the catch-up limit in a 401k plan for employees that are 60, 61, 62, 63. Is$11,250. If you are younger than 60, you have the regular catch-up formula. you have the regular catch-up limit and if you're age 64 or older, you go back to that regular catch-up limit. So. why is that the case? Why is it only a 60 through 63? That is a great question that I do not know sometimes what Congress does does not make complete sense. So, this is something though that is available to you to add to your plan if you want it. this is also the case for SIMPLE IRA plans. SIMPLE IRA plans also have an enhanced catch-up for employees that are 60 through 63. And that is$5,25 for 2025. So some plan design options to consider here. Some of them required. Some of them you can think about adding here. ultimately the conclusion is you want to talk to your plan administrator to make sure that the required or desired features are in effect for your 401k plan, or if there needs to be adjustments or amendments to the plan, and if you have a bundled plan provider, because it's really cheap, that does not allow you to add features that you want. You might need to start considering additional options there, but something to consider and talk to your provider or plan administrator. Now let's talk about some tax items. So there are going into 2025 some of the typical adjustments to things related to taxes. So for example, the tax brackets, meaning the amount of taxable income that falls within those different marginal tax rates, 10%, 12%, 22%, those adjust each year with inflation. the QBI, the qualified business income, taxable income thresholds, adjust for inflation as well. So essentially there are certain ranges of taxable income before the deduction to where if you go above the bottom of that range, you start to phase out of the qualified business income deduction. And if you get past the top of that range, then you are not eligible for the qualified business income deduction. And. if you want to learn more, I'll throw a link to the podcast episode and also to the blog I wrote on the QBI deduction. So you can learn more about how that works. but there are new phase out ranges. So if you are a single tax filer, that range starts at$191,950. If you get above that bottom range, that's where you start to phase out and it ends at$241,950. And if you are a joint tax filer, So if you're filing taxes, married, filing joint, it starts at$383,900. Ends at the top end of$483,900. So, that's another consideration for the new tax year. Your social security wage base, so the amount of your wages that are subject to social security taxes and thus impact the calculation for your social security benefit are$176,100 in 2025. there are some changes and adjustments to the standard deduction. The standard deduction amount for this year. if you are single is 15,000. If you are filing taxes jointly, it's 30,000. So keep in mind all of these different inflation adjustments that happen each and every year as a part of tax planning. the, the ranges, the ranges for tax brackets, the ranges for eligibility or phase out for different deductions. One thing I'll just mention as we are starting the year and eventually getting into tax filing season. Is that if you are an optometrist on federal student loans and you are using income-driven repayment plans, especially if you're planning towards forgiveness. One thing you just want to take a look at is the timing of filing your tax returns. So if you are needing to recertify your income sometime after April, but before October. what may make sense to do is to file an extension of, of your tax return and not file your T and not actually file that personal tax return until later in the year. And the reason you might want to consider that is because. if you recall, recertifying your income, meaning a re showing your income to the Department of Education and re showing your family size. That is done using your most recently filed tax return. So if you have not filed a new tax return, Your most recently filed tax return is still 2023. So if it is more favorable from a student loan planning perspective, too. to reuse that 2023 tax return, because it is, quite literally still your most, your most recently filed return. You may want to consider doing that. many of you are potentially, optometrists that like to really get on it, get your taxes filed as quickly as possible and move on with your life. But if you're thinking about student loans, you to take that into consideration in terms of the timing, right? It may make sense to potentially file that extension, recertify your income, and then by the October deadline. then file your tax return. So something to keep in mind there. One other tax related thing you want to keep in mind for 2025 is inherited IRA required minimum distributions or RMDs. And, this is not something that's gonna impact the vast majority of listeners, but there's going to be some listeners out there that are going to be impacted by this. And I think this, this information is going to be helpful. if you inherited an IRA especially from someone who isn't your spouse. The original SECURE Act made major changes to the ways RMDs were to be taken out. Starting in 2020 and beyond. And essentially what happened is that rather than stretching withdrawals over your lifetime, There was a new 10-year rule to empty the account within the 10th year after the year of death. So the window in which you had to withdraw from these IRA accounts was potentially, based on the type of beneficiary you were, was potentially shortened into a 10-year window. However, the IRS, as it does um shocked tax professionals and financial professionals alike by also including rules that certain beneficiaries would need to