What Retirees Should Know About the One Big Beautiful Bill Act

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If you are retired or nearing retirement, it’s important to stay informed about legislation that could affect your financial future. The recently passed One Big Beautiful Bill Act (OBBBA) is a sweeping piece of legislation aimed at streamlining government programs and modernizing benefits. While the name may sound lighthearted, the provisions inside carry serious implications for retirees. In this post, I will break down the key takeaways of the bill for retirees and those nearing retirement, explain what it means for your retirement plan, and help you prepare for what’s ahead.

It is important to note that some of these interpretations can change, and it is imperative that you consult your tax advisor before making any changes to your plan.

The main benefit to this bill is that it provides some certainty.  Prior to the passage of this bill, the changes to the tax law that occurred due to passing of the Tax Cuts and Jobs Act (TCJA) in 2017, would have gone away at the end of 2025.  Those changes have now been made permanent.  It is important to clarify that permanent does not mean there can be no change; a future administration or future congress can amend these changes.

Increased Deductions for Seniors

One key provision is that the reduced tax brackets and the increased standard deductions that the 2017 TCJA put into law are now permanent.  There is also a small increase in the standard deduction for 2025. It previously stood at $30,000 for married taxpayers filing jointly but the new bill increased that deduction to $31,500 ($15,750 for single filers).  It will continue to increase based on inflation for 2026 and beyond.

Seniors (taxpayers over age 65) will continue to get an additional $1,600 deduction per taxpayer over age 65.  However, one new provision is that there is a “senior bonus deduction” of $6,000 for each taxpayer over age 65.  This means that a married couple filing jointly, both over the age of 65, can take a standard deduction of $31,500 in 2025 plus an additional $3,200 ($1600 each for the over 65 deduction) plus an additional $12,000 ($6,000 each for the bonus deduction) for a grand total of $46,700 in deductions.  For most senior filers, this will be greater than their itemized deductions and higher than what they have been getting which will result in a lower tax liability than in years past.  If you do itemize, the bonus deduction of $6,000 for each taxpayer over age 65 will be in addition to your other itemized deductions.

One of the provisions that was being discussed was “no tax on Social Security payments.”  In fact, you may have even received an email from the Social Security Administration that could have led to you thinking that there will be no tax on social security payments.  However, this provision did not make it into the final bill that was passed.  This bonus deduction for seniors was a way to make up for this non-passage.

It is important to note that this bonus deduction will only be in effect until the end of the 2028 tax year unless Congress extends it.  There is also a phaseout of this deduction for higher-income earners.  For example, it begins to phase out for a married couple that files jointly when their Modified Adjusted Gross Income exceeds $150,000.

State and Local Tax Deduction

Another provision that can affect retirees that itemize their taxes is the increased State and Local Tax (SALT) deduction.  This deduction for any state and local taxes you pay (which includes property taxes) was limited to $10,000.  However, with the passage of OBBA, it has been increased to a cap of $40,000.  This is especially beneficial to those retirees living in highly taxed states.  Here also there are income phaseouts for taxpayers with a Modified Adjusted Gross Income higher than $500,000 and this higher deduction limit is not permanent.  It will expire at the end of 2028.

New Rules for Charitable Contributions

Charitable contribution deductions are another area that is affected by the new bill.  Starting in 2026, if you do not itemize your deductions and take the standard deduction, you can deduct up to $1,000 in charitable contributions ($2,000 for married filing jointly taxpayers).  If you do itemize, you can still deduct your charitable contributions; however, you will now only be able to deduct charitable contributions greater than 1/2% of your adjusted gross income.  For example, if your adjusted gross income is $200,000, you can only deduct your total charitable contributions beyond $1,000.  So, if you give $5,000 to qualified charitable organizations in 2026 and your adjusted gross income is $200,000, you can deduct no more than $4,000 of those contributions.  Given these new parameters, Qualified Charitable Distributions from your IRA may make more sense, especially if your income is high.  You should speak to your advisor or reach out to us to determine what would make more sense in your situation.

Other Provisions Including Estate Tax Changes and Auto Purchase Considerations

These are the main provisions that affect most retirees reading this article.  However, there are many retirees that could also be affected by the changes to the estate and gift tax exemptions that this law put into place.  It is important to reach out to your estate planning attorney or advisor to see if this affects you.  In addition, if you are contemplating a new vehicle, there are some provisions for the deduction of auto loan interest for some taxpayers.  You should speak to your tax advisor to see if this applies.  In addition, some tax credits that previously applied for electric vehicles may be sunsetting by September 30, 2025 so you will want to speak to your advisor soon.

One item in the bill that both sides can agree upon is that the new bill is BIG.  In fact, it is over 800 pages.  As such, there are many other provisions and details that could not be expanded upon in this short blog post.  This is why it is imperative to speak to your advisor to discuss which provisions may be applicable to your situation so that you can do the proper tax planning before the end of the year. For instance, Roth conversions, QCD’s and other tax planning strategies, could be highly beneficial now and could save you hundreds, if not thousands of dollars, in federal income taxes.  If you do not have an advisor, feel free to reach out to one of us by clicking here to call or email us or book a free consultation directly on our calendar.  We are happy to help.