2025 Last-Minute Year-End Retirement Deductions: How to Maximize Your Savings Before December 31

November 2025

The clock is ticking — and your retirement is one year closer.
Before the year ends, you still have time to take advantage of several powerful IRS-approved retirement deductions and credits that can help you reduce your 2025 tax bill and build long-term wealth.

This guide breaks down five key strategies you can still implement before December 31, 2025, to put more money in your pocket and strengthen your retirement savings.

1. Establish Your 2025 Retirement Plan Before Year-End

If you haven’t set up your retirement plan yet — now’s the time.

Whether you’re a sole proprietor, LLC, or S corporation owner, you can still create a qualified retirement plan before December 31, 2025, and claim a tax deduction for this year.

By establishing a 401(k) or similar plan, you can contribute as both:

• Employee — your personal salary deferral, and

• Employer — your company’s contribution.

For example, if you’re the only employee in your S corporation:

• You can contribute up to:

  • $23,500 if under age 50

  • $31,000 if age 50–59 or 64+

  • $34,750 if age 60–63

• Plus, your company can contribute up to 25% of your compensation by the due date of your 2025 tax return (March 15, 2026, or later with extensions).

Combined, your total 401(k) contribution limit is:

• $70,000 if under 50

• $77,500 if 50–59 or 64+

• $81,250 if 60–63

Action step: Set up your 401(k) or SEP IRA before December 31 to secure your 2025 deduction.

2. Claim Up to $15,000 in Retirement Plan Start-Up Tax Credits

If your business doesn’t yet have a retirement plan — the IRS wants to help you start one.

Under SECURE 2.0, eligible small businesses can now claim a tax credit of up to $5,000 per year for three years (a total of $15,000) for starting a new retirement plan such as:

• 401(k)

• SEP

• SIMPLE IRA

• Defined benefit plan

The credit covers 100% of your qualified start-up costs, including plan setup, administration, and employee education — if you have 50 or fewer employees.

To qualify:

• You must have 100 or fewer employees, each earning at least $5,000.

• The plan must include at least one non-highly compensated employee.

💡 Tip: If you joined a multi-employer plan after 2019 but didn’t claim this credit, you may be eligible to amend prior returns to recover missed credits.

3. Earn the New Small Employer Pension Contribution Credit — Up to $3,500 per Employee

Here’s another powerful incentive for small businesses.

Starting in 2023, you can claim a credit worth up to $1,000 per employee for employer contributions to your employees’ retirement accounts.

How it works:

• 100% credit in year 1

• 75% in year 2

• 50% in year 3

• 25% in year 4

• 0% in year 5 and beyond

Example:
If you contribute $1,000 each for 30 employees, you’ll earn a $30,000 tax credit.

If you have 51–100 employees, the credit is reduced by 2% per employee.
Employees earning more than $105,000 in 2025 are excluded from the credit.

4. Add Automatic Enrollment and Earn an Extra $1,500 Credit

Businesses that include an automatic contribution (auto-enrollment) feature in their 401(k) or SIMPLE IRA plan qualify for an additional $500 annual credit for three years — a total of $1,500.

You don’t need to spend money to get this credit — simply activate auto-enrollment.

This feature boosts participation rates and helps employees save more for retirement.
New 401(k) and 403(b) plans created in 2025 or later must include auto-enrollment unless your business:

• Has fewer than 10 employees, or

• Is less than three years old

 Action step: If you’re starting or updating a plan, make sure auto-enrollment is included to capture this extra credit.

5. Consider Converting to a Roth IRA

A Roth IRA conversion could be one of the smartest financial moves you make this year.

By converting your traditional IRA or 401(k) to a Roth IRA, you’ll pay taxes on the amount converted now — but all future earnings and qualified withdrawals are tax-free.

Here’s why it can make sense:

• If your traditional IRA lost value, conversion taxes are lower.

• Roth contributions can be withdrawn anytime, tax-free and penalty-free.

• Earnings grow 100% tax-free after five years and age 59½.

• No required minimum distributions (RMDs) at age 73.

• You can pass your Roth IRA to heirs without triggering major taxes.
  
  

⚠️ Just remember: you’ll need to pay taxes on the converted amount using outside funds, not from the retirement account itself, to avoid penalties.

Takeaways

A well-timed retirement strategy can save you thousands in taxes while building long-term security.

Before December 31:

1. Set up your retirement plan if you don’t have one.

2. Leverage available tax credits for plan start-up, contributions, and auto-enrollment.

3. Consider a Roth IRA conversion if it fits your situation.

Each of these steps can help you maximize 2025 deductions, grow your retirement funds faster, and keep more money in your pocket.

Plan smart. Save big. Retire confidently.
For more detailed retirement planning or business tax strategies, consult your CPA or tax advisor before making final decisions.

For personalized advice, feel free to reach out directly at Mid America Tax Planners - Contact Us.