In today’s podcast, I want to talk about the new One Big Beautiful Bill Act, recently passed and signed into law by the President on July 4th of this year. This legislation is significant for a couple of key reasons. First, it makes permanent one of the largest tax cuts in history—the Tax Cuts and Jobs Act (TCJA), originally passed in 2017 and previously set to expire at the end of this year. Second, the bill itself spans more than 300 pages, packed with new provisions, many of which will create planning opportunities for retirees and pre-retirees alike.
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Articles, Links & Resources:
Cars.com – American Made Car Index
One Big Beautiful Bill Act – As signed by President Trump
Kiplinger – OBBBA – Retirement Planning
MarketWatch – Tax Breaks For Charitable Giving
YouTube – 2025 Tax Law Changes
Kitces.com – Comprehensive OBBBA blog post
Kiplinger – Deduction for people over age 65
Transcript:
458 One Big Beautiful Bill- What Retirees Need to Know
Announcer: Welcome back America to Sound Retirement Radio, where we bring you concepts, ideas, and strategies designed to help you achieve clarity, confidence, and freedom as you prepare for and transition through retirement. And now here is your host, Jason Parker.
Jason Parker: Uh, America. Welcome back to episode number 458.
We’ve got one more here for you. The one big, beautiful bill, what retirees need to know. But before we get into this episode, I always like to start the day by renewing our mind. And this verse really hit me recently. It’s John chapter 10, verse 10. The thief comes only to steal and kill and destroy. I have come that they may have life and have it to the full, and then something fun for the grandkids.
What did the piggy bank say after filing taxes? I feel a little empty inside. Where do homeless accountants live in tax shelters?
In today’s podcast, I want to talk about the new one. Big, beautiful Bill Act recently passed and signed into law by President Trump on July 4th of this year. This legislation is significant for a couple of key reasons. First, it makes permanent one of the largest tax cuts in history. The Tax Cuts in Jobs Act that was originally passed in 2017.
And previously had been set to expire at the end of this year. Second, the bill itself spans more than 300 pages packed with new provisions, many of which are gonna create planning opportunities for retirees and pre-retirees alike. As of now, the US national debt has surpassed $37 trillion, and there are two recent headlines that caught my attention.
One said US deficit fears cause the stock market to dip, and the second one said the tax bill could add to the deficit. And to stock gains. So this new law is expected to increase deficit spending, which means the national debt will likely to continue to rise. That said, as you can see, people are already trying to predict which way the market will move based on this legislation.
Some are bullish. Others are bearish, but tax law is just one ingredient in a very complex economic recipe. Trying to forecast the market based on a single factor is, in my opinion, a flawed approach. The market is influenced by thousands of variables, economic data, corporate earnings, geopolitical events, consumer behavior, and yes, tax policy.
But no single element determines the outcome. It’s unlikely that you should change your investment strategy based solely on, uh, changes to the tax code. Instead, we start by building a solid financial plan. Then we make sure our investments are structured appropriately for long-term success. And once those two fundamentals are in place, then we can layer in the tax planning for additional optimization.
But we never let the tax tail. Wag the investment dog. We’ll be updating calculations in the retirement budget calculator as the IRS releases additional guidance on how these new provisions will be applied. For now, it’s important to note that everything I’m sharing reflects my current understanding.
And that my understanding may evolve as the law is interpreted and implemented. So in today’s discussion, I wanna focus on how this legislation may impact those who are approaching retirement as well as those who are already retired. Specifically, I’m gonna highlight some of the most promising planning opportunities this new law presents.
And if you’re currently a client of Parker Financial, rest assured. We will be reviewing these tax planning opportunities during your next meeting. Tax planning has always been a part of our process to ensure that your plan remains optimized. One of the biggest planning opportunities under the new law involves Roth conversions for some retirees.
Especially those who can keep their modified adjusted gross income low. The next four years may represent the best window yet to take advantage of Roth conversions, and I’ll explain why in a moment. However, for retirees with high guaranteed income sources like pension, social security, and annuities, Roth conversions can be more challenging.
And that’s because every dollar you convert above $150,000 in adjusted gross income for married couples filing jointly, it not only increases your tax bill, but also begins to phase out some of these new deductions, including the new senior deduction. In other words, converting too much could reduce or eliminate a valuable tax benefit.
And this is gonna make tax planning way more complicated than ever. Rules of thumb are not gonna cut it. You need sophisticated tax planning software, more advanced even than the retirement budget calculator to model the trade-offs and optimize your strategy. So as we get into this episode, you’re gonna hear terms like above the line and below the line deductions.
The line refers to adjusted to gross income or a GI, which you’ll find on line 11 of Form 10 40 and above the line. Deduction like contributions to an IRA or HSA lowers your A GI and doesn’t require itemizing. These can increase eligibility for other tax benefits. Below the line, deductions such as mortgage interest, state and local taxes, charitable contributions, they generally require you to itemize and do not reduce adjusted to gross income, only taxable income.
