One Big Beautiful Bill Act: What Retirees Need to Know
Congress passed the One Big Beautiful Bill Act (OBBBA), a wide-reaching tax law that starts phasing in from 2025 through 2029. If you are already retired or approaching retirement, here’s how to know what impacts you and when.
Effective for 2025
$6,000 Personal Exemption for Retirees (65+)
You may claim a $6,000 personal exemption (on top of your standard deduction).
Phases out at $75K MAGI (Single) / $150K MAGI (Joint).
This provision ends after 2028.
Planning Opportunity: If you’re near the phaseout, manage income by timing IRA withdrawals, Roth conversions, or capital gains.
SALT Deduction Cap Increase (2025–2029)
Deduction cap rises to $20K Single / $40K Joint.
Runs from tax years 2025 through 2029.
Planning Opportunity: Consider “stacking” property tax or state estimated payments into one year for maximum benefit; if you own a pass-through business, look at entity-level tax elections.
Gradual Phaseout of SALT Deduction
Between $500K–$600K MAGI, the SALT deduction phases out.
This mostly affects higher-income retirees with investment income, real estate income, or business proceeds.
Planning Opportunity: Careful income management may help preserve deductions.
Effective for 2026
Charitable Deduction for Standard Deduction Filers
Even if you don’t itemize, you can claim $1,000 Single / $2,000 Joint.
Planning Opportunity: This helps retirees who give modestly each year but don’t itemize.
Charitable Giving Threshold (0.5% of AGI)
To deduct charitable donations as an itemizer, they must exceed 0.5% of your AGI.
Planning Opportunity: If you give significant amounts, consider “stacking” donations into certain years, possibly using donor-advised funds.
Higher Standard Deduction (Permanent Increase)
Raised to $15,750 Single / $31,500 Married, plus extra for age 65+.
Planning Opportunity: Even fewer retirees will itemize, making Qualified Charitable Distributions (QCDs) from IRAs more valuable since QCDs lower AGI regardless of itemizing.
TCJA Tax Brackets Made Permanent
Current bracket system (lower rates than pre-2017 law) continues indefinitely.
Planning Opportunity: More certainty around tax planning for Roth conversions, IRA withdrawals, managing capital gains.
Mortgage Interest Deduction Limits Made Permanent
Lower caps on mortgage interest deductibility will remain long term.
Planning Opportunity: Relevant mainly if downsizing or financing a new retirement home.
Estate & Gift Tax Exemption
Permanently set at $15M per person, indexed for inflation.
Planning Opportunity: While few will owe federal estate tax, state estate tax may still apply, so review beneficiary, trust, and gift strategies.
Always Effective / Expanded Access
Qualified Business Income (QBI) Deduction (Permanent Increase)
Deduction increased to 23% of qualified business income.
Retirees who own rental properties or small businesses may still benefit.
HSA Eligibility for Direct Primary Care (DPC) Users
You can keep HSA eligibility even with DPC.
This change allows you to use HSA funds to cover DPC fees, offering a more personalized approach to healthcare.
Planning Opportunity: If you prefer a more personalized approach to healthcare, such as a DPC model, this change allows you to stay eligible for HSA contributions while also using those funds to cover DPC fees and lower your taxable income
Overtime & Tip Income Deduction
Deduction up to $12,500 Single / $25,000 Joint for overtime pay and tips.
Phases out as income rises above $150K Single / $300K Joint.
Planning Opportunity: Useful mainly for working retirees in part-time jobs in hospitality, food service, or personal services.
Child Tax Credit Increase (less directly relevant to most retirees)
Raised to $2,200 per child, indexed.
Primarily benefits working families—mostly indirect impact on retirees (e.g., helping children or grandchildren).
2025 Immediate Impact:
New $6,000 personal exemption + higher SALT caps will directly affect many retirees’ tax bills.
2026 Big Shift:
Higher standard deduction and charitable giving rules reset the landscape for tax planning. At that point, most retirees won’t itemize.
Long-Term:
Estate & gift exemption, QBI deduction, and permanent brackets provide stability for multi-year planning.
Planning Opportunities
These changes present several planning opportunities for retirees. For example, managing adjusted gross income (AGI) through strategies like Roth conversions, capital gains harvesting, or adjusting IRA withdrawal timing can help maximize the benefits of the new personal exemption. Additionally, considering "stacking" your charitable giving to ensure your donations clear the new AGI threshold can be beneficial.
It's important to stay informed about these changes and how they might affect your financial planning. As always, consult with a financial advisor to tailor strategies to your specific situation.
Tony Powers, AIF®, CFP®, CRPS® Shareholder
Tony Powers, President of KerberRose Wealth Management, has more than 20 years of experience in the financial services industry. He specializes in helping private and public sector employers set-up and manage their employee retirement plans. Tony provides Fiduciary Services and Support, Plan Design Consultation, Plan Benchmarking and Financial Wellness.