Meet Jake, a soon-to-be retiree. He’s been carefully planning his finances, but one worry keeps him up at night: taxes. With prices rising and constant news about changing laws, Jake fears a big tax hike could shrink his hard-earned savings. If only Jake’s case was an isolated one, but unfortunately, 43% of Americans cite high taxes as a top concern for their retirement. Now, imagine Jake’s relief when a major new law named the “Big Beautiful Bill” is signed, changing many of the rules overnight. Officially called the One Big Beautiful Bill Act (OBBBA), it was signed into law on July 4, 2025. This law is the biggest tax overhaul since 2017, and it will likely have a significant impact on your retirement plans.
In this article, we’ll break down what the Big Beautiful Bill does and how it could affect your retirement planning. From tax rates and deductions to estate planning, a lot has changed (mostly for the better in our humble opinions), and there are new opportunities (and a few cautions) to consider.
Lower Tax Rates Are Here to Stay (No 2026 Tax Hike)
One of the most important changes for retirees is actually something not changing: income tax rates. Prior to this bill, the tax cuts from 2017 (the Tax Cuts and Jobs Act) were set to expire after 2025, which meant older, higher tax brackets would return in 2026. Many retirement plans (like Jake’s) assumed taxes might jump in a few years. No more. The Big Beautiful Bill makes the current tax brackets permanent. In other words, the same seven relatively low tax rates – 10%, 12%, 22%, 24%, 32%, 35%, 37% – will continue into the future instead of snapping back up. This removes a huge cloud of uncertainty from long-term planning.
2025 Federal Tax Brackets
Seven permanent tax rates: 10%, 12%, 22%, 24%, 32%, 35%, 37%
| Tax Rate | Taxable Income Range |
|---|---|
| 10% | $0 - $11,925 |
| 12% | $11,926 - $48,475 |
| 22% | $48,476 - $103,350 |
| 24% | $103,351 - $197,300 |
| 32% | $197,301 - $250,525 |
| 35% | $250,526 - $626,350 |
| 37% | $626,351 and above |
| Tax Rate | Taxable Income Range |
|---|---|
| 10% | $0 - $23,850 |
| 12% | $23,851 - $96,950 |
| 22% | $96,951 - $206,700 |
| 24% | $206,701 - $394,600 |
| 32% | $394,601 - $501,050 |
| 35% | $501,051 - $751,600 |
| 37% | $751,601 and above |
Why is this a big deal? Imagine planning your retirement withdrawals or Roth conversions, thinking you’d be taxed at 25% or 28% in a few years, only to find out it’ll stay 22% or 24% instead. That’s extra money staying in your pocket. It also means strategies like doing Roth conversions up to a certain tax bracket can be done with more confidence that the bracket will remain the same (though remember, “permanent” in Washington can always change with future laws).
New Tax Break on Overtime Pay (Helps Late-Career Savers)
The Big Beautiful Bill includes a tax break for overtime pay. Starting with the 2025 tax year, workers can deduct up to $12,500 of overtime pay from their taxable income each year (double that, $25,000, if you’re married and file jointly). So if you put in extra hours at work, a chunk of that overtime income won’t be taxed at all.
For example, suppose you normally earn $60,000 and put in enough overtime to earn an extra $10,000. Under the new law, that $10,000 could be deducted – so for tax purposes, it’s like you didn’t earn it, saving you potentially a couple of thousand in taxes. That extra savings could go straight into your 401(k), IRA, or an emergency fund for retirement. It’s a way of rewarding those who work overtime (think nurses, first responders, or just anyone hustling with extra hours) by letting them keep more of their money.
Overtime Tax Savings Calculator
Calculate your potential tax savings from the new overtime deduction (2025-2028)
Unfortunately, this deduction is temporary, only available for the years 2025 through 2028. It also phases out for high earners – roughly above $150,000 income (or $300,000 for couples), the benefit starts decreasing , so it’s really aimed at middle-income folks. But for many late-career professionals or anyone boosting their earnings as retirement nears, it’s a great opportunity. Take advantage while it lasts! Perhaps you’ll consider front-loading some extra work or overtime in the next few years, knowing you get a tax break for it.
Bigger Deductions for Seniors (Your Social Security May Be Untaxed)
Retirees age 65 and older just got a meaningful tax cut. The Big Beautiful Bill grants an extra $6,000 standard deduction per senior taxpayer. That means if you’re over 65, you can subtract an additional $6,000 from your taxable income on top of the regular standard deduction. For a married couple both over 65, that’s $12,000 extra. To put it in perspective, in 2025, a typical retired couple 65+ will have roughly a $45,000 standard deduction in total! (The standard deduction was about $33,000 before, now $33k + $12k = $45k for seniors.)
