Key Takeaways
- New senior deduction could significantly reduce taxes starting at age 65.
- Increased cap on State and Local Tax deductions brings an opportunity to take more itemized tax deductions.
- The abrupt phasing out of individual energy credits presents a “Use it or Lose it” situation.
- 529 plans get major expansion for K–12 expenses and workforce training, giving grandparents more ways to support education while reducing their taxable estate.
- Many of the tax brackets and deductions in the new bill sunset after 2028. Strategic planning will be important to capture savings before they expire.
The One Big Beautiful Bill Act was signed into law by President Trump on July 4. It puts in place new rules that will likely affect your finances in potentially significant ways.
This sweeping Trump 2025 tax plan affects everything from how much you’ll pay in taxes on Social Security benefits to new opportunities for transferring wealth to your children and grandchildren. Some changes are helpful for pre-retirees while others create new hurdles you’ll need to plan around.
Why does this matter? Many of these changes are temporary. If you’re nearing retirement, now is the time to understand how these new tax laws could impact your financial future and adjust your retirement planning strategy accordingly.
#1: New “Senior Deduction” for Age 65 and Older
Starting in 2025, Americans age 65 and older can claim an additional $6,000 deduction if single, or $12,000 if married filing jointly. This comes on top of the regular standard deduction, potentially reducing your taxable income significantly.
The extra deduction begins to phase out if your income exceeds $75,000 for singles or $150,000 for couples. Since this deduction is temporary and ends in 2028, pre-retirees have a limited window to benefit from this tax relief opportunity.
Consider timing major income events like Roth conversions or retirement account withdrawals to maximize this tax break while it’s available. If you turn 65 in 2025, you could benefit from this deduction for the next three years, resulting in potentially major tax savings.
#2: Higher SALT Cap Offers More Tax Relief for Homeowners
The state and local tax (SALT) deduction allows you to deduct state income taxes and property taxes on your federal return. The new law temporarily increases the SALT deduction cap from $10,000 to $40,000 by 2029, when it will revert back to $10,000.
The enhanced SALT deduction phases out for taxpayers earning over $500,000, and the deduction is completely eliminated at $600,000 of taxable income.
If you itemize deductions and live in a high-tax state like California, the increased SALT cap could significantly reduce your tax bill for the next few years. Since you can deduct more of your state and local taxes, you might find itemizing becomes more beneficial than taking the standard deduction, especially when combined with other itemized deductions like mortgage interest and charitable contributions.
#3: Key Energy Credits Are Ending
The new law abruptly phases out the clean energy credits and incentives created by the Inflation Reduction Act (IRA). Residential energy credits such as the energy efficient home improvement credit and the residential clean energy credit will no longer be available after Dec. 31, 2025. The credit for installing electric vehicle charging equipment will end on June 30, 2026. If having a more sustainable, energy-efficient home or vehicles is part of your retirement plan, what’s left of 2025 may be your best opportunity to take advantage of these tax incentives.
#4: Expanded 529 Rules Give Grandparents More Flexibility
The new law significantly expands what qualifies as an eligible 529 plan expense. These tax-advantaged education savings accounts allow anyone (not just parents) to set aside money for education expenses, with investment earnings that grow federal tax-free.
While 529 plans have always covered higher education costs such as college tuition and expenses, the new rules dramatically expand their use for K–12 expenses.
Beyond the previous annual limit of $10,000 for K–12 tuition, families can now use 529 funds for:
- Curriculum and books
- Online educational materials
- Tutoring and educational classes outside the home
- Testing fees for standardized tests like SAT and ACT
- Dual enrollment fees for college courses taken in high school
- Educational therapies for students with disabilities
Beginning in January 2026, the total limit for all K–12 expenses increases from $10,000 to $20,000 per year. The law also expands 529 use for workforce training and continuing education programs.
For grandparents and pre-retirees, 529 contributions reduce your taxable estate since the money you contribute is considered a gift. Contributing to grandchildren’s education while removing assets from your estate creates a win-win: you support their future while potentially reducing estate taxes for your heirs.
#5: Key Tax Breaks Expire in 2028
Many of the bill’s most attractive provisions are temporary; they expire on December 31, 2028. This includes the senior deduction, enhanced tip and overtime deductions, and various middle-class tax credits.
If these provisions expire, taxes on Social Security benefits, pension income, and investment withdrawals will increase. The clock is ticking on these tax benefits, making it important to plan your retirement income strategy around these temporary windows.
If you’re approaching retirement, consider accelerating retirement account withdrawals or Roth conversions before 2028 to take advantage of lower tax rates while they’re available. This could help you lock in significant tax savings before rates potentially increase.
Let Us Help You Make the Most of the New Tax Changes
If you’re five or fewer years from retirement, these tax law changes create a mix of new opportunities and things to watch out for. While some provisions offer substantial tax relief, many are temporary and require careful timing to maximize the benefits.
Navigating all these moving pieces — from capital gains tax change implications to new tax laws on retirement accounts — is where having an expert financial advisor in your corner makes all the difference. You need someone who understands what the rules are today and how to position your finances to take advantage of current benefits while preparing for future changes.
The window to make the most of many of these changes won’t last forever, and the choices you make in the next few years could affect your retirement income for decades to come.Contact us today to review how the One Big Beautiful Bill affects your specific situation and develop a personalized retirement strategy that adapts to both current opportunities and future tax changes.