In today’s podcast, I want to talk about the new Enhanced Senior Deduction that was passed and signed into law on July 4th, 2025.
If you are 65 years old or older—or will be turning 65 sometime between 2025 and 2028—you’ll want to understand how this works and how it could impact your retirement plan. If you are not yet 65 but you know someone who is, be sure to send them a link to this episode.
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Articles, Links & Resources:
Enhanced Senior Deduction Calculator
Retirement Budget Calculator
YouTube Video – Enhanced Senior Deduction Example with Roth Conversion
IRS – One Big Beautiful Bill Provisions
Transcript:
463 The New Enhanced Senior Deduction
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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: America. Welcome back to another round of Sound Retirement Radio today.
The title is episode number 400 and. 63. We’re gonna be talking about the enhanced senior deduction. This new deduction that was signed into law back on Ja July 4th, 2025, under the one big beautiful Bill act that was signed into law and passed through Congress and signed by the president. And, I was thinking about this just as I was hitting record.
I love dig digging into the details on these tax planning strategies and how the tax law works, and I’m so excited that our listeners out there are also excited about this kind of information that you guys keep tuning in. So if you’re 65 years or older or you’re gonna be turning 65. Between 2025 and 2028, you go, you’re really gonna wanna understand how this works and how it could impact your retirement plan if you’re not yet 65, but you know someone who is, be sure to send them a link to this episode.
But before we get into today’s podcast, I like to start each episode by renewing our minds, and here’s a verse that really caught my attention this last week. It’s from Acts chapter three, verse four. Peter looked straight at him, as did John. Then Peter said, look at us, and then something fun for the grandkids.
What’s a song that vampires dislike? Here comes the sun. What do moms dress up as for Halloween? Mummies.
Alright, let’s talk about this new deduction for people who are age 65 and older. I’m excited to announce that we’ve updated the retirement budget calculator to reflect all the new tax law changes from the one big beautiful bill act. Next time you log in, you’re gonna see these updates, so your modeling reflects the most accurate tax projections available.
Before we dive into the new enhanced. Senior deduction. Let’s first review how deductions typically work for most retirees. Once you retire, most people don’t itemize deductions anymore. Often their mortgage is paid off and health expenses, real estate taxes, income and sales taxes and charitable giving simply don’t add up to enough to itemize.
When your itemized deductions are less than the standard deduction, you generally take the standard deduction, and for 2025, that’s $15,750. If you’re single. Or $31,500 if you’re married, filing jointly. If you’re age 65 or older. There’s also an additional standard deduction. It’s $2,000 if you’re single or $1,600 per person if you’re married for a total of $3,200.
So that’s how things worked before the new. Aside from small annual inflation adjustments under the one big beautiful bill act, there’s now an additional deduction. It’s the enhanced senior deduction, and this is in addition to the standard in senior deductions. It’s not one or the other. However, unlike the other deductions.
The enhanced senior deduction phases out as your income rises, and that’s where planning becomes important, especially for people considering Roth conversions. The new deduction adds $6,000 for single filer or $6,000 per person for a married couple. So a married couple could see an additional $12,000 in deductions, and here’s how it stacks up.
You’ve got your standard deduction of 31,500, the regular senior deduction of $3,200, and the enhanced senior deduction for $12,000. So that’s a total of about $46,700 in deductions for married couples over age 65. This means that for many retirees, they simply won’t have enough deductions to justify itemizing.
From, the years 2025 through 2028, and that’s a good thing. It simplifies tax filing. It may even save money if your tax preparer charges perform. If you know that your itemized deductions are nowhere near 46,700, you might ask your CPA whether it makes sense to take the standard deduction instead of itemizing.
And in some cases, that can simplify your return and may even save you money if your CPA charges a fee for each. Form that they prepare. Now many retirees like to do Roth conversions in that window between when they retire and when they start social security. Let’s say you’re 60 years old and you don’t plan to start Social Security until 70.
That can be the sweet spot to pay taxes while in lower brackets, especially if you have some non-qualified assets that you can draw from to help supplement your cash flow. Or your income, but this new enhanced senior deduction begins to phase out once your income exceeds $150,000. If you’re married, filing jointly, the new enhanced senior deduction is reduced by 6% of the amount of your modified adjusted gross income that exceeds the threshold and it’s applied separately for each eligible taxpayer.
For example, let’s say you’re a married couple with $158,400 of modified adjusted gross income, and both spouses are over age 65, they would see their $12,000 deduction reduced by 6% of the 8,400 excess for each spouse. So here’s how you do the math. You take your $8,400, that’s above the 150,000, so 8,400.
Multiply by 6% equals $504 per person. So you double that and it’s $1,008 total reduction. So then you take your enhanced senior deduction. Remember that started out at $12,000. If their income was below 150,000 you re subtract the $1,008 and that gives you an enhanced senior deduction of $10,992.
You’re fully phased out at $250,000 of modified adjusted gross income for married couples or $175,000 for singles. Even if you don’t subscribe to the retirement budget calculator. I also created a free online calculator that you can use to estimate your enhanced senior deduction for 2025, or if you learn better by seeing, rather than just hearing, I also created a video to show you how this works, and you’ll find the link for both.
That new calculator, as well as the video in the show notes, just visit sound retirement planning.com and click on episode number 463. So let me walk you through an example where doing a Roth conversion could eliminate or significantly reduce your enhanced senior deduction. In this example, I’ve got a married couple.
