The One Big Beautiful Bill Act: What It Means for Your Retirement

The One Big Beautiful Bill Act Highlights: A Summary of Critical Changes 

The Tax Cuts and Jobs Act (TCJA) was implemented during President Trump's first term in office, significantly lowering tax rates and brackets for many Americans. However, these provisions were scheduled to sunset in December 2025, creating uncertainty for long-term financial planning. 

On July 4th, 2025, the One Big Beautiful Bill Act (OBBBA) was signed into law after the House approved the changes made by the Senate on July 3rd. This comprehensive legislation includes numerous tax and finance-related provisions that will impact retirement planning, tax strategies, and wealth preservation for years to come.

Some provisions take effect this calendar year, while others will be implemented in 2026 and the following years. 

After carefully reviewing the legislation, we've identified several key changes that will be most pertinent to go over in your financial plan: 

Permanent Tax Rates and Brackets: The current tax rates and brackets established under the TCJA have been made permanent and will continue to be indexed for inflation. This provides valuable certainty for retirement planning and income strategies.

Enhanced SALT Deduction: The State and Local Tax (SALT) deduction cap has been temporarily increased from $10,000 to $40,000 for tax years 2025 through 2029. However, this enhanced deduction is only available for taxpayers with Modified Adjusted Gross Income (MAGI) less than or equal to $500,000, with a phaseout reducing the benefit until it's completely eliminated at $600,000 MAGI.

Additional Standard Deduction for Seniors: A temporary additional standard deduction of $6,000 for single filers and $12,000 for joint filers age 65 and older has been implemented effective immediately through 2028. This deduction is subject to income limits, phasing out between $75,000-$175,000 MAGI for singles and $150,000-$250,000 MAGI for joint filers.

Social Security Benefits: Contrary to some news reports, the OBBBA does not change how Social Security benefits are taxed. However, the additional standard deduction for seniors may indirectly reduce the taxation of these benefits by lowering overall taxable income.

Trump Accounts: A new tax-advantaged savings vehicle has been created for children and grandchildren. These accounts receive an initial $1,000 government deposit for newborns (2025-2028) and allow family contributions up to $5,000 annually starting in July of 2026. While these accounts offer potential tax benefits, they come with restrictions and should be evaluated alongside existing options like 529 plans (which offer immediate tax benefits in many states) and Roth IRAs (which have no capital gains concerns and more flexibility).

Tax-Free Income Opportunities: Temporary provisions create above-the-line deductions for tips (up to $25,000), overtime pay (up to $12,500 for singles/$25,000 for joint filers), and car loan interest on new American-made vehicles (up to $10,000).

Clean Energy Credits: Various clean energy tax credits will sunset earlier than originally planned, most between 2025-2026 instead of the previously scheduled 2032-2033 expiration dates. 

Estate Tax Changes: The estate tax exemption has been made permanent and will continue to be indexed for inflation, increasing to $15 million per person as of 2026

Child Tax Credit: Increases from $2,000 to $2,200 per eligible child under 17 and will be indexed for inflation starting in 2026. 

This blog post examines these provisions in detail and explains how they might affect your retirement planning and overall financial strategy. While the OBBBA provides clarity in many areas, the temporary nature of some provisions requires careful planning to maximize benefits while they're available.

In-Depth Analysis: One Big Beautiful Bill Act Provisions and Retirement Planning Implications 

As financial advisors serving clients throughout Massachusetts, New Hampshire, and Michigan, we understand that tax legislation can significantly impact your financial and retirement planning. Let's explore these changes in more detail and what they could mean for your financial future. 

Table of Contents

What These Changes Mean for Your Finances

Tax Rates and Brackets | Estate Tax Changes | Deduction Updates | Standard Deduction | SALT Deduction | Charitable Deductions | Mortgage Interest Deductions | Child Tax Credit | Social Security Benefits | Clean Energy Credits | No Tax On Tips, Overtime, Car Loan Interest | Trump Accounts | Dependent Care Changes | Tax Definitions & Terms

Tax Rates and Brackets 

Key Change: The current tax rates and brackets established under the TCJA have been made permanent. 

What This Means for You: This provides long-term stability for retirement planning. The tax rates will continue to be indexed for inflation, allowing for predictable tax planning strategies. For retirees and those approaching retirement, this consistency is valuable for projecting future tax liabilities and planning withdrawal strategies. 