According to the White House, many ordinary retirees will pay little to no income tax, meaning Social Security benefits, which average around $30,000+ per couple annually, will now be completely tax-free at the federal level. It’s a big relief for middle-class retirees.
However, this senior deduction phases out for retirees with quite high incomes (above ~$150k joint), so very affluent seniors won’t get the full $6k each. But for most seniors, it’s fully available, and in fact, nearly all 65+ taxpayers will see immediate savings from this. Also, unfortunately, it’s temporary, since this extra $6,000 per person is set to expire after 2028 unless extended by Congress.
How does this affect your retirement plan?
If you’re nearing 65, it may influence the timing of certain income. For example, if you’re 64 and planning a big IRA withdrawal or Roth conversion, waiting until 65 could allow you to use the bigger deduction to offset it. And if you’re already over 65, you might choose to realize a bit more income (like capital gains or IRA distributions) each year up to that ~$45k/$22k (single) standard deduction threshold, essentially paying zero tax on that money. This is something a good retirement tax planner can help optimize.
State and Local Tax (SALT) Cap Raised (Helpful if You Itemize)
Do you live in a high-tax state or pay substantial property taxes? If so, you probably remember that ever since 2018, there’s been a $10,000 cap on state and local tax deductions (the SALT deduction) on your federal return. The new law raises that cap all the way to $40,000 (for married joint filers; $20k if single) starting in 2025. That’s a significant increase, intended to give relief especially to homeowners in high-tax states like New Jersey, New York, California, etc.
For example, if you pay $15k in property taxes and $5k in state income tax, previously you could only deduct $10k of that $20k total. Now, you’d be able to deduct the full $20k (since it’s under the $40k limit). This could noticeably lower your taxable income if you itemize deductions. Higher-income households with big SALT bills could save quite a bit in those years.
However, a few strings are attached. First, this higher SALT cap is also temporary, set to last through 2029 and then revert back to $10k in 2030. So it’s not a permanent repeal of the SALT limitation, just a reprieve. Second, not everyone can use the full $40k: if your adjusted gross income is over $500,000 (joint), the SALT deduction starts to phase out. Ultra-high earners ($600k+ joint) get no increase at all (they’re stuck with the same $10k cap as before).
If you’re retired and still paying a lot in state taxes, this is a welcome change. It might mean itemizing deductions becomes worthwhile again for you, whereas in the past few years, you might have just taken the standard deduction due to the low $10k SALT cap. It could be time to revisit your tax projection for 2025 onward: consider things like property tax prepayments or bundling deductible expenses in the years where you can take advantage of the $40k limit (before it potentially disappears in 2030).
Charitable Donations Get an Above-the-Line Deduction
Another tax perk in the bill: charitable giving deductions for non-itemizers are back (temporarily). During COVID (2020-2021), Congress let everyone deduct a small amount of charity donations even if taking the standard deduction. That expired, but starting in 2026, the Big Beautiful Bill brings back a similar break: up to $2,000 of cash donations ($1,000 if single) can be deducted in addition to your standard deduction. In other words, even if you don’t itemize, you can get a tax benefit for modest charitable gifts. This is great for retirees who give to churches, charities, or grandkids but don’t have enough deductions to itemize.
Charitable Deduction Benefits
Above-the-line deduction for non-itemizers (Starting 2026)
| Item | Amount | Notes |
|---|---|---|
| Adjusted Gross Income | $80,000 | Base income |
| AGI Hurdle (0.5%) | $400 | First $400 donated doesn't qualify |
| Total Charitable Donations | $1,500 | Cash donations to qualified charities |
| Qualifying Deduction | $1,100 | $1,500 - $400 hurdle |
| Estimated Tax Bracket | 12% | Based on income level |
| Item | Amount | Notes |
|---|---|---|
| Adjusted Gross Income | $60,000 | Base income |
| AGI Hurdle (0.5%) | $300 | First $300 donated doesn't qualify |
| Total Charitable Donations | $800 | Cash donations to qualified charities |
| Qualifying Deduction | $500 | $800 - $300 hurdle |
| Estimated Tax Bracket | 12% | Based on income level |
- No need to itemize: Keep your standard deduction and still get a charitable tax benefit
- Perfect for modest givers: Great for regular church donations, charity contributions, or gifts to grandchildren's causes
- Cash donations only: Must be cash gifts to qualified 501(c)(3) organizations
- Stacks with standard deduction: This is in addition to your regular $30,000/$15,000 standard deduction
For instance, if you and your spouse donate $1,500 to charity in 2026, you can take your standard deduction and additionally subtract that $1,500 when calculating taxable income. This could save a few hundred dollars in tax that you wouldn’t have saved under the old rules. The deduction maxes out at $2k (joint) per year, so larger philanthropists will still need to itemize to deduct more. Also, there’s a slight catch: there’s a 0.5% AGI “hurdle” – meaning the first 0.5% of your income given isn’t counted. But for most people, that just shaves a tiny amount off the benefit. (For example, if your AGI is $100k, the first $500 of your donations in a year isn’t deductible above the line, but the rest up to $2k is.)