take annual required distributions each year in addition to this 10-year rule, and I'm sort of oversimplifying it, but this is essentially the situation that's been unfolding. And through 2024, the IRS has been setting proposed and now final rules on how these required distributions would work and due to all that confusion, if you inherited an IRA after 2020. And you would have been subject to this ten-year rule in some way. You probably saw that your required distributions had been put on pause through 2024. But now starting this year, So 2025, if you would have been subject to those RMDs as a beneficiary, Then those required distributions are required to start again. And you are continuing that 10-year clock that began the year after the year of death of whoever you inherited that from. The inherited IRA rules are just a mess. I mean, they are. Overly complicated and I'm simplifying it a lot in many ways. I can probably do a whole series of podcasts episodes just on what happens when you inherit an IRA. And that depends on just who you are to the person that you're inheriting from, and the ages of the person that you're inheriting from at their death. So there's, there's a lot to consider there, but, what you need to know is that if you would have been subject to those required distributions, And they were on pause through last year, starting this year you have to continue that clock, right? You have to continue those required distributions. check in with your own tax and financial advisors to see what needs to be done there again. This is probably not going to apply to a lot of you, but I've been helping a few families that I serve kind of navigate this mess of rules due to inheriting from different circumstances. And so we had to figure out a game plan of, of when and how required distributions are going to be required. And whether we should take them or whether we should take more each year, do the tax planning. So, something to think about as well. Or if he knows somebody that's in that situation. Hopefully that's helpful information there. And lastly, let's talk about some things to watch as we go through 2025. And the first thing to keep an eye on is the BOI reporting requirements as a part of the Corporate Transparency Act. And this is for you, if you own an optometry practice entity, so LLCs, partnerships, corporations. Or if you own real estate in an LLC, if you own a business entity, you are. look at, you're probably keeping it on these requirements. And so what was happening is that if you own an entity that was created before January 1st, 2024, you had an end of year deadline, so December 31st, 2024 deadline. To complete this filing requirement and from all reports, from all examples that I saw, if you have a pretty simple entity structure it shouldn't take too long. however, as we got through the end of the year, The reporting requirement was put on hold. It was put on pause. The rule and the requirements were being challenged. And so a court had put a temporary freeze, an injunction. On the requirements to, to complete this reporting. And then in December, A different court reinstated the requirements. So now the requirements were back on. And there were, there was an extended deadline basically into January for those businesses to complete that. And then finally at the end of the year, I believe it was December 27th if memory serves me right, the same court, essentially a different part of the same court, reinstated the freeze. So they put that entire reporting requirement back on freeze. And so here we are in January, the rule is still temporarily frozen. Will it be reinstated on appeal by a different court? I don't know. We're not sure what will happen, but this is something that if you haven't completed the reporting something you want to keep an eye on as the court cases unfold. The second thing you want to keep an on are the court cases related to the SAVE income driven repayment plan. This entire rule that allows for the SAVE plan is something that's subject to change as a part of the court cases that are unfolding. And so this is something that we are keeping a very close on because I have clients that are relying right now on the SAVE plan for our planning. We need to know what type of plan B we need to create, if the save plan doesn't, if the SAVE plan doesn't survive the court cases here. I also take student loan consultations, and so we need to know essentially what's happening. Right? those of us who give advice around this are in a really sort of interesting standstill in terms of what we can say with a high amount of confidence. So, this unfolding, SAVE challenge is something that you definitely would want to keep an eye on. and then lastly, the sunset of the Tax Cuts and Jobs Act. And, this is an interesting one. So Tax Cuts and Jobs Act was something that was enacted as a part of president Trump's first term. this was at the end of 2017. went into practice essentially starting in 2018 and beyond. And it impacted quite a few different spots in terms of tax planning. It impacted tax rates, both personal and corporate tax rates. impacted the standard deduction. So it increased the standard deduction amount. It removed this other deduction called the personal exemption. it adjusted miscellaneous itemized deductions. it. Impacted state and local taxes that you can take, it, which eventually led to this whole pass through entity tax credit. That many of you may be dealing with as a part of your, your pastor business entities, your S corporations and partnerships. impacted gift in a state to. A gift and estate tax exemption. So there was all these different points and areas of tax planning that were impacted by Tax Cuts and Jobs Act. And many of those