The One Big Beautiful Bill Act, signed into law on July 4th, brings about several important tax changes. I’m discussing what these updates mean, especially for retirees, and sharing practical advice on how to take advantage of new deductions and avoid unexpected tax hits.
From permanent adjustments to tax brackets and an increased standard deduction, to special benefits for those aged 65 and older, I cover everything you need to know to optimize your retirement strategy.
Whether you're curious about Social Security taxation, itemized deductions in high-tax states, or planning smart Roth conversions, this episode is packed with insights to help you make informed financial decisions for your golden years.
One of the most impactful provisions of the OBBBA is making existing federal income tax brackets permanent. The 2017 TCJA tax brackets —10%, 12%, 22%, 24%, 32%, 35%, and 37% —had been set to expire after 2025, which would have led to higher rates.
The new act not only locks these rates in place but also indexes the brackets for inflation. While there are minor changes in the income thresholds at the lower brackets, the net result is stability for taxpayers, and retirees can now plan with confidence, knowing their marginal tax rates aren’t set for an imminent hike.
Standard deductions also see positive changes, rising to $15,750 for individuals and $31,500 for married couples filing jointly. Previously, these figures were $15,000 and $30,000, respectively.
With higher deductions, more retirees may find it beneficial to take the standard deduction rather than itemizing, saving time and potentially reducing taxable income.
Perhaps the most significant impact for retirees: From 2025 through 2028, filers aged 65 and up can claim an additional $6,000 deduction per person.
For couples where both spouses are over 65, that’s a $12,000 boost, on top of the already existing extra deduction for seniors ($2,000 for individuals, $3,200 for couples).
So, if both spouses are over 65 and income is below the required threshold, the combined standard deduction could reach $46,700.
There is a catch, though: this extra deduction phases out as income rises, disappearing entirely for individuals making $175,000 or more and couples earning $225,000 or more in modified adjusted gross income (MAGI).
The deduction is reduced by 6% for every dollar over $75,000 (for individuals) or $150,000 (for couples). For example, if a couple’s MAGI is $200,000, they’d lose $3,000 of the $6,000 deduction per spouse.
Timing IRA distributions or Roth conversions helps you stay under these thresholds and maximize deductions.
Although there was political talk about ending Social Security taxation, the OBBBA preserves the old rules. How much of your Social Security benefit is taxable depends on your combined income, still calculated as adjusted gross income plus 50% of your Social Security benefit.
The deduction enhancements may help lower your taxable income, keeping more Social Security benefits untaxed, but there are no direct changes here. Being mindful of when and how you draw taxable income can keep more of your Social Security out of the IRS’s reach.
For high-tax state residents and those with larger itemized deductions, another headline is the increase in the state and local tax (SALT) deduction cap. Temporarily, from now through 2029, the cap rises from $10,000 to as much as $40,000 (with phase-outs for high earners, those over $500,000 in MAGI lose this benefit, and it disappears after $600,000).
This can provide significant relief for homeowners or retirees in states with high property or state income taxes. The mortgage interest deduction rules remain unchanged, and when combined with the higher SALT cap, could make itemizing more attractive for some.
The One Big Beautiful Bill Act creates opportunities and considerations for retirees. Take the time to review your financial plan, explore new deduction limits, and coordinate with tax and financial professionals. Thoughtful adjustment now can lead to years of improved after-tax retirement income.
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