In general, above the line, deductions tend to be more valuable because they reduce your adjusted gross income, which can unlock a cascade of additional tax benefits. Under the new law, several deductions are available without itemizing. Making them easier to claim, but many of them may not reduce a GI the way traditional above the line deductions do.
And the distinction is important. Your adjusted gross income influences how much of your social security is taxable, and whether or not you’re subject to Irma surcharges or Medicare premiums. Oh, and just to be clear, social security taxation still exists. The new law didn’t eliminate it, but thanks to the higher standard deduction for seniors, fewer people will owe taxes on their social security benefits over the next few years until the IRS releases.
Its guidance. Much remains uncertain, but what’s clear is that there’s a lot for retirees to pay attention to. So number one, the very first thing that this new law accomplished was it extended the Tax Cuts and Jobs Act from 2017, which lowered taxes for most households across income levels. Back in 2017, the Tax Cuts and Jobs Act nearly doubled the standard deduction, significantly simplifying tax filing for many Americans.
And before that change, about 30% of taxpayers itemized their deductions. Today that number has dropped down to like. 10 or 13% simply because the higher standard deduction now exceeds what most people would otherwise itemize under the new tax law. The standard deduction is increasing again for 2025. The standard deduction for single filers will be $15,750, and that’s up from the previously expected $15,000 for married couples filing jointly.
The deduction is gonna rise to $31,500. That was up from the projected $30,000 that we were planning for in 2025. In addition, taxpayers over age 65 will continue to receive an extra deduction, which is now $1,600 per person, which is $50 more than had been previously planned. So a married couple over age 65 filing jointly will have a standard deduction of $34,700 in 2025.
The new bill further enhances the standard deduction for those age 65 and older by adding a temporary increase of $6,000 per person per year for tax years 2025 through 2028 on top of the $34,700. So if both spouses are over age 65. They already receive an additional $1,600 per person bringing their total to 34,700.
Now with the new law that’s been passed, they’ll receive an additional $6,000 per person, so $12,000 more for married couples raising the total standard deduction to $46,700. That means a married couple, both over age 65, could have up to. $46,700 of taxable income and potentially pay no federal income tax, depending on their exact sources of income and how other factors like social security and investment income interact.
However, the new senior deduction is considered a below the line deduction, meaning it reduces taxable income, but doesn’t reduce your adjusted gross income. And that’s important because adjusted gross income is the starting point that is used to determine modified adjusted gross income. Maggie, and all of this can impact how much of your Social security benefits are taxable via the provisional income rules.
Whether you’ll owe Irma surcharges on Medicare, whether you qualify to deduct medical expenses or charitable contributions, and whether you qualify for certain other new deductions like the one for auto loan interest. This enhanced deduction comes with an income based phase out, so for married couples filing jointly, the phase out begins at $150,000 of modified adjusted gross income.
And at $75,000 for single filers, and the deduction is reduced by 6% of the amount of your income that exceeds the threshold. So for example, a married couple earning $200,000 a year, that means their $50,000 over the $150,000 threshold would lose $3,000 of the deduction per person. Or $6,000 total. Once income reaches $250,000 or more, the deduction is completely phased out, so that means that retirees are gonna need to be strategic, especially when doing Roth conversions between age 65 and 70.
Converting too much in a single year could unintentionally eliminate the benefit of this deduction. Now some people have misinterpreted this new bonus senior deduction to mean that social security benefits will no longer be taxed, but that’s not accurate. The formula used to determine how much of your social security is taxable hasn’t changed.
But I received an email from the Social Security Administration with the headline that said, social Security applauds passage of legislation. Providing historic tax relief for seniors. The second paragraph reads, the bill ensures that nearly 90% of Social Security beneficiaries will no longer pay federal income taxes on their benefits, providing a meaningful and immediate relief.
To seniors who have spent a lifetime contributing to our nation’s economy. The key point is to understand that social security income is still subject to taxation. What’s changed is that the higher standard deduction, especially the new bonus deduction for seniors, means that fewer people will have enough income to trigger taxes on their benefits.
So while the taxation rules remain the same, the number of people affected by them will decrease. At least for the next few years. Okay. Another change in the new law is the increase to the state and local tax deduction. Previously, this had been capped at $10,000. The salt deduction limit will rise to $40,000 per household starting in 2025.
For those who pay high property taxes or live in states with income taxes, this expanded deduction could provide meaningful tax relief, especially for households that itemize. However, this higher limit is temporary and it phases down. Once your modified adjusted gross income hits $500,000, it’s scheduled to remain in effect from 2025 through 2029, after which it will revert back to $10,000 cap beginning in 2030 unless Congress takes further action.