Planning Opportunity: With the current rates and brackets made permanent, planning for Roth conversions will be the primary opportunity.  The rates are lower, and the brackets are more broad making way for higher conversion amounts, IF it's the right thing for your individual situation.  There are other factors as well, but this is the first hurdle. 

Estate Tax Changes 

Key Change: The estate tax exemption has been made permanent and will continue to be indexed for inflation, increasing to $15 million per person as of 2026.  

What This Means for You: This represents a significant opportunity for high-net-worth individuals and couples to transfer wealth to the next generation with reduced tax implications. For our clients in Massachusetts, New Hampshire, and Michigan with substantial assets, this permanence provides certainty for estate planning purposes.  

Planning Opportunity: Peace of mind that the exemption amount is not going to be reduced, so it will not be necessary to draft estate documents to account for the reduced exemption. 

Deduction Updates 

Standard Deduction 

Key Change: The higher standard deductions were due to the repeal of exemptions in the TCJA.  With the OBBBA, the exemptions have been permanently discontinued, therefore maintaining the higher deductions. Additionally, there is a temporary bonus deduction for those 65 and older through 2028 - you may hear this referenced as a temporary exemption.  

Key Point: The 2025 standard deductions have been slightly increased also. 

Details: 

• This additional deduction is available for both those who itemize and those who use the standard deduction 
• Maximum amount: $6,000 per person for single filers and $12,000 for joint filers 
• Indexed for inflation 
• Subject to income limits:  
• Full deduction available for MAGI up to $75,000 for single filers and $150,000 for joint filers 
• Phases out at a rate of 6% for each dollar above those thresholds 
• Fully phased out at $175,000 MAGI for single filers and $250,000 MAGI for joint filers  

What This Means for You: For retirees 65 and older, this represents a 2substantial potential tax saving. For a married couple, both of whom are over 65, this could mean an additional $12,000 deduction, significantly reducing taxable income. 

Detailed Example: Let's examine how the phase-out works using specific MAGI levels: 

 Calculation method: 

• For the single filer with $100,000 MAGI: They exceed the $75,000 threshold by $25,000 
• Reduction = $25,000 × 6% = $1,500 
• Final deduction = $6,000 - $1,500 = $4,500 

SALT Deduction 

Key Change: Temporary increase to the State and Local Tax (SALT) deduction cap from $10,000 to $40,000 for tax years 2025 through 2029, subject to income limits. As of 2030, it will revert to the current limitation of $10,000 (real estate and income taxes). 

Details: 

• Available for taxpayers with MAGI ≤ $500,000
• Phaseout is $0.30 for every dollar over $500,000
• The $40,000 cap and $500,000 limit increase 1% annually through 2029
• Effective starting in 2025 

Phaseout Examples: 

As the table shows, once your MAGI exceeds $600,000, the SALT deduction reverts to the current $10,000 limit.  

What This Means for You: This is particularly significant for our clients in Massachusetts and other high-tax states where state income taxes and property taxes often exceed the current $10,000 cap. For many retirees with significant property tax burdens and state income taxes on retirement distributions, this increased cap could make itemizing deductions more advantageous than taking the standard deduction. 

Planning Opportunity: This increase in the SALT deduction will be impacted by the timing of larger IRA distributions, Roth conversions, and decisions regarding increasing income. These could be high earners who have deferred compensation options, or a consultant who is considering increasing their hours.  Granted, you never want to make a decision solely based on the tax impact, but evaluating is encouraged and we will work with you to ensure you make an educated decision. 

Charitable Deductions 

Key Changes: 

• For those who itemize: Cash contribution limit increases to 60% from 50% and contributions must exceed 0.5% of taxpayer’s contribution base, effective 2026 
• For those using the standard deduction: A new above-the-line deduction of $1,000 for single filers and $2,000 for joint filers, effective 2026 

What This Means for You: If you itemize, you can deduct up to 60% of your AGI, though the first 0.5% is not deductible. 

If you don't itemize, you will be able to deduct up to $1,000 of cash contributions if single, and up to $2,000 if married.  This re-instates a temporary allowance that had been introduced during COVID, though those deductions were only $300 and $600, respectively.  

