How the One Big Beautiful Bill Will Reshape Retirement
The One Big Beautiful Bill Act (OBBB) is one of the most significant overhauls of the U.S. tax code in nearly a decade.
Much of the media coverage has been on headlines like "no tax on tips" or "Social Security tax eliminated," but those can be both misleading, and non-comprehensive as it relates to high-net-worth families.
For families with significant assets and income, the OBBB creates planning opportunities and risks. Understanding the details can help you plan for a successful retirement.
Permanent Tax Rates and Brackets
The OBBB made the lower individual income tax rates enacted under the 2017 Tax Cuts and Jobs Act permanent.
Before, those rates (10%, 12%, 22%, 24%, 32%, 35%, and 37%) were scheduled to sunset at the end of 2025 and revert to higher pre-TCJA levels. This gives retirees a more reliable foundation for their long-term tax planning and retirement income plan.
Affluent families can now model multi-year Roth conversion strategies, RMD withdrawal sequencing, and charitable giving plans with a known federal rate structure.
Tax Savings: What the OBBB Does for High-Net-Worth Retirees
The Senior Bonus Deduction (2025–2028)
Starting with the 2025 tax year and ending after 2028, those 65 and older are eligible for a $6,000 annual income tax deduction. You can take advantage of this even if you take the standard deduction rather than itemizing!
For a married couple where both spouses are seniors, that's an additional $12,000 deduction on top of the standard deduction. Altogether, this means a senior couple could have up to $46,700 in income before owing any federal income tax.
However, high-net-worth families might not be eligible. The deduction phases out for taxpayers with a modified adjusted gross income (MAGI) over $75,000 for single filers, or $150,000 for married couples filing jointly. It is eliminated at $175,000 for singles and $250,000 for joint filers.
If your income in retirement exceeds $250,000, which is not uncommon for families with pension income, RMDs, Social Security, and investment income combined, this deduction may be unavailable to you. That being said, that doesn't mean it's irrelevant to your plan. It means you should model if income management strategies (like Qualified Charitable Distributions, or strategically timed Roth conversions) could keep your MAGI below the phase-out threshold.
The SALT Cap Increase (2025–2029)
The current State and Local Tax (SALT) deduction cap of $10,000 increased to $40,000, and will increase by 1% each year through 2029. In 2030, the deduction will revert to $10,000. For high-income families in high-tax states like California, this is potentially the most impactful near-term tax change in the OBBB.
The deduction starts to phase out at a MAGI of $500,000, and is still $10,000 for those with a MAGI of $600,000 or higher. Households with income between $300,000 and $500,000 can benefit most from the new cap.
The 37% Bracket Deduction Limitation
Starting in 2027, total itemized deductions will be reduced for taxpayers in the highest income bracket. If you're in the 37% federal tax bracket, your itemized deductions will be reduced by whichever is smaller: 2/37ths of your total itemized deductions, or the income subject to the 37% rate.
This interacts with everything: mortgage interest, charitable giving, SALT deductions, and investment interest. The assumption that "more deductions = equal lower taxes" no longer holds true.
Charitable Giving Has a 0.5% New Floor
Starting with your 2026 tax return, you can no longer deduct every dollar of charitable giving. Your charitable deduction is only available for the amount that exceeds 0.5% of your adjusted gross income (AGI).
For high-net-worth families, things like Donor-Advised Funds (DAFs), Qualified Charitable Distributions (QCDs) from IRAs, and contribution bunching become more important.
How will the OBBB Affect Social Security?
This is where high net worth families may make planning mistakes based on misinformation.
The OBBB did not eliminate taxes on Social Security. Rather, the new senior deduction was made to help retirees offset the taxes on their Social Security benefits. Up to 85% of benefits may be taxed based on your income.
Tax on Social Security benefits is dependent on your "provisional income," or the combination of adjusted gross income, tax-exempt interest, and half of Social Security benefits. As expected, a higher income means a higher tax liability.
For most high-net-worth retirees, up to 85% of Social Security benefits will continue to be taxable. The Senior Bonus Deduction may offset some of that, but only if your income stays below the phase-out thresholds described above.
Some retirees may find themselves in a situation where their taxable income is zero or even negative due to the combination of deductions. This opens an opportunity for Roth conversions, in which you move money from a pre-tax (traditional) IRA or 401(k) to a Roth account. Roth conversions can be helpful in the years before you have to start taking required minimum distributions (RMDs).
Estate Planning
The estate and gift tax exemption increased to $15M per individual ($30M for married couples), with annual inflation adjustments. This may be the most important change for high net worth families.
Because the 2017 TCJA was scheduled to sunset at the end of 2025, the exemption would have dropped back to roughly $7M per person. That forced many families to rush gifting and trust strategies.
This change means that:
Families with a combined estates near $30M now have more flexibility in how and when they transfer wealth. Their planning may include things like GRATs, IDGTs, ILITs, and charitable strategies.
Individuals with under $15M don't need to worry about the federal estate tax for now. Income tax planning should now be their focus.
What California and Idaho Residents Need to Know
California Residents
California is one of the highest tax states and does not follow federal tax law in a few ways.