It’s important to note that in order to benefit from the increased salt deduction, you must still itemize your deductions and your total itemized deductions must exceed your standard deduction. So while the higher cap is helpful, it’s not gonna help everyone. Another exciting change under the new law is that married couples who give to charity but don’t give enough to itemize their deductions can now take a $2,000 below the line charitable deduction.
If you’re single, it’s a thousand dollars. Even if they claim the standard deduction, this new deduction is available regardless of income level and without a need to itemize making it. Really accessible and easy to take advantage of. And I really think this is a fantastic development and my hope is that more married couples will be encouraged to give at least $2,000 per year in charitable gifts to benefit from this new incentive.
For it to count as a qualified charitable contribution, it has to be a cash donation, and giving to a donor-advised fund does not qualify. Another important change that relates to charitable contributions for those who do itemized deductions. Under the new law, you must now donate more than half a percent of your adjusted gross income before any portion of your charitable contributions become deductible on Schedule A.
So here’s a real simple example. If your adjusted gross income is $100,000. The first half a percent 0.5% or $500 of charitable giving is not deductible. So if you donate $1,500, only the amount above the $500 threshold or $1,000 would be deductible. In this scenario, the first $500 is considered a non-deductible floor, while the rest counts towards your itemized deductions.
Now this new example doesn’t fully factor in the new $2,000 charitable deduction for non itemizes, but it’s still helpful for illustrating how the half a percent floor works for those who do itemize. The key takeaway here is that it may make sense to accelerate charitable giving into 2025 in order to capture more of the deduction, especially if you are already close to itemizing.
Looking ahead, we may see more people using a donor-advised fund and bunching strategies bunching their charitable giving into a single year. That strategy allows you to clear the half a percent hurdle once, um, when funding a donor-advised fund rather than trying to exceed it every single year. And finally, once you reach age 70 and a half, QDS become more valuable than ever.
Uh, qcd is a qualified charitable distribution because they’re not subject to the half a percent floor. So Qds will continue to be a very effective way to give to charity, uh, once you reach age 70 and a. Another deduction that could benefit retirees is a new provision allowing you to deduct up to $10,000 of interest paid on an auto loan as long as your household income is below 200,000 of married filing jointly, or $100,000 of single.
This deduction is available from 2025 through 2028. And it applies only to vehicles that are assembled in the United States and weigh under 14,000 pounds. So unfortunately, this isn’t gonna help you if you’re financing an rv. Now, to put that $10,000 deduction into context, to pay that much interest in a single year, let’s say you have a 6% interest rate, you need a car loan of around $166,000.
So unless you’re financing a luxury vehicle, most people won’t reach the full $10,000 limit. But even partial interest deductions can help. And this is especially valuable for retirees who wanna preserve their IRA balances by financing a car instead of paying cash because they may be able to avoid large taxable withdrawals, keep their investments working.
And now thanks to this new law, get a tax break on the interest. This appears to be a below the line deduction, meaning it reduces taxable income but does not lower your adjusted gross income. And if you’re trying to make sure that your new car qualifies for the deduction, here’s an interesting fact.
Tesla took the top four spots on cars.com 2025 American Made Index. So if you’re concerned about tariffs and you wanna buy American. Tesla’s leading the pack and for comparison, Chevy shows up in the 19th place. Ford first shows up in at number 22, and the first GMC model doesn’t appear until the 39th spot in this cars analysis of the most American made cars.
So the bottom line, many retirees already finance their vehicles to avoid big IRA withdrawals. This new deduction gives them one more reason to do so, especially in a higher interest rate environment. It might be a smart way to manage cash flow and save on taxes. When the tax cuts and Jobs Act was passed back in 2017, its significantly increased the federal estate tax exemption.
It went from $5.6 million to $11.2 million per person, and that exemption has been indexed for inflation. Last year, 2024, that, uh, exemption had grown to $13.99 million per person. The new tax law builds on that by slightly increasing the exemption to $15 million per person and with proper planning. This means that a married couple can now shield up to $30 million from federal estate taxes.
However, it’s important to remember that many states have their own estate or inheritance tax to contend with. For example, here in Washington State, the estate tax can be as high as 19% for estate exceeding $2.1 million. So while federal estate taxes may no longer be an issue for most people, state level estate planning is still critical for many families.
And of course there’s always another strategy. You could just move to a state that doesn’t have a state or inheritance tax and plan to die there. But I guess you need to make sure you talk to your attorney to get all of that dialed in correctly. Another provision in this new tax law is the introduction of Trump accounts.
These are designed to help kids start saving for retirement early. Traditionally, many families contribute to their children’s IRA or Roth IRA. Once the kids begin earning income, which is usually around 15 or 16 IRAs and Roth IRAs require that the child has earned income in order to qualify for contributions.