Planning Opportunity: Particularly, for those who itemize, combined with the increased SALT deduction, you may find yourself with higher deductions than the standard deduction. For those who use the standard deduction, this can be of benefit to lower your taxable income.   

Mortgage Interest Deductions 

Key Changes: 

• The $750,000 cap on deductibility of mortgage interest is made permanent 

• Mortgage insurance premiums are reinstated as an itemized deduction 

What This Means for You: For homeowners in retirement or approaching retirement with mortgages, these provisions provide clarity for long-term planning.  
 
Planning Opportunity: If you are paying mortgage insurance premiums, combined with the increased SALT deduction, this may result in your being eligible to itemize again since you clearly have mortgage interest. This may be of benefit to young new homeowners with higher interest rates, who may be paying insurance premiums. 

Child Tax Credit 

Key Changes: 

• Increases from $2,000 to $2,200 per eligible child under 17 
• Will be indexed for inflation starting in 2026 
• Continues as a partially refundable credit 

What This Means for You: For grandparents who may be supporting grandchildren or for those in their 30s, 40s, and 50s who still have dependent children, this enhanced credit provides additional tax relief. The inflation indexing ensures the credit maintains its value over time. 

Planning Opportunity: If you are paying for more than 50% of a grandchild's care and they lived with you, you most likely will be able to claim them as a dependent and be eligible to claim this credit.  Please be aware there are certain requirements to claim them as dependents. 

Social Security Benefits 

Key Change: Contrary to some news reports, there is no change in how Social Security benefits are taxed.  

What This Means for You: While there is no direct change to Social Security taxation, the temporary additional deduction for seniors will result in reduced taxable income. This may indirectly lead to less taxation of Social Security benefits for some retirees. 

With this increased deduction of $6,000 per person, for those who qualify for any amount of this deduction, this lowers their taxable income, part of which is their taxable Social Security benefits.

For example: If a retired couple qualifies for the full $12,000 deduction but their taxable Social Security benefits are only $10,000 it appears that their Social Security benefits are not taxed but that is not the case - it's simply that the deduction reduces the total amount of their taxable income which in this example happens to coincide with being more than their Social Security benefits. 

Clean Energy Credits 

Key Change: Various clean energy credits will sunset earlier than originally planned. 

Updated Expiration Dates: 

• New and used electric vehicle credits: sunset 9/30/2025 (previously 2032) 
• Commercial vehicles: sunset 9/30/2025 (previously 2032) 
• Charging stations: sunset 6/30/2026 (previously 2032) 
• Home improvements: sunset 12/31/2025 (previously 2032) 
• Residential clean energy: sunset 12/31/2025 (previously 2033) 
• Commercial clean energy: sunset 6/30/2026 
• New energy-efficient home construction: sunset 6/30/2026 (previously 2033) 

No Tax On… 

The OBBBA introduces several temporary provisions that allow certain types of income to be effectively tax-free through above-the-line deductions. 

Tips 

Key Change: Temporary tax deduction for tips effective 2025 through 2028. 

Details: 

• Above-the-line deduction reported on tax return 
• Subject to income limits 
• Can deduct up to $25,000 of tips reported on statements 
• Tips still subject to Social Security and Medicare taxes 

What This Means for You: The tips you can exclude from income are only those that are reported as taxable income. Cash tips not reported on an official document will not be excluded. For retirees who work part-time in service industries or have family members who do, this provision could significantly reduce taxable income. 

Overtime Pay 

Key Change: Temporary tax deduction for overtime pay effective 2025 through 2028. 

Details: 

• Above-the-line deduction 
• Subject to income limits 
• Can deduct up to $12,500 (single filer) and $25,000 (joint filer) 
• Only eligible pay considered is that which is more than the regular pay 
• Only overtime pay required by the Fair Labor Standards Act (FLSA) qualifies  

What This Means for You: Retirees with hourly wages who may earn overtime, or any worker who is paid hourly and in particular those in seasonal jobs that may result in considerable overtime during peak seasons, this can be of significant benefit to lower your taxable income. For example, consider someone who works a 50-hour week for 8 weeks in the summer. With an hourly rate of $20/hour their overtime pay would be $10 of eligible overtime pay. That would be $800 of overtime pay that would be tax free. If they worked the same 50-hour work week for 4 weeks in the winter too, that is another $400 of overtime pay, so they would have a total of $1,200 of tax-free income.  For a college student, that could be substantial - it might cover the cost of books for 1-2 classes. 