Since it’s temporary, keep it in mind as you plan your charitable giving: you might choose to time some donations in these upcoming years to take advantage of the extra tax break. Every bit helps when stretching retirement dollars, and it’s nice to get some credit for charitable goodwill even if you use the standard deduction.
Estate Tax Exemption Jumps to $15 Million (Fewer Estates Will Pay Tax)
If you’re fortunate enough to have built substantial wealth, the Big Beautiful Bill has good news for your heirs. The federal estate tax exemption – the amount you can pass to your beneficiaries free of estate tax – increased to $15 million per person starting in 2025. It was about $13 million in 2023, and was scheduled to drop to around $7 million in 2026 before this law. Now, instead of shrinking, it leaped higher and was made permanent.
For most Americans, this means the federal estate tax will never be a concern. To give you an idea, only about 8 out of every 10,000 people who died in 2019 had estates large enough to owe federal estate tax. That was under the old ~$11 million exemption. With a $15 million exemption, the share of estates affected will be even smaller. In practical terms, unless your estate is approaching these 8-figure levels, you and your family won’t owe federal estate tax. You can focus your retirement and legacy planning on other things, like income taxes on inherited IRAs, or making sure assets go to the right people with minimal hassle.
If you previously set up complicated trusts solely to avoid estate tax, you might revisit those with your estate attorney. Many families won’t need those solely for tax purposes now (though trusts can still serve other goals like control of assets). Estate planning for most folks will remain more about ensuring your wishes are followed, minimizing income taxes on inherited assets, and efficiently passing on accounts (for example, using Roth conversions or life insurance to leave tax-free money to heirs). And if your estate is above $15M, you now have clarity on the threshold and can plan accordingly (maybe using more lifetime gifts or charitable bequests, knowing the limit).
Time to Review Your Plan (The Importance of Proactive Planning)
The “Big Beautiful Bill” brought a lot of changes, mostly positives for taxpayers, but also a lot of moving parts. Tax laws are complex, but utilizng them correctly can literally save you tens of thousands of dollars over a retirement, if not more. It’s wise to take this opportunity to review and update your retirement plan. Here are some final tips and takeaways:
- Recalculate Your Retirement Budget: With tax rates staying low and deductions expanding, your after-tax income in retirement may be higher than you previously projected. That could mean your savings last longer, or you might afford a bit more spending or gifting.
- Adjust Tax Strategies: Revisit strategies like Roth conversions, IRA withdrawals, or capital gains harvesting. The extended low brackets and higher deductions mean you might convert slightly more to a Roth each year without jumping brackets, or take gains on investments at a 0% or 15% rate more easily. The temporary perks (overtime/tip deduction, SALT cap, charity deduction) also present windows to act.
- Estate Plan Check-up: If you have a large estate, update your estate plan to reflect the $15M exemption. If you’re under the threshold now, heavy estate-tax-driven tactics may be unnecessary – focus instead on income tax implications for heirs (like the 10-year rule on inherited IRAs) and ensuring beneficiaries and wills are up to date.
- Stay Informed: Remember that many changes (senior deduction, SALT cap, charity deduction, overtime/tips deduction) expire in a few years. Tax laws could also change with new administrations. It’s a good idea to stay flexible and review your plan regularly. Retirement planning isn’t a “set it and forget it” deal – it’s an ongoing process.
If you’re unsure how the Big Beautiful Bill (or any tax change) affects your situation, consider reaching out for a professional review. With some smart planning, we can help you turn these new rules into opportunities and help ensure your retirement is planned better under the new law.
Sources:
- https://www.journalofaccountancy.com/news/2025/apr/mortal-fears-about-retirement-americans-need-more-time-money/
- https://www.usbank.com/wealth-management/financial-perspectives/financial-planning/tax-brackets.html
- https://gusto.com/resources/articles/taxes/one-big-beautiful-bill-act
- https://www.kiplinger.com/retirement/retirement-planning/how-wealthy-retirees-can-benefit-from-the-big-beautiful-bill
- https://rodgers-associates.com/blog/5-things-retirees-should-know-about-the-big-beautiful-bill/
- https://itep.org/federal-estate-tax-historic-lows-2023
