One Big Beautiful Bill: Massive Tax Changes for Retirees & Pre-Retirees

Hey, guys. Mike Frontera here. Back with another Retirement Theory video. So President Trump just signed into law one of the largest tax reform packages we've seen in years. It is the One Big Beautiful Bill Act, or OBBBA for short. Now I'm just going to call it “Ahb-bah” for short—not to be confused with the Swedish band ABBA.
Either way, if you are planning for retirement or are retired, this is nothing short of a game changer. And by the way, I'm not here to say if this bill is excellent for the country, or terrible, or if Trump is an angel or a devil or whatever—anything political. These are the cards that we are dealt with, and I'm just here to help you make the best hand out of it.
Also, this bill is huge and it covers way more than just taxes. But today I'm just going to be talking about those tax aspects and the ones that are the most relevant and impactful for you, the retiree, or for the ones who are planning to retire soon. And there are some of those that I've left off, and I'll go over more in a future video. But these are some of the real biggies to start with. So let's dig into these new rules and see how you can make the most out of them.
So first things first are the tax rates themselves. Back in 2017 during Trump term one, he passed the Tax Cut and Jobs Act, which reduced tax rates almost across the board. So you can see in almost every tax bracket there was a 3 or 4 point reduction in tax rate. These rates were set to expire at the end of this year. You know, we were talking with clients about doing Roth conversions or possibly accelerating some income into these years before those tax rates went back up, because there was a lot of uncertainty with an expiring tax rate.
But now with OBBBA, those new lower tax rates have been made permanent. And so let's just clarify what we mean when we say a permanent tax change. And this is important because a lot of the other changes within OBBBA are set to expire. A change that is permanent just means it will not automatically revert to the way it was after some period of time. It's not like a tattoo on your face that'll never change. It's just that Congress would need to get together to pass new legislation to change the existing rules. And with tax rates now reduced and permanent, that may be a very tough thing politically for Congress to do in the future.
All right. So let's give a quick example of how your income actually is applied to these different tax brackets. So let's pretend that you have a taxable income as a married filing jointly household of $100,000. How it's going to work is the first $23,850 of income will be taxed at a 10% rate. Then starting at the 12% tax rate, you'll see already, they're calculating in that 10% on the first $23,850. So $2,385 plus 12% on the amount over that until you reach the end of that tax bracket. That would get you up to $96,950 of income. So then we push into the 22% tax bracket, at which point the remaining $3,050 would get taxed at 22%, and we would start with $11,157, which represents both the $2,385 from the 10% tax bracket and the difference of that in the 12% tax bracket.
All right. Now let's talk about some of these deductions. Because when I said $100,000 of taxable income, that's not the gross income that you're paying tax on. You have deductions off of that gross income. In other words, we don't pay taxes on our gross earnings—Social Security, IRA withdrawals, etc.—we get to deduct money off of that gross total first.
And one of the biggest deductions that we get as taxpayers is the standard deduction. One of the other changes back in 2017 under the Tax Cuts and Jobs Act was nearly a doubling of that standard deduction. So not only were the tax rates themselves on sale, we were able to deduct more money off of that gross income to arrive at our taxable income. And again, these standard deductions, like those lowered tax rates, were set to expire at the end of this year. Those have also now been made permanent.
But wait, there's more. Before OBBBA was passed, the standard deduction for a single filer had gotten up to $15,000 and it was $30,000 for married filing jointly. But everyone, as part of OBBBA, got a little bump in their standard deduction. So now you'll see for 2025, the single filer standard deduction is $15,750, and for married filing jointly it's up to $31,500.
And now how about for folks who are 65 years or older? Well under the current law you would get an extra $2,000 deduction as a single filer or $1,600 for each member of the household in a married filing jointly that was 65+. That little bonus deduction has also been made permanent.
Now, if you remember, during the campaign, Trump talked a lot about no taxes on Social Security. Well, we didn't really get that. But what seniors who are 65 years and older did get was an extra bonus standard deduction on top of those higher deduction amounts. That is $6,000 as a single filer and $12,000 as a married filing jointly. And by the way, that's already effective for 2025.
