What Retirees and Pre-Retirees Should Know About the New Tax Law

On July 4th, 2025, the One Big Beautiful Bill Act (OBBBA) was signed into law, ushering in a mix of tax law extensions, new phaseouts, and planning opportunities. Depending on the side of the political aisle, the “beauty” of this bill is likely subjective and held in the eye of the beholder as the old trope goes. However, “big” cannot be argued as reports confirm this new law is 870 pages. Trying to capture every single change along with the various effective tax years would challenge even the latest and greatest artificial intelligence (AI) models. Even with those great tools, applicability to every conceivable personal tax situation would make for an article so long it would certainly remedy even the worst cases of insomnia.

Instead, we’ll focus on the aspects of the law that are most meaningful for those nearing or already in retirement. We also highlight the tax years when these changes take place and whether they are temporary or permanent. Some provisions are deemed to be “permanent,” but this is a misnomer as any law change is only as permanent as the next administration and congress’ ability to change it.

From new deductions, retained provisions from prior law, estate tax rules, and a new account type to save for children, here’s what pre-retirees and retirees need to know, why it matters and what to do:

OBBBA permanently extends the current marginal tax brackets of 10%, 12%, 22%, 24%, 32%, 35%, and 37%, avoiding the automatic reversion to higher pre-2018 rates that was set to occur on January 1st, 2026.

However, beginning in 2026, a new restriction applies: for taxpayers in the 37% bracket, the value of their itemized deductions is capped at 35% of taxable income. This impacts high-income retirees with large charitable gifts, property taxes, and mortgage interest.

If you experience spikes in income—such as capital gains from a property sale, Roth conversions, or large RMDs—this cap could reduce the value of your charitable deductions starting next year.

• Consider timing major deductions and charitable gifts into years when you’re below the 37% bracket.
• Use Donor Advised Funds or Qualified Charitable Distributions (QCDs) (if over the age of 70 ½) to maintain giving efficiency without itemizing.
• Work with your CPA and wealth advisor to smooth income across years and avoid deduction cliffs.

Beginning in 2025, taxpayers age 65 and older can claim a new below-the-line deduction of $6,000 per person ($12,000 per couple if both qualify). This is in addition to the standard deduction and the age-based add-on.

However, the benefit begins phasing out at MAGI of $75,000 (single) or $150,000 (joint) and disappears completely at $175,000 and $250,000.

Contrary to the implication from the campaign stump, and even the Social Security Administration’s email to many seniors, this deduction does not reduce AGI and therefore has no impact on the taxability of Social Security benefits.

This deduction provides a short-term opportunity to reduce taxable income, but you must stay under the phaseout thresholds. For many retirees, this could be a meaningful reduction in federal tax liability.

• Be cautious about triggering additional income that could reduce or eliminate the deduction (e.g., Roth conversions or accelerated or large withdrawals from tax deferred IRAs).
• Don’t assume this deduction helps reduce Medicare premiums or the taxability of Social Security because it has no impact.

The deduction cap for state and local taxes (SALT) increases from $10,000 to $40,000 starting in 2025, with 1% increases through 2029. However, the expanded deduction begins phasing out at MAGI of $500,000 (single and joint filers) and fully phases out at $600,000. Married Filing Separately starts to phase out at $250,000 and fully phase out at $300,000. However, this SALT cap returns to $10,000 in 2030, assuming it does not get extended.

If you’re a retiree in a high-tax state like New York, New Jersey, or California, this expanded deduction may significantly reduce your tax bill— if you itemize and if your income stays under the phaseout limits. Even in Ohio, this increase to the cap could help lower federal taxes, assuming has other Schedule A itemized deductions such as high out-of-pocket medical expenses and charitable contributions.

• Investigate strategic timing for income and deductions in years when you can claim the full SALT benefit.
• Avoid bunching income into years that push you over the MAGI thresholds for phaseout.
• If in the phase out ranges, look to AGI-reducing strategies like QCDs (qualified charitable distributions) if over 70 ½.

Starting in 2026, deducting charitable contributions will be subject to a 0.5% AGI floor, meaning only the amount exceeding that 0.5% AGI threshold is deductible. For taxpayers in the 37% bracket, all itemized deductions (including charitable) are capped at 35% of taxable income.