SALT relief matters more here, because a Bay Area family paying $40k or more in state income and property taxes can now deduct much of that against federal income, and reduce their taxable income.
California does not recognize the Senior Bonus Deduction for state income tax purposes. The deduction lowers your federal AGI, not your California AGI. This means your California income tax bill is unaffected by the new $6,000 per-person deduction.
A large Roth conversion can push combined effective tax rates above 45–50% because state taxes are only partially deductible under the new SALT cap. A poorly timed $400,000 Roth conversion could trigger federal income tax and California's top bracket, IRMAA Medicare surcharges, and the loss of SALT and QBI deductions. This is a scenario where multi-year projections can help.
California has no estate tax at the state level (for now), but the federal exemption increase still matters for lifetime gifting strategies, trust structures, and stepped-up basis planning.
Idaho Residents
Idaho is a more tax-friendly state, with a flat income tax rate of 5.3% and a growing population of retirees and transplants.
Idaho's lower income tax rate makes Roth conversions more attractive than in California. A couple in their early 60s converting pre-tax IRA dollars to Roth can do so at a much lower combined federal/state effective rate. If you’ve recently relocated from California to Idaho, this is worth considering.
Idaho closely follows federal tax law, so residents can benefit from some of the new deductions to reduce federal and state taxable income.
Property taxes in Idaho are generally much lower than in California, which means residents may not get as much benefit from the new $40,000 SALT cap.
For retirees who have made or are considering the Idaho-to-California move (or the reverse), run a full multi-state tax projection before making retirement income or distribution decisions.
Questions to Be Asking Right Now
If you're a high-net-worth family nearing or in retirement, the OBBB creates several planning conversations worth having:
Can you benefit from the increased SALT cap? If your household income is between $300,000 and $500,000, it may reduce your federal tax bill.
Do you have pre-RMD years to do a Roth conversion? The 2025–2028 window, with the Senior Bonus Deduction potentially lowering your taxable income, may offer a low-cost conversion.
Has your estate plan been reviewed recently? Consider updating it if your documents include language tied to the old exemption amount.
What's your charitable strategy? The new 0.5% floor on itemized charitable deductions combined with the SALT expansion changes the math on donor-advised funds, QCDs, and charitable trusts.
Is your Roth conversion plan tested against IRMAA and SALT phase-outs? A conversion can become expensive when it triggers phase-outs.
The One Big Beautiful Bill provides planning opportunities for high-net-worth families. The permanent tax rate structure, expanded estate exemption, and SALT relief seem like positives, but the phase-outs, state-level nuances, and interaction effects make projections and planning important.
The families who will benefit most are those with an integrated plan where investment decisions, tax filings, Roth conversion timing, estate documents, and charitable strategy are developed together.
As always, we recommend working with a professional who understands both tax strategies and wealth management.
Author: Ryan McCloskey, CFP®
FAQs addressed in this article:
Q: Did the One Big Beautiful Bill eliminate taxes on Social Security?
No. Federal taxes on Social Security benefits were not eliminated. The existing formula — which taxes up to 85% of benefits based on provisional income — remains unchanged. The new Senior Bonus Deduction for those 65+ can reduce your overall taxable income, which may indirectly reduce how much Social Security income is taxed, but only if your income falls within the deduction's eligibility range.
Q: Who benefits most from the new $40,000 SALT cap?
Households with income between approximately $300,000 and $500,000 who pay significant state income or property taxes and who itemize. Those with MAGI above $600,000 do not receive the enhanced cap.
Q: Does the Senior Bonus Deduction apply to Californians?
It applies for federal income tax purposes only. California does not conform to the new federal deduction, so your California state income tax is unaffected.
Q: Is this a good time to do Roth conversions?
Possibly — particularly for those in a pre-RMD income gap between ages 60 and 72. But Roth conversions now require careful multi-year modeling because of the SALT and Senior Deduction phase-outs, California's high state tax rate, and IRMAA Medicare surcharges. The risk of a "tax torpedo" — where a conversion inadvertently triggers multiple phase-outs simultaneously — is higher under the OBBBA than it was before.
Q: Do I still need estate planning now that the exemption is $15 million?
Yes. Even if you're below the federal exemption, your estate documents may have formula language that produces unintended results under the new rules. And for families above $30 million combined, advanced strategies remain essential. All families should review their plans.
Q: When do these changes expire?
The income tax brackets, estate tax exemption, and standard deduction increases are permanent (no scheduled sunset). The Senior Bonus Deduction, the enhanced SALT cap, and several other provisions expire after 2028 or 2029.
This material is purely intended to be general and educational in nature, and should not be construed as specifically-tailored investment, financial planning, tax, legal, or other professional advice. Information and data contained herein is as-of the date of publication, and may be subject to change in the future without notice. Any investment performance referenced is purely past performance, which is no guarantee of any future performance. Nothing contained herein should be construed as an offer to sell, a solicitation of an offer to buy, or a recommendation of any security or other financial product or investment strategy. All investment, tax, and financial planning strategies involve risk that you should be prepared to bear. You are highly encouraged to consult with professionals of your choosing before taking any action based on this material.