Tax Changes California Retirees Need To Know About for 2025
Written by
Jordan Rosenfeld
Edited by
Molly Sullivan
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A change in presidential administration in 2025 means likely tax changes in the future, though no one can be 100% sure how many of President-elect Donald Trump’s campaign promises will actually translate once he is in office or when they’ll go into effect.
However, with a Republican controlled House and Senate, Arron Bennett, CEO and founder of Bennett Financials can make some confident predictions about what California retirees might expect to see when it comes to their taxes next year.
Wiggle Room in the Tax Brackets
The IRS adjusts tax brackets every so often to account for inflation, and 2025 will bring some changes that are already in motion. While the individual federal tax brackets will remain the same in 2025 as 2024 — 10%, 12%, 22%, 24%, 32%, 35% and 37%, as set by the 2017 Tax Cuts and Jobs Act — the tax brackets will allow a little more wiggle room. In other words, you can earn more money and still remain in a lower tax bracket.
What follows after 2025 will depend upon what President-elect Trump and Congress pass in the future.
There are no new changes in California’s state taxes between 2024 and 2025, though it is possible that 2026 and beyond may look different.
A Simplified Tax Code
The incoming Trump administration is trying to simplify the overall tax code, Bennett said. “So they’re trying to bring two rates, one at 15% and one at 30%. That would help most retirees over in California,” he said.
That won’t affect state taxes, Bennett said, “But it is going to help potentially put more cash back in retirees’ pockets.”
Closing Tax Loopholes
Another likely move the incoming Trump administration will make is to eliminate certain deductions and/or close some of the tax loopholes, Bennett said.
“Right now they are talking about making auto loan interest completely tax deductible. They are talking about tax credits for family caregivers and those types of things, which will potentially help some retirees if they’re living with family members and they’re a dependent of that family member,” Bennett said.
Reducing Taxes on Social Security
Another potential move will be exempting certain Social Security benefits, Bennett said.
“So Trump is advocating for eliminating taxes on Social Security benefits, which should help lower the tax burden on retirees,” he said. While the details of this plan are still unclear, people who live significantly on Social Security may find this to be a welcome relief.
The Question of Tariffs
There has been a lot of talk about Trump imposing stiff universal tariffs on goods made outside of the United States to make up for possibly eliminating income taxes as a whole, but Bennett can’t say for sure whether that will happen, nor what the impact will be on California, or any, retirees. Some economic experts have expressed concerns that this could increase the cost of many goods people purchase regularly, putting average Americans in worse shape, while others say there are ways to balance out the effects.
Maximize Retirement Contributions and HSAs
Bennett urged California retirees to contribute as much as possible to their retirement accounts to make sure they’re getting the tax advantages that come with those accounts.
And, if you’re eligible by having a high-deductible health plan, he urged utilizing a health savings account (HSA), which he called a “triple threat” because it’s the only account type in which you don’t get taxed on the money you put into it, you don’t get taxed on its earnings, and you don’t get taxed on it coming out so long as it’s used for proper medical expenses. And for those who think their plan isn’t a high enough deductible, he said he’s seen plans with a deductible of as low as $2,500 qualify.
Utilize Real Estate To Reduce Taxes and Retire Better
Home and property owners will be in a good position to get tax benefits, as well, Bennett said.
“We know that real estate is always a great way of bringing our taxes down. If you don’t already have housing, make sure that you’re invested in real estate and have other assets.”
You might also consider entering into a reverse mortgage if you own your own home, which allows you to take money out against your house without paying income taxes.
“Then you can take that cash and go and spend it assuming that you don’t have heirs or family members that you want to give that asset to. That means you could live your retirement a lot better.”
He said there are different ways of structuring reverse mortgages based on whether you keep it long term, or if you sell it.
“So there’s a lot of different interesting things you can do with real estate.”
Pay Attention to Financial Fees
California retirees should be sure to stay on top of fees incurred by financial advisors and retirement plan fees, Bennett said. He’s seen financial advisors who charge as much as 2.5% of investments, which, he said, over time is “significant.”
“So just make sure that you’ve got your fees as low as possible or you are getting the maximum value that you can so that the fees aren’t eating up too much of your retirement.”
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