Retirement Tax Planning After the One, Big Beautiful Bill Act

by Tami McDonald | Oct 22, 2025 | Financial Planning

The One Big, Beautiful Bill Act [OBBBA] brought significant changes to tax law, and some aspects of the bill directly impact taxation of retirement income. By understanding the changes and the parts of the tax code that remained the same, you can adapt your financial strategy to be as tax efficient as possible.

What Changed in the One Big, Beautiful Bill Act?

The OBBBA introduced many changes in various aspects of the law, but three were particularly important for retirees – a permanent increase to the standard deduction, a higher standard deduction for seniors, and a higher SALT limit. All three of these changes can help reduce tax liability for seniors.

TCJA Standard Deduction Increase Made Permanent

The 2017 Tax Cuts and Jobs Act [TCJA] increased the standard deduction temporarily, and the OBBBA made this increase permanent. The standard deduction is the portion of income that is excluded from federal income tax for people who do not itemize deductions.

After the OBBBA, the 2025 standard deductions are:

$31,500 for Married Filing Jointly and Qualifying Widow(er)s
$15,750 for Single and Married Filing Separately
$23,625 for Head of Household

These figures will continue to be adjusted for inflation each year, and the higher standard deduction helps reduce taxable income for people of all ages. Other provisions of the OBBBA provide targeted tax relief for seniors.

Increased Standard Deduction for Some Seniors

The OBBBA also introduced a temporary “bonus” deduction for seniors. It allows people aged 65 or older to deduct an additional $6,000 per person for tax years 2025 through 2028.

The bonus deduction is in addition to the existing increased standard deduction for seniors, and it applies whether you itemize or choose the standard deduction. However, the new deduction is phased out for taxpayers with Modified Adjusted Gross Income [MAGI] over $75,000 or $150,000 for joint filers.

SALT Deduction Quadrupled

Itemizers also received a benefit from the OBBBA with a significant increase to the State and Local Tax [SALT] deduction. The act raised the cap on this deduction from $10,000 to $40,000 for some taxpayers.

The cap will further increase by 1% per year through 2029. After that time, it is scheduled to revert to $10,000.

Like the bonus deduction for seniors, the SALT deduction is subject to an income phaseout. This deduction is reduced for taxpayers with MAGI over $500,000 and is fully unavailable for those with MAGI over $600,000.

What Stayed the Same After the OBBBA?

While the OBBBA made significant changes to retirement taxation, many of the core aspects of tax calculations remained the same. To optimize your personal tax situation, you need to understand both what changed and what did not.

Pension and Retirement Account Income Is Still Subject to Tax

Income from Traditional pension plans, Traditional IRAs, and Traditional 401(k)s will continue to be taxed as ordinary income in the year you receive it. However, income from these sources is not considered “earned income,” so it is excluded from Social Security and Medicare [FICA] taxes.

Social Security Income Is Still Subject to Tax for High Earners

The OBBBA did not eliminate tax on Social Security benefits or change the way these taxes are calculated. The amount of benefits subject to tax is based on your Provisional Income – your Adjusted Gross Income plus non-taxable interest and half of Social Security benefits. If your Provisional Income is above certain thresholds, up to 85% of your benefits could be taxed.

Non-Retirement Investment Income Is Still Subject to Capital Gains Tax

The tax on long-term capital gains also remained the same under the OBBBA. This tax applies to investments you sell in a non-retirement account, such as a brokerage account, after holding them for one year or longer. Your capital gains tax rate depends on your income and ranges from 0% to 20%.

Your retirement tax plan should take these factors into account as well as other common types of taxes like income tax on dividends in non-retirement accounts, property taxes, and Net Investment Income tax if you have significant income. Balancing these different taxes and adapting to changes as they occur is challenging to do alone. Fortunately, an experienced financial advisor can help you determine which taxes apply in your situation and estimate your future liability.

Prepare for Retirement Taxes with Brookstone Wealth Management

At Brookstone Wealth Management, our experienced team can help you adjust your financial plan to account for tax law changes – including those in the OBBBA. We help with all your retirement planning needs, whether you are saving for retirement or currently retired.

Our financial planning process centers around a comprehensive wealth management plan called Financial Fingerprint®. It brings together the most important aspects of your financial life in one plan that is simple to understand and easy to modify as your circumstances change.