provisions Particularly the ones that impact you as an individual. Are set to be sunsetting this year. Many of those provisions are going to be going back to old rules at the end of 2025 at the end of this year. And so, you know, over the last couple of years, this has been something that we as professionals have been thinking about in terms of, okay, we have. Potentially 20, 26 and beyond we have increasing tax rates. We have changes to the estate planning exemptions. some clients would be potentially subject to those. We have changes in capital gains tax brackets. We have changes to standard deduction amount. The QBI deduction would be going away. Which is a substantial planning point if you qualify for that. So there's all these different ways that are potentially impacted at the end of this year. And so we've been in planning for this increase in taxation from 2025 to 2026. Well, now we can fast forward and see that President Trump has again been reelected. Republicans have a control of Congress. And so it is speculated, you know it's strongly suspected that much of the Tax Cuts and Jobs Act will be reinstated, will survive after 2025. we are anticipating that Congress will take action and keep much of it alive now. That's speculation because ultimately we don't know. Right. We don't know what will happen until Congress does something. And I know I'm hoping, and I know for sure your tax professional is hoping that this is done long before the end of the tax year. So we're not going into December trying to figure out what decisions need to be made before the end of the tax year. So hopefully we have plenty of time to sort of think this through. But this is something we're keeping an eye on and saying, okay, what actions will Congress take? And what new tax laws are we going to be looking at at the end of this year in 2026 and beyond? And are there really any actions we need to take? And, you know, one thing that has really, I think, been highlighted as a part of this. Is that, when you are thinking about tax planning, business entity planning. but also especially estate planning, if you are taking estate taxes into consideration, One thing that's really important to aim for is flexibility. We have seen over these last few years. I remember, I don't remember when, maybe over the last year or two there was this big capital gains increase in tax rate for capital gains, you know, over a certain income level. That was kind of running through Congress. It was proposed, right? It wasn't law. It wasn't making serious traction. It was just sort of proposals. And we saw a lot of talk about the need to sell businesses or sell investments in a taxable investment account before the end of that tax year to avoid this hike and capital gains. And so we fast forward and nothing happened. Right. What was proposed didn't become law. And so who knows how much in capital gains tax were created unnecessarily in anticipation of this potential tax down the road. And we are, we're seeing this now with Tax Cuts and Jobs Act we've seen, You know, we've, we've heard a lot about estate planning in anticipation of this and. Should you use things like irrevocable trusts if you are planning to be subject to estate taxes, if you are fortunate to be one of those optometrists with a large enough of estate should you be taking what are pretty much expensive or irrevocable actions to avoid that? And if you had, you might end up being disappointed with the outcome in, especially if Congress extends much of these, provisions here related to the estate tax. So. You know, in all things, just in my conversations with estate planning attorneys and with tax professionals. A lot of times, the best course of action is to give yourself enough flexibility and to avoid making permanent decisions before those decisions need to be made. And so just something to think about as you are thinking about taxes, or as you are thinking about future laws, keep in mind that you may want to reserve as much flexibility as you can to, to make those decisions as they need to be made, rather than making drastic permanent decisions now in anticipation of something that may not even come to pass. Something to keep in mind there. hopefully this conversation has been helpful. Again, we have that free guide there. Go into the show notes. You can click the link there. we can get a copy of that guide and hopefully you'll be able to enjoy the weekly Eyes On The Money newsletter as well. If you have any questions, if you're wondering, what should you do as you start the year in terms of your finances, in terms of using your cashflow most appropriately. In terms of what to do with practice cashflow or personal cashflow. how to plan proactively around taxes or managing risk or. Or any of the stuff we talked about today, reach out to me. You can go to my website, and I'll throw a link in the show notes. www.optometrywealth.Com. You can schedule a free consultation. We can have a no pressure, no commitment, introductory call. And we can talk about what's on your mind financially and the how I help optometrists all over the country, navigate those same things and more. And what that I'm looking forward to what 2025 has ahead. If you have questions, you can reach me at podcast@optometrywealth.Com. or in the show notes, there's a link to text to my show. So you can send a one-way message to me, I can't respond to you, but if you have questions that you'd like to see on future Q A episodes, or if you have topics you'd like to see discussed. Or if you have a guest you'd like to see on here, reach out to me would be great to hear from you. And with that. Thank you so much for your time and attention. We'll catch you on the next episode. In the meantime, take care.