Car Loan Interest 

Key Change: Temporary tax deduction for new car loan interest through 2028 effective now in 2025. 

Details: 

• Effective for loans taken out in 2025, possibly retroactive to the beginning of the year 
• Only eligible for loans on new, US-manufactured vehicles 
• Above-the-line deduction 
• Subject to income limits: Singles making < $100,000 and couples making < $200,000 
• Up to $10,000 for qualified vehicles 
• Only available to individuals, not businesses 

What This Means for You: For retirees considering purchasing a new vehicle or for those still working who need reliable transportation, this deduction could make financing a new car more attractive than in previous years. 

Trump Accounts 

One of the most discussed aspects of the OBBBA is the introduction of Trump accounts (formerly referred to as MAGA—Money Accounts for Growth and Advancement). These accounts represent a significant new tax-advantaged savings opportunity, primarily for younger generations, but with implications for family financial planning. 

Key Features: 

• Government Initial Funding: $1,000 deposit for newborns born between 2025-2028 
• Account Eligibility: Can be opened for any child up to age 8 
• Additional Contributions:  
  • Up to $5,000/year from parents and family 
  • Up to $2,500 from employers (not included as taxable income, but counted toward the $5,000 cap) 
  • Contributions starting in July 2026 
  • Can be made through age 18 for beneficiary 
• Investment Options: US stock index or other US equity index with low costs
  
• Distribution Rules:  
  • Up to 50% at age 18 for qualified expenses 
  • Up to 100% at age 25 for qualified expenses 
  • Full access for any purpose at age 30 
  • Qualified distributions taxed as long-term capital gains 
  • Non-qualified distributions taxed as ordinary income and subject to 10% penalty 
• Qualified Distributions for the Trump Accounts include: 
  • Funds used for education, first time home purchase, vocational education, or starting a small business 

What This Means for You: While these accounts are designed for children and grandchildren, they present one option among several for those looking to support younger generations financially. It's important to evaluate Trump accounts alongside established options like 529 plans and Roth IRAs.  

Comparing Education Savings Options: 

• 529 Plans: Offer immediate state tax deductions in many states, tax-free growth, and tax-free withdrawals for qualified education expenses with greater flexibility and higher contribution limits 

• Roth IRAs: Provide tax-free growth and withdrawals in retirement with no capital gains concerns, plus the ability to withdraw contributions at any time without penalty 
• Trump Accounts: Offer government seed funding, tax advantages for qualified withdrawals, but come with restrictions on timing and qualified uses 

Numerical Example: Let's examine the potential growth of a Trump account based on the following assumptions: 

• Government funding: $1,000 
• Annual family contribution: $5,000 (beginning July 2026) 
• Rate of return: 5% 
• Long-term capital gains tax rate: 15% 
• Ordinary income tax rate for non-qualified withdrawals: Variable plus 10% penalty  

For a child born in 2025 who receives the initial $1,000 government deposit and whose family contributes the maximum $5,000 annually: 

Tax Implications: 

• If taking qualified distribution at age 18: The distribution is less than the total contributions, so there may not be any taxable gain. However, it is unknown if the distribution would be pro-rata, so that some of it may be taxed, but this would be taxed at the favorable long-term capital gain rate of 15% 

• If taking non-qualified distribution at age 31: Approximately $57,316 in ordinary income tax plus 10% penalty 

This example illustrates the potential growth but should be considered alongside the greater flexibility and established benefits of existing options like 529 plans and Roth IRAs. 

Planning Opportunity: There is no restriction against having both a Trump account and a 529, so is a way to contribute another $5,000 into another account that grows tax-free.  Plus, for newborns 2025-2028, there is the $1,000 free money. If that is the only deposit into the account, at 18, with the same growth assumption, it is approximately $2,500. Not a significant amount by comparison to a 529 plan or Roth IRA, but could pay for some books for a student. 

Dependent Care Changes 

Key Changes: 

• Employer-provided dependent care assistance increases from $5,000 to $7,500 ($3,750 for MFS), effective 2026 
• Child and dependent care credit increases maximum credit rate from 35% to 50%, but phases out quickly once AGI exceeds $15,000, effective 2026. It is reduced to 35% once the AGI reaches $45,000. 
• The 35% rate is further reduced to 20% for AGI more than $75K for singles and $150K for joint filers. 

