The One Big Beautiful Bill Act (OBBBA) was signed on July 4, 2025, which changes tax planning and many other opportunities for retirees. This bill changes many considerations for retirees because when the Tax Cuts and Jobs Act of 2017 was passed, many provisions in the law were due to sunset at the end of 2025. Many people were planning for taxes to go up and had been taking proactive steps to avoid the higher tax rates.
Now, with the passage of this bill, should retirees be thinking about their tax planning differently?
That’s what will be answered today. We will be discussing what changed, how it relates to planning for retirement, and what steps you may want to take as someone in or approaching retirement.
Please note that I’m not covering all of the changes. I’m covering the pieces that are likely the most relevant for people in the retirement phase of life.
Tax Rates Made “Permanent”
The Tax Cuts and Jobs Act (TCJA) of 2017 lowered tax rates, and for many people, they were proactively planning for tax rates to go up in 2026. For the longest time, many people thought no bill would be passed that would extend or make permanent those tax rates.
The tax rates under the TCJA are now made “permanent.” I use quotes around the word permanent because tax rates are only permanent for as long as it takes politicians to pass new legislation. I would venture a guess that we won’t see any changes until at least 2028, but from that point forward, it’s anybody’s guess.
We may not see changes to tax rates for a few years or it could be a decade or more. It depends on the political makeup in DC.
I don’t know where tax rates are headed, but if you listen to speculators, many people are concerned about the national debt and feel tax rates can only go up from here. Time will tell if they are right.
Planning Impact: People were focused on Roth conversions the past few years. That’s still relevant. Although tax rates aren’t scheduled to go up, many people still face the good problem of having saved a significant amount of money in pre-tax accounts, such as IRAs and 401(k)s, which means they will experience higher Required Minimum Distributions as they age, combined with the possibility that their heirs inherit a larger Inherited IRA that increases their income during peak earning years. There is still a valid argument for hedging tax rates by converting money to a Roth IRA in case tax rates do go up.
Increased Standard Deduction, $6,000 Senior Tax Deduction
The standard deduction was raised from $30,000 to $31,500 for couples married filing jointly and from $15,000 to $15,750 for single filers.
People 65 and older will continue to receive the additional $1,600 deduction per person for married filing jointly or $2,000 for single, but they will also receive a new $6,000 deduction.
The new $6,000 deduction is a temporary part of the legislation, applicable for 2025 through the end of 2028. If no future legislation is passed, this additional $6,000 deduction will go away starting in 2029.
The $6,000 deduction does have a phaseout. For single filers, it starts to phase out at $75,000 of Modified Adjusted Gross Income (MAGI) and is fully phased out at $175,000. For married filing jointly filers, it starts to phase out at $150,000 of MAGI and is fully phased out at $250,000.
The phaseout reduces the deduction by 6 cents for every $1 of MAGI over the limit. For example, if you are married filing jointly and have $200,000 of MAGI ($50,000 over the phaseout), your deduction would be reduced from $12,000 to $6,000 total. If you are filing single and your MAGI is $125,000 ($50,000 over the phaseout), your deduction would be reduced from $6,000 to $3,000.
While the standard deduction and $1,600/$2,000 deduction will increase with inflation, the $6,000 deduction will not.
Please note that the OBBBA did not change how Social Security is taxed. There was talk about making Social Security not taxable, but that did not happen. This $6,000 deduction will help some people age 65 and older, but for those claiming Social Security at 62, 63, or 64, it does not help them.
There used to be personal exemptions under the tax code we have in 2017. The OBBBA eliminated that personal exemption, instead opting for a larger standard deduction.
What this means for married couples who are 65 and older is that they may have a new total deduction of $46,700 ($31,500 standard deduction + $3,200 + $12,000) and single filers may have a total deduction of $23,750.
Planning Tip: The higher standard deduction should lower taxes for many people. It should also allow more room for capital gains recognition and Roth conversions, but you should be careful about how much income you create if you are over 65 or older as it could phase you out of the $6,000 deduction. That’s not the end of the world as the phaseout might mean a couple percentage points in additional taxes. That’s not terrible if you are converting at 22% and plan to be in the 35% tax bracket or higher in later retirement. Even if the 22% effective rate changes to 25% based on the phaseout of the enhanced $6,000 senior deduction, that’s still lower than 35%. This is similar to IRMAA adjustments. It’s something to account for in tax projections, but not something that typically changes the entire strategy of how much of a conversion to do.
Changes to Enhanced Affordable Healthcare Act Premium Tax Credits
The “subsidy cliff” will be back in action. For those that have incomes above 400% of the poverty line, there used to be a subsidy available, but there won’t be going forward. Even $1 of additional income may eliminate a subsidy.
Some people may see their health care insurance coverage costs rise significantly — some may even see it more than double.
KFF has a calculator where you can estimate how much more your healthcare coverage may cost if you are purchasing it off the healthcare change.
