What Trump's Tax Bill Really Means for Your Retirement
- Christina McNeal
- Jul 7
- 7 min read
Updated: Aug 4
Perspective Matters
Key Takeaways
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This past weekend, President Trump’s “big, beautiful bill” was signed into law. And it is actually called “One Big Beautiful Act” (OBBA).
Here's what this means for your retirement planning: a new tax deduction of up to $6,000 for those 65 and older with moderate incomes, continued opportunities for Roth conversions at current tax rates, and some changes to charitable giving rules. While the bill doesn't touch Social Security taxation as promised, these provisions could still put money back in your pocket.
What does OBBA do for retirees and those planning to use IRAs and employer provided retirement plans to achieve financial independence? Very little directly, but there are some indirect results to consider.
The last few times Congress has passed large budget reconciliation bills, adjustments to rules around retirement savings have played a prominent role in making the numbers work. Not so in 2025. There is no “SECURE 3.0” to worry about in OBBA.
What About Taxes On Social Security Income?
This administration campaigned on a promise to eliminate income taxes on social security income, but only Congress can change tax law. OBBA does NOT eliminate income taxes on social security income.
Instead, some taxpayers will get an extra tax deduction of up to $6000 for tax years 2025 – 2028.
Here’s how it will work:
For tax years 2025 – 2028, taxpayers who are at least age 65 MAY be able to take an additional tax deduction, IF their income is below certain thresholds.
The deduction will be available whether the taxpayer uses the standard deduction or itemizes their deductions.
The maximum deduction is $6000 per person.
The deduction begins to phase out based on your total income (what the IRS calls Modified Adjusted Gross Income). For single filers, it starts reducing when your income exceeds $75,000 and married couples (filing jointly) with MAGI above $150,000.
There is no deduction for single taxpayers with MAGI above $175,000 and married couples (filing jointly) with MAGI above $250,000.
How Will OBBA Affect Roth Conversion strategies?
As with most legislation passed through the budget reconciliation process, there are “gives” and “gets.” The tax rate on each marginal tax bracket was scheduled to increase in 2026; OBBA keeps them at the current rates. The income brackets will continue to increase each year with inflation. This means the opportunity to do Roth IRA conversions and get money out of pre-tax IRAs at lower rates will continue.
On the other hand, Roth conversions count towards MAGI, so those over 65 will have to consult their tax advisor to determine the impact, if any, on their ability to use the new deduction available for those over age 65. Since the extra deduction will only exist for three tax years, the overall cost of delaying Roth conversions to maximize the use of the “senior” deduction is hard to generalize; speak with your financial planner and tax advisor to weigh the trade-offs for you.
Changes That Could Affect Qualified Charitable Distributions (QCDs)
OBBA makes some changes to charitable giving rules that could affect retirees. The good news: if you're over 70½ and donate directly from your IRA to charity (called Qualified Charitable Distributions), these donations still won't count as income and won't affect your new senior deduction.
For other charitable giving, there are new limits. If you take the standard deduction, you can now deduct up to $1,000 in charitable gifts ($2,000 for married couples). If you itemize, you can only deduct charitable gifts that exceed 0.5% of your income - similar to how medical expenses work now.
If you have used QCDs in the past and plan on using them in 2025, you should review these changes with your financial planner and tax advisor.
More Taxpayers May Benefit From Itemizing Deductions
The bill also temporarily raises the limit on state and local tax deductions (SALT) to $40,000 for middle-income taxpayers who itemize. This helps those in higher-tax states, but only through 2029, when it drops back to $10,000.
I know many of you are thinking: 'This helps me, but what about my kids and grandkids who aren't as financially secure?' You're right to be concerned. While we benefit from provisions like the senior deduction and SALT cap increase, the bill's cuts to healthcare and food assistance will hit younger families and those with lower incomes hardest
The Bigger Picture
Beyond these retirement-focused changes, OBBA reveals a troubling pattern that affects all of us - especially those on fixed incomes who depend on government services.
With the final bill being around 900 pages, we don’t yet understand all the details of OBBA and their impact. What does seem clear is that like many bills passed via reconciliation, taxpayers are getting their dessert today and will be presented with their vegetables after the next midterm elections.