What This Means for You: For those caring for elderly parents or dependent adults while still working, these enhanced benefits could provide meaningful tax relief. The increased employer-provided dependent care assistance limit could be particularly valuable for those who balance caregiving responsibilities with continued employment.  

For those still working, and caring for elderly parents or dependent adults, who are living with them, these enhanced benefits could provide meaningful tax relief, even though it may only be the 20% credit. 

What These Changes Mean for Your Financial Life 

The One Big Beautiful Bill Act introduces several provisions that could significantly impact retirement planning: 

1. Tax Predictability: With permanent tax rates and brackets, you can now make more confident projections about your tax liability in retirement. 

2. Enhanced Deductions for Seniors: The temporary additional deduction for those 65 and older provides a meaningful tax break during a critical period in retirement planning. 

3. Estate Planning Clarity: The permanent estate tax exemption of $15 million per person (indexed for inflation) provides certainty for wealth transfer planning. 

4. New Savings Vehicles: Trump accounts offer a new tax-advantaged way to help future generations, which may be incorporated into broader legacy planning. 

5. SALT Relief: The temporary increase in the SALT deduction cap could significantly benefit retirees in high-tax states like Massachusetts. 

6. Charitable Giving Incentives: Enhanced charitable deduction options provide more ways to incorporate philanthropy into retirement planning. 

Next Steps to consider

Given these changes, we’d consider the following actions: 

1. Review Your Tax Strategy: Evaluate how these changes affect your current tax situation and whether adjustments to your withdrawal strategy or income timing would be beneficial. 

2. Update Estate Planning Documents: Ensure your estate plan reflects the new permanent estate tax exemption. 

3. Evaluate Charitable Giving Approaches: Consider whether the new charitable deduction provisions warrant changes to your philanthropic strategy. 

4. Assess Intergenerational Planning Opportunities: Determine if Trump accounts might be appropriate for children or grandchildren in your family. 

Remember that tax laws are complex, and individual circumstances vary. This overview is intended as educational information rather than specific tax advice. We're here to help you navigate these changes and optimize your retirement strategy accordingly. 

Tax Definitions & Terms

Above-the-line deduction: An item that receives tax preferential treatment. This lowers your taxable income. (Think of these as being comparable to pre-tax deductions from payroll.) Items include, but is not an exhaustive list 

• Deductible IRA contributions 
• HSA contributions (contributed directly to account, not withheld from paycheck) 
• Student loan interest 
• New car loan interest 
• New overtime pay 
• New tips 

Modified Adjusted Gross Income (MAGI): This number is often used as the basis for eligibility for a variety of tax credits and other tax benefits. The amount is calculated by adding in certain expenses that are otherwise excluded from your taxable income. Some examples are the above-the-line deductions. 

Refundable credit: When a taxpayer's tax liability is less than the credit to which they're entitled, the difference will be refunded. e.g. If the total tax liability is $1,500 and the credit is $2,000 then the taxpayer will owe nothing and will receive a $500 refund. The child tax credit is an example of a partially refundable credit whereas the Lifetime Learning Credit is nonrefundable. 

Tax credit vs. deduction: Tax credits reduce the amount of your tax liability dollar for dollar. A deduction, however, reduces your taxable income so the actual value of a deduction is less since it is dependent on your total taxable income and thus your tax bracket. 

- e.g. Credit: If your tax liability is $75,000 and you are eligible for a $1,000 credit, your liability is reduced to $74,000.

- e.g. Deduction: If your taxable income puts you in the 32% tax bracket, a $1,000 deduction would be worth $320, but if you are in the 10% bracket, it would mean just a $100 reduction of your taxable income. 

Tax liability vs. tax balance due: Tax liability is the full amount of one's taxes that are owed. The balance due is the liability less credits, withholdings, and estimated tax payments made. On the current Form 1040, your total tax liability is on line 24, but what you owe is on line 37 if your total payments (line 33) are less than line 24. When line 33 is more than line 24, you have overpaid and will receive a refund which is shown on line 34. 

Sources: "Text - H.R.1 - 119th Congress (2025-2026): One Big Beautiful Bill Act." Congress.gov, Library of Congress, 4 July 2025, https://www.congress.gov/bill/119th-congress/house-bill/1/text