Below is an example of the calculator for someone who is 55 years old earning $75,000 in Seattle, WA. As you can see, this person would receive no financial help given the passage of OBBBA, but used to receive an approximate $219 per month. That’s a small increase compared to one of the examples the website gives of a family having their payment increase by over $2,000 per month.
Planning Tip: Given the cliff cut off, it will be more important to carefully estimate income if trying to qualify for a subsidy. People in retirement often kept their income purposefully low to qualify for the subsidy. If they no longer qualify or are at risk of not receiving a subsidy, they may want to consider other tax strategies, such as Roth conversions.
Lifetime Estate and Gift Tax Exemption Increased
A huge concern for those with more than $5M in their estate was the lifetime estate and gift tax exemption amount, but with the passage of OBBBA, this amount has increased to $15,000,000 per person in 2026 and will increase by inflation.
Planning Tip: Although the lifetime estate and gift tax exemption amount was raised, certain states, such as Oregon and Washington, have far smaller exemption amounts and many people should still be making plans to reduce state estate taxes.
SALT Taxes Increased
The State and Local Taxes (SALT) were heavily debated, and that’s likely why the SALT cap increased from $10,000 to $40,000, but only through the end of 2029. If there is no future legislation, the SALT cap will be reduced to $10,000 again in 2030. The $40,000 will be increased by 1% each year through the end of 2029.
You still must itemize deductions to be able to take advantage of the increase in SALT taxes, which given the higher standard deduction, may be a challenge.
There is a phaseout starting at $500,000 of MAGI and being fully phased out to a limit of $10,000 at $600,000 of MAGI. The phaseout is 30% for every $1 over the limit. This phaseout makes income tricky between $500,000 and $600,000 as some tax payers could see a tax rate of about 45%.
Pass-through-entities (PTE) can still fully deduct by bypassing the SALT deduction cap.
Planning Tip: Run a tax projection each year and if you have income between $500,000 and $600,000, you may actually want to recognize more income, such as with Roth conversions or capital gains. Or, you may decide earning slightly more is not worth it if your effective rate is over 45% — possibly more when you include state taxes.
Charitable Deductions Without Itemizing
If you are taking the standard deduction and not itemizing, starting in 2026, you can fully deduct up to $2,000 of charitable contributions if married filing jointly or $1,000 if filing single. These contributions must be made in cash directly to a charity (i.e. donations to Goodwill, cash donations to a donor-advised fund, and stock donations do not count).
Unlike other changes that are temporary, this is a permanent change.
Planning Tip: If you are not in the habit of saving your charitable acknowledgements, I recommend making a PDF of it throughout the year and saving it to your tax file. It will make it easy to quickly add up what you gave.
Charitable Deductions Above 0.5% of AGI
Most of the tax changes were favorable for higher income earners, but one piece of the legislation that may catch people off guard is that if you itemize deductions, you can only itemize charitable deductions that exceed 0.5% of your AGI.
For example, if your AGI is $100,000, you can only itemize charitable deductions that exceed $500. If you gave $2,000, only $1,500 would be eligible for a charitable deduction.
For those in the 37% tax bracket, charitable donation benefits are capped at 35% instead of 37%. For example, if you are in the 37% tax bracket and gave $1,000, you would be limited to a $350 deduction instead of $370.
This is similar to how medical deductions can only be itemized if they are above 7.5% of AGI.
The law also says which type of charitable contributions are reduced by the 0.5% AGI floor first. It’s below:
- Capital gain property to non-public charities
- Capital gain property to public charities using fair market value
- Cash to non-public charities
- Land or real estate donations to qualified conservation organizations
- Capital gain property to public charities using cost basis
- Cash to public charities
For those planning to give to charity, they may want to do it in 2025 before the floor applies.
If there is a 0.5% reduction, it can be carried forward to future years, but only if the contributions exceed the AGI limit for the contribution type, such as 60% of cash contributions to a public charity or 30% of capital gain property using the fair market value. This means there may be times where it may make sense to go over the AGI limit to be able to carry forward that reduction instead of it being lost.
Final Thoughts – My Question for You
The One Big Beautiful Bill Act changes retirement planning. Instead of worry about higher taxes, there are likely at least a few more years of lower taxes, at which point it’s a guess about whether tax rates will rise.
For many in early retirement, it can still make sense to do Roth conversions to hedge not only future tax rates being higher, but simply being in a higher tax rate due to increased income in your 70s and 80s when RMDs are likely to be higher.
For those trying to optimize taxes over their kids and grandkids lives, tax planning is still as important as ever. Although there are new deductions with lower income phaseouts, such as the $6,000 Enhanced Senior Tax Deduction, there may be situations where it makes sense to forgo the deduction for longer-term tax planning.
I’ll leave you with one question to act on.
What actions will you be taking in response to the OBBBA?
