Decoding the New Tax Law: What the "One Big Beautiful Bill Act" Means for Your Retirement
A sweeping new law was recently signed, called the One Big Beautiful Bill Act (OBBBA), and it brings some significant changes to the U.S. tax code. I know that any mention of new tax legislation can sound complicated and, frankly, a little overwhelming. But don’t worry. My goal here is to walk you through the key pieces that are most likely to affect your financial picture, without getting bogged down in jargon.
We’re going to focus on the most impactful provisions so you can feel prepared and informed. Let's dive in.
Making Some Tax Cuts Permanent
One of the biggest headlines from this bill is that it makes the lower tax rates from the 2017 Tax Cuts and Jobs Act (TCJA) permanent. Before this, those lower rates were set to expire, which would have meant a tax increase for most people. This move provides a little more certainty and stability for long-term planning, as we no longer have to wonder if Congress will extend these rates every few years.
However, as you and I both know, permanent in Washington, D.C., simply means there’s no expiration date written into the law. Congress can always make changes down the road.
Two other important provisions that were set to expire have also been made permanent:
The Pass-Through Business Deduction: Often called the Qualified Business Income (QBI) deduction, this is a key deduction for owners of many small businesses.
The Federal Estate Tax Exemption: The amount you can pass on to your heirs without triggering federal estate tax will now be permanently set at a higher level. Under the old rules, it was scheduled to drop to around $6 or $7 million per person. The new law raises it to $15 million per person, effective in 2026, and adjusts it for inflation going forward.
Changes to Deductions and Credits
The new law also adjusts some of the most common deductions and credits that you might use.
A Higher Standard Deduction: Starting in 2025, the standard deduction increases to $15,750 for single filers and $31,500 for those filing jointly. This amount will continue to be adjusted for inflation each year.
A New Break for Charitable Giving: If you take the standard deduction, starting in 2026, you’ll be able to deduct up to $1,000 in cash donations for single filers, or $2,000 for joint filers.
Child Tax Credit Increase: For those with children or grandchildren, the child tax credit will increase from $2,000 to $2,200 for the 2025 tax year and will be indexed to inflation after that. The income phaseouts for this credit remain the same.
New Rules for Giving
For those who do itemize their deductions, the bill introduces a couple of new rules for charitable giving.
First, there’s a new threshold. Only your total contributions that exceed 0.5% of your adjusted gross income (AGI) will be deductible. For example, if your AGI is $100,000, the first $500 of your donations wouldn't be deductible, but everything above that would be.
Second, the tax benefit for charitable gifts is now capped at a 35% deduction rate. So, if you are in the 37% tax bracket and donate $1,000, your tax savings would be $350, not $370.
Updates to Education Savings (529 Plans)
I’ve always been a big fan of 529 plans for education savings, and this law makes them even more flexible. Starting in 2026, you can use 529 funds for a much wider range of K-12 expenses, like tutoring, curriculum materials, and even dual-enrollment college classes. The annual limit for these K-12 distributions also doubles to $20,000 per child.
Furthermore, the bill allows you to use 529 funds for professional credentialing and licensing programs, such as for skilled trades like welding or for professional exams like the CPA or bar exam.
Important, But Temporary, Changes
Finally, the bill introduces several new tax breaks that are temporary and set to expire after 2028. It’s important to be aware of these so you can take advantage of them while they last.
Higher SALT Deduction Cap: The State and Local Tax (SALT) deduction cap is temporarily increased from $10,000 to $40,000 for 2025 for those earning less than $500,000. This cap will revert to $10,000 in 2030.
Enhanced Deduction for Seniors: If you’re 65 or older, you can take an additional deduction of $6,000 ($12,000 for a married couple if both are 65+). This is available whether you itemize or take the standard deduction, but it does phase out at higher income levels.
Tax-Free Overtime and Tips: For tax years 2025 through 2028, overtime pay and tip income will be exempt from federal income tax, subject to income phaseouts.
Tax-Free Car Loan Interest: You’ll be able to deduct the interest paid on a car loan for a vehicle purchased for personal use between 2025 and 2028.
I know this is a lot to take in, but understanding these changes is the first step in making sure your financial plan is on the right track. These are just the highlights, and how each one applies to you is unique to your own financial fingerprint.
If you have any questions, please don’t hesitate to reach out. As always, it’s a good idea to chat with your tax advisor to see how these updates fit into your specific situation.