They’re both over age 65. They have $104,000 in pension income and $30,000 in other income. That’s a total of $134,400 of total income. They qualify for the standard deduction of $31,500. And the senior deduction of $3,200, $1,600 per person and the enhanced senior deduction of $12,000, their taxable income is $87,700, and their 2025 tax liability ends up being about $10,047 because their income is under the $150,000, they get the full enhanced senior deduction.
So now let’s see what happens. If they convert 100,000 from his IRA to a Roth IRA. Their total income now increases to $234,400. And now that they’re over the $150,000 threshold, so the enhanced senior deductions gets phased down. And the math for this is you take that 234,400, subtract 150,000, and that’s $84,400 above the threshold.
You take the 84,400, multiply it by 6%, and that’s $5,064 because there’s two people in a married couple. You multiply that by two and that gives you a $10,128 reduction. So they started with a enhanced senior deduction of $12,000. They subtract out 10,128, and it leaves them with a $1,872 enhanced senior deduction.
That’s remaining. Again, if this all seems complicated, I’ve got this real simple online calculator where you can estimate your enhanced senior deduction for 2025. So instead of $12,000, they now get $1,872 instead of a total deduction of $46,700. With the reduced enhanced senior deduction, now they get $36,572.
Their tax liability increased from $10,047 to $33,350. That’s roughly a 23% effective tax cost on that $100,000 conversion. And because their income now exceeds $212,000, that’s the Medicare threshold, they’re gonna pay higher Irma premiums. So now they’re gonna pay $259 per person instead of $185 per person.
That’s an additional $1,776 for a year as a couple be. It’s basically a 40% increase in their Medicare Part B premiums as a result of doing that $100,000. Roth conversion because it increased their income above the Irma thresholds. So the Roth conversion effectively costs about 25% of the amount converted when you include both taxes and the Medicare adjustments.
Now, this doesn’t mean you shouldn’t do a Roth conversion. It simply means that you need to be prepared for the implications. The real question is what’s the purpose of your money? Are you optimizing for the lease tax over your lifetime? Or are you maximizing after-tax wealth across generations? You have to weigh factors like what’s the future tax-free growth inside the Roth and how does it work out when you don’t have to take required minimum distributions and.
There is gonna be a future drop in Medicare premiums once your income normalizes, so those higher Irma surcharges don’t continue forever. And then there’s the potential benefit of your heirs receiving a Roth instead of a traditional IRA. And the fact that they get to. Continue to leave that money in a tax free Roth account for 10 years after you’re gone.
So you figure if you’re earning 7% per year, your money’s gonna there. That money in that Roth account’s gonna double again during the 10 years that they get to leave the money in the Roth account. So there’s no one size fits all answer. Each family situation is unique and there are a couple more things that I want you to consider.
If you’re over age 65, there’s a good chance you may not be itemizing deductions in 2025 through 2028. But if charitable giving is a part of your plan, you might want to explore giving up to $2,000 in cash donations from non-retirement accounts if married, filing joint, or $1,000 if you’re single, since taxpayers can now claim up.
To that amount in charitable contributions without itemizing. Now that new deduction does not go into effect until tax year 2026, so it’s not gonna help you for 2025, but starting next year is definitely something you want to be thinking about. You also wanna understand that those cash contributions do not work if they’re given to donor advised funds or 5 0 9 a three supporting organizations.
If you’re over 70 and a half and you’re well funded for retirement. You may want to learn more about qualified charitable distributions from an IRA. A QCD is a direct transfer from your IRA to a qualifying charity, and it’s excluded from your income. So you’ve got these new enhanced senior deductions.
You’ve gotta be thinking about Irma and Medicare and how much you’ll pay in premiums based on how much you convert. You want to be thinking about how to capture this new charitable deduction by giving strategically and. Maybe giving up to that $2,000 limit. And then you also wanna be thinking about qualified charitable distributions and how you might give from IRA assets after you reach age 70 and a half instead of taking the distribution at 73 or 75 or whenever you’re required to take your RMD.
It seems like the rules just keep getting more and more complicated every time there’s more tax law passages seems like it keeps getting more and more complicated, which I guess is a good thing for people that are doing financial planning. Around retirement specifically because people have questions.
They wanna know how this is gonna impact them, and what are the things that they should be doing to help them optimize their financial life. Whatever it is that you’re looking to achieve, remember, this is general education. A tax return is kinda like a fingerprint. It’s very specific to you.
Everyone’s situation is unique, so be sure to consult with your financial advisor or your CPA or your tax preparer before making any ch changes. Or any decisions for your unique specific situation. The bottom line is that there are opportunities created and there are pitfalls to avoid as a result of this new tax law.
You just wanna make sure that you’re thinking through how is this gonna impact you in the short term and how is it gonna potentially impact you in the long term.
Announcer: Thank you for tuning in to Sound Retirement Radio. For articles, links and resources from today’s show, visit sound retirement planning.com.
If you enjoy the podcast, share it with a friend and give us a five star review. Ready to kickstart your retirement planning head over to retirement budget calculator.com. Need assistance with investment management. Explore our services@parkerfinancial.net. Information and opinions expressed here are believed to be accurate and complete for general information only and should not be construed as specific tax, legal, or financial advice for any individual and does not constitute a solicitation for any securities or insurance products.
Please consult with your financial professional before taking action on anything discussed in this program. Parker Financial, its representatives or its affiliates have no liability for investment decisions or other actions taken or made by you based on the information provided in this program. All insurance related discussions are subject to the claims paying ability of the company.
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.