This reduces the efficiency of traditional giving strategies, particularly for smaller or annual contributions.

• Prioritize QCDs from IRAs if you're 70½ or older. If 70½ but before RMD age, this just lowers the IRA balance, but at RMD age, QCDs reduce your AGI without requiring you to itemize.
• Use Donor Advised Funds to bunch multiple years of giving into one tax year and surpass the deduction floor.
• Try to make charitable gifts in lower-income years, when you can deduct more of your contribution.

Starting in 2026, the federal estate tax exemption has been permanently raised to $15 million per person, or $30 million for married couples, indexed for inflation going forward. This is a significant increase over the 2025 exemption of $13.99 million per person and avoids the reversion to back to the ~$7 million per person in 2026, which was assumed to happen had the bill not passed.

This offers meaningful flexibility for families with estates in the $15–30 million range but should not be viewed as permanent protection.

• Even if a potential estate tax isn’t expected, use the opportunity to meet with your estate planning attorney to update estate plans and consider strategies like SLATs, GRATs, or generation-skipping trusts.
• Take advantage of annual gifting exclusions and intergenerational wealth transfers while the rules remain favorable.
• Even with the higher exemption, it's critical to ensure beneficiary designations, titling, and trust structures align with your broader goals for passing assets to your heirs in a manner consistent with your family’s values.

The new law creates a special savings vehicle—informally referred to as a Trump Account—that allows contributions for minors without requiring their earned income. Though many details have yet to be fully disclosed, these accounts function much like Roth IRAs, offering tax-free growth and tax-free withdrawals if certain conditions are met, but they can be opened for children or grandchildren at any age under the age of 18.

For parents and grandparents, this opens the door to help fund decades of potentially tax-free compounding for the next generation. A relatively small contribution today could grow into a substantial nest egg by the time a child reaches retirement age. Starting in July 2026, contributions of up to $5,000 per year (indexed for inflation) can be made to a beneficiary before they turn 18. There is no tax deductibility for the donor or recipient, and there are other complexities with respect to integration with Roth IRAs

• Use part of your annual gifting strategy to fund a Trump Account each year.
• Pair contributions with financial education—help young beneficiaries learn about investing, compounding, and long-term savings discipline.
• Coordinate with 529 college savings plans, Roth IRAs, custodial accounts, and trusts to ensure each tool serves a distinct purpose in your family’s financial plan.
• For families with multiple generations, these accounts can complement broader legacy and estate planning strategies.

Many other changes may impact niche scenarios for retirees and their families:

• Marketplace (ACA) Healthcare Changes: Starting in 2026, the original income qualifications for tax credits for healthcare insurance are reverting to the original levels prior to 2021. This means retirees not on Medicare may see higher premiums starting in 2026 due to lower tax credits. This may be partially offset by expansion of HSA-eligible plans, which could help those choosing the correct plan type.
• Section 199A (Small business income deduction) was extended.
• Auto Loan Interest Deduction: Up to $10,000 of interest on qualifying auto loans is deductible through 2028.
• Deductions for Tips and Overtime: Up to $25,000 of such income is now deductible, which is helpful for children or grandchildren still in the workforce.
• Expanded 529 Plan Uses: Funds may now be used for K–12 learning materials and professional certifications.
• Clean Energy Credits Repealed: Popular credits for energy-efficient home upgrades and EVs are no longer available.
• Limits on Gambling Losses: Starting in 2026, only 90% of gambling losses can offset gambling income, reducing the tax benefit to the offset.
• No Casualty Loss Deduction Outside Disasters: Property losses are only deductible in federally declared disaster zones.

Tax planning is critical to any well-constructed wealth plan as taxes could be a retiree’s largest single cash outflow each year. The One Big Beautiful Bill Act preserved many taxpayer-friendly provisions but layered in new deduction cliffs, income phaseouts, and planning traps. It’s critical for families to work with their CPA and their wealth advisor to avoid pitfalls and take advantage of potentially beneficial tax strategies. It is important to always be vigilant to double check any “assumed” tax benefits with your advisor before filing and pay close attention to the effective date for many of these changes.

For retirees and pre-retirees—particularly those managing multi-year income and legacy plans—this law increases the value of coordinated tax and estate planning.