A lot has already been written about changes to support for health care and food support for lowest income Americans. By design, many of these changes do not go into effect until after the 2026 midterm elections in the hope that the people most affected will not revolt at the ballot box. More will be written in the coming days and weeks as analysts and journalists dive into the massive document that most of the people voting on it never even read.
OBBA also continues the push towards “privatizing” many of the functions that government has fulfilled for the last 90 years. The push is in the form of incentives and directives that have been added and subtracted and will likely result in more frustration with the IRS in 2026 and possibly lower taxpayer compliance as IRS resources have been and continue to be cut drastically.
One example – the IRS launched Direct File – allowing some taxpayers to file their tax returns for free – in 2024. Direct File was part of the Inflation Reduction Act of 2022, which mandated a pilot program to test an IRS-run direct e-filing tool. The initial pilot program in 2024 was limited to taxpayers in 12 states, and to those with relatively simple tax returns. It was expanded to 25 states in 2025 (for filing 2024 taxes) and is expected to be available in all 50 states in 2026 in time for filing 2025 taxes.
Private software companies have complained loudly about Direct File, saying it competes with their products. The House version of OBBA required the IRS to eliminate Direct File. The final version does not require its elimination but does give the Treasury Department $15 million to research alternatives that would allow most Americans to file their tax returns for free. The Treasury Department has been tasked with reporting to Congress on whether taxpayers would prefer a free service run by the private sector or a taxpayer-funded government-run service.
The Arc Towards "Privatization" Continues
By gutting the IRS workforce, similarly to the Social Security Administration, this administration has increased the likelihood that taxpayers will become more frustrated with the government agency – in this case the IRS – and accept the narrative that “government doesn’t work.” This will make them more likely to believe that the private sector will do a better job, and instead of the IRS being given money by Congress, a private company will be given money by Congress. The program will continue to be taxpayer funded, but now there will also be a profit incentive for the private companies, increasing the lobbying dollars flowing into Washington and lawmakers’ fundraising campaigns.
In my opinion, OBBA is a brash attempt to codify a significant shift in wealth and power to an elite group in the private sector. This era began with Reagan's 1980 campaign arguing that government was the problem. For decades, those seeking to benefit from privatization have used 'waste, fraud and abuse' to justify changes that increase their wealth while exploiting the very people who elected them. This corruption is widespread and driven by unprecedented levels of wealth in the US.
We've seen this cycle before in the late 1800s and early 1900s. We emerged from that era with Social Security, Medicare, and a thriving middle class. While it may take several more years to work through this current cycle, history suggests we'll emerge stronger - though it's never guaranteed.
What's An Investor To Do?
Seeing recent events in the context of a larger cycle doesn’t have much of an impact on what investors should do today. Given my world view, that may seem surprising, but there is little we can do to accelerate how this cycle will play out, and there is another longstanding truth to remember; capital will always seek its best returns.
For investors, that means staying focused on fundamentals of finance and economics and how they apply to investing for your financial future.
Make sure you have enough money set aside to cover unexpected emergencies as well as known expenses for the next two years.
Do not get caught up in investment fads; diversify your portfolio by geography, industry and company size, as well as capital structure (use both stocks and bonds).
Save regularly; set aside part of each paycheck for the future, and teach your children to do the same.
It is easy to wonder what today’s headlines will mean for your portfolio and your family’s financial security. While we can’t predict the future, a Certified Financial Planner™ professional can help you:
Navigate through this uncertainty.
Understand the potential trade-offs of your choices.
Create a path towards your financial independence.
As frustrating as these political games are, they don't change the fundamental rules of building wealth and security. The politicians will come and go, but your need for financial independence remains constant.
A well-thought out strategy that accounts for uncertainty and unexpected events is important. Certified Financial Planner™ professionals are fiduciaries, putting your interests first at all times. We can help you look at your entire financial life holistically and help you build a plan flexible enough to withstand what the next few years will bring.
If you'd like to discuss your specific situation and concerns, please feel free to schedule a conversation using the link below.
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Neither Prism Planning and Solutions Group nor Insight Advisors provides tax or legal advice, and nothing in this communication should be treated as such. This communication should not be interpreted as a recommendation for a specific investment, legal or tax-planning strategy. We provide this material for informational purposes only. We have made every attempt to verify that the information contained in this communication is accurate as of the date published but make no warranties. Before making any decisions related to your own tax, legal and/or investment situation you should consult the appropriate professionals.
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