So now if you're starting to do some of this math in your head—for couples who are both 65 years or older—you tally all that up: it’s $31,500 plus $3,200 plus $12,000. That’s $46,700 that you get to take off of your income as your standard deduction. And so while that is not explicitly a “no tax on Social Security,” for many, many taxpayers, it will effectively make it that their Social Security is tax-free.
But there's a catch. That extra bonus deduction is not permanent. That is set to expire at the end of the 2028 tax year. More critically, that deduction has an income phaseout associated with it that starts at just $75,000 for single filers and $150,000 of income for married filing jointly. And here's where it gets a little bit tricky: when your income starts creeping into one of those phaseout ranges, you're not just paying tax on that extra income. You also start losing deductions as you go through the phaseout range.
So just like a quick hypothetical example—if you had $1,000 more of income, but that thousand dollars causes you to lose $300 of a deduction that you previously had, you are effectively getting taxed on $1,300 for a $1,000 increase in income. So it's sort of like a stealth tax increase that is built into these income phaseouts.
And there are more phaseouts as we go along here. But this next deduction doesn't have a phaseout. And it's permanent. It is an above-the-line deduction for charitable contributions. And that starts next year in 2026. One of the side effects of having this really high standard deduction is that it becomes very difficult for people to itemize and get enough deductions together to get over that huge hump—again, $46,700 level—to be able to itemize deductions like charitable contributions.
So starting next year, in 2026, single filers will be able to deduct up to $1,000 in cash charitable contributions. And that’s $2,000 for married filing jointly. Again, no income thresholds. And it's permanent. So be generous and keep your receipts.
And now here's another above-the-line deduction that is effective this year. Taxpayers can now deduct up to $10,000 of loan interest on the purchase of a new car. This applies to cars that are purchased between January 1st of 2025 and December 31st of 2028. So that means it is not permanent—it’s a bit more time-sensitive.
Here are the rules around that one: it is only for new cars that have their final assembly in the United States. It is limited to one car per taxpayer per year. And there is that limit of $10,000 of interest. This one also does phase out for higher income earners. That phaseout starts at $100,000 for single filers, and goes up to $150,000—and $200,000 up to $250,000 for married filing jointly.
Okay. Now this next one really hits home, especially if you call your home New York, California, Massachusetts, or any other of these high-income states. One of the biggest itemized deductions that we have in a high tax state is the state and local tax—or SALT—deduction. When you deduct SALT, you are deducting either your state income taxes or sales tax paid and your local property taxes. And so for a lot of us, that can easily climb into the tens of thousands of dollars. Yeah, we really do pay that much to be here.
But under the Tax Cut and Jobs Act, we were limited to a maximum of $10,000 for that SALT deduction. So now under OBBBA, that cap has been raised to $40,000. Unfortunately, this one is not permanent and is set to expire at the end of the 2029 tax year. It also has an income phaseout, which starts at $500,000, both for single and married filing jointly households.
Okay, the last one I'll go through today is one that was hit on the campaign trail a number of times. It is the “no tax on tips and overtime” rule. So starting this year, in 2025, you can deduct 100% of your tips and your overtime income—subject to some limits, which I'll go over in a second. This is an above-the-line deduction, which again means you don't have to get over that standard deduction hurdle to be able to take it.
The limit is $25,000 per tipped worker in the household. And on the overtime, the limit is $12,500 for a single filer and $25,000 for a married filing jointly. A big important caveat here is this one also has an income phaseout limit, which starts at $150,000 for single and $300,000 for married filing jointly.
Now, as I said at the beginning of this video, there is a lot to unpack in this OBBBA tax reform package. I'm just giving you the highlights. We haven't talked anything about Trump accounts, scholarship donation tax credits, higher child tax credits, adoption credit changes, HSA changes, or any of the changes for small businesses. But for now, the big takeaway here is that most everybody will have smaller tax bills come April—at least for the next several years. But getting the most benefit out of these changes is going to require much more awareness of your current tax picture and what your future tax picture may look like.
It will require more careful planning about how much income to take and when to take it. We have a slew of new income phaseouts that are kind of all over the map, and a whole variety of timeframes of when these things will start, when they'll end, and which ones were made permanent. Frankly, this is one of the reasons why working with a proactive, tax-focused planner can be so valuable.
So do you have questions for me? Come visit me at RetirementTheory.com or send me an email at Mike@RetirementTheory.com. Once again, thanks for joining me. We'll see you next time.