The new Trump accounts are d. They allow parents or grandparents to contribute up to $5,000 per year on behalf of a child starting from the year the child is born through age 18. Regardless of whether the child has earned income, contributions are not tax deductible. But the money does grow tax deferred until it’s withdrawn in retirement.
One of the more intriguing and potentially controversial aspects of these accounts is the role of 5 0 1 C3 charitable organizations. Under the current language, as I’ve been reading it, it says, it appears to say that a 5 0 1 C3 charity can contribute to these accounts without being subject to the $5,000 per child limit.
If that holds, we may begin to see charitable donations for. Flowing into these accounts in creative ways, and there’s still a lot we don’t know about these accounts, um, how they’re gonna be regulated or exactly how the 5 0 1 c threes will be allowed to participate. But I plan to keep a close eye on how planning strategies evolve for families interested in multi-generational wealth building.
These new Trump accounts could become a powerful new tool. Another important update is that the $7,500 clean vehicle tax credit will expire for vehicles purchased after September 30th, 2025. So if you were planning to buy an electric vehicle and take advantage of the of the credit, you’ll need to make your purchase before that deadline.
In addition, the residential clean energy credit, which covers up to 30% of the cost for installing solar panels. Wind power, uh, geothermal heat pumps or fuel cell equipment will be eliminated after December 31st, 2025. To qualify the system must both. Be paid for and installed by the end of 2025. So if you were thinking about going to solar to reduce your utility bills in retirement, or buying an electric vehicle to capture the federal tax credit, you’ll want to act sooner rather than later.
These incentives are winding down quickly, and waiting could mean missing out altogether. This next one’s pretty cool. Remember that tax credits are more valuable than tax deductions. A deduction reduces your taxable income, but a tax credit reduces your tax bill dollar for dollar starting in 2027. There will be a new federal tax credit available if you donate to a specific type of charity that’s called a qualified elementary and secondary education scholarship granting organization.
If you give to one of these approved entities, you’ll be eligible for a dollar for dollar credit up to $1,700 per taxpayer. That’s a big deal, especially for people looking to support educational access while lowering their federal tax bill. And it’s worth noting that states are gonna need to certify these entities first, so this credit won’t be immediately available everywhere and.
If you receive a state income tax credit for the donation, you can’t also claim the federal credit. There’s no double dipping. I have a feeling that wealthy families who value private or religious education will be paying close attention to this opportunity, and it could become a powerful way to align charitable.
Giving with tax smart planning. As always, before making any changes to your financial plan, be sure to consult with your CPA or tax advisor. There are so many new provisions in play that personalized guidance is more important than ever. And that said, here are a few key action items and opportunities to consider under the new law.
Number one, delay social security to lower your income and optimize Roth conversions. If you haven’t started collecting Social Security yet, you may wanna hold off, especially if you’re 65 or older. Delaying benefits could help keep your income low, giving you more room to make strategic Roth conversions over the next four years, while also taking full advantage of the new bonus senior deductions.
Number two, harvesting long-term capital gains at the 0% rate. The expanded standard deduction might allow you to realize more long-term capital gains at a 0% tax rate, and this presents a unique opportunity for tax gain harvesting, capturing gains without triggering. Federal taxes, buying an electric vehicle before the credit expires.
If you were planning to purchase an EV and you qualify for the $7,500 clean vehicle tax credit, be sure to complete that purchase before September 30th, 2025 when the tax credit expires. The residential clean energy credit, which covers up to 30% of solar and other clean energy systems, ends after December 31st, 2025.
And remember to qualify, the systems must be installed and paid for before the end of the year. I’m sure this solar guys are probably running around crazy right now trying to get projects done. And then you also might wanna consider, rather than taking a large IRA withdrawal to buy a car with cash.
Consider financing the purchase. The government is now offering a deduction of up to $10,000 for auto loan interest if your income qualifies, which may reduce your tax bill and help manage cash flow more efficiently. Many of the new deductions phase out based on your income. So it’s important to evaluate each planning move, not just in isolation, but in terms of the bigger picture.
Every action, whether it’s a Roth conversion, realizing capital gains or financing a vehicle could help you capture a benefit, but it might also push your income high enough to reduce or eliminate other deductions. So in short, you’re gonna want to weigh what you might gain against what you could lose before taking action.
And remember, taxes are like fingerprints. They’re unique to your situation. You can’t simply listen to a podcast or read an article and assume that a strategy is right for you. So before making any changes, be sure to consult with your CPA or trusted tax advisor. The best results come from a personalized approach that looks at your specific situation, looks at all of the moving parts of your specific financial picture.
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Investing involves risk. Jason Parker is the president of Parker Financial LLC, an independent fee-based wealth management firm. Located at 9 2 3 0 Bayshore Drive Northwest Suite 2 0 1, Silverdale, Washington. For additional information, call 3 6 0 3 3 7 2 7 0 1 or visit us online@soundretirementplanning.com.
