How the 2025 Tax Law Changes Are Shaping Retirement for 2026

By Oscar Casas, CFP®, CRPC®, MPAS®, ABFP℠ 

Those who have retired or are nearing retirement and are looking ahead to their tax and benefit planning for 2026 need to pay special attention to the tax law changes that occurred with the One Big Beautiful Bill Act (OBBBA) of 2025. This sweeping legislation changed the tax and benefit landscape for seniors, and it’s important to be aware of these changes: the new senior standard deduction, the higher SALT cap, and income‑related Medicare premium rules—all could affect your retirement income strategy

Here are the key takeaways to review, particularly when strategizing your tax planning and how you structure your benefits to maximize your benefits and tax efficiency in the coming year.

1. The New “Senior” Deduction, Up to $12,000 for Couples, 2025‑2028

One of the most relevant provisions for retirees is the additional deduction for taxpayers aged 65 and older. Under the OBBBA:

• For tax years 2025 through 2028, taxpayers age 65 + can claim an extra deduction of $6,000 (or $12,000 for married couples where both spouses qualify) whether they itemize or not. 
• The benefit begins to phase‑out when modified adjusted gross income (MAGI) exceeds $75,000 (single) or $150,000 (married filing jointly); the deduction is reduced by 6 cents for every dollar above the threshold until it is eliminated at $175,000 (single) or $250,000 (joint).
• Example: A married couple who are both age 65 or older and have MAGI below $150,000 may be able to combine the standard deduction ($31,500), the additional age-65 standard deduction amounts ($3,200), and the new senior deduction ($12,000), for a total deduction of approximately $46,700. In practical terms, this could reduce their taxable income by about $46,700 before applying tax rates.
• Important: This deduction is temporary, running through tax year 2028 (unless extended).

Action Points

• Verify your Modified Adjusted Gross Income (MAGI) for the year to see if you qualify for the full deduction (or how much is phased out).
• Since this deduction is available even without itemizing, evaluate standard vs. itemized decisions accordingly.
• Use this window (2025‑2028) to optimize income timing (withdrawals, Roth conversions, sale of assets) while you have this extra deduction available.

2. SALT Cap Increases (Temporary) and How They Affect Retirees

Another major tax change for retirees who are homeowners or pay significant state/local taxes is the SALT (State & Local Tax) deduction cap. Under the OBBBA:

• Starting in tax year 2025, the SALT itemized deduction cap increases from $10,000 to $40,000 for married filing jointly  (generally; $20,000 for married filing separately), with a 1% annual increase for 2026 through 2029. Absent further legislation, the cap returns to $10,000 in 2030. The higher cap is subject to an income-based phase-down for taxpayers with MAGI above $500,000 ($250,000 if married filing separately).
• There is a phase‑down for high earners: for MAGI above $500,000 (single or joint) the SALT deduction is reduced by 30 % of excess MAGI or $10,000, whichever is greater.
• For retirees in states like New Jersey with high property and state taxes, this change may make itemizing appealing again (if SALT + mortgage interest + other deductions exceed the standard deduction)—but only for a limited time. 
• The SALT cap only applies when calculating your federal tax; it doesn’t apply to NJ state or local taxes.

Action Points

• If you’re a homeowner in a high‑tax state, run the numbers: does itemizing with a higher SALT cap make sense? Or does standard deduction remain more favorable?
• Keep in mind the “sunset” of the higher cap; the window is limited.
• Coordinate with other deductions and income timing (see below) so you don’t inadvertently lose tax benefit by crossing into a high‑MAGI bucket where SALT deduction phases out.

3. The OBBBA’s Effect on IRMAA (Medicare Surcharge Premiums) and Why Retirees Should Take Notice 

While the OBBBA did not directly rewrite the structure of IRMAA (the income‑related monthly adjustment to Medicare Part B and Part D premiums), it has implications for it and thus for retiree planning. Key considerations:

• IRMAA uses MAGI from two years prior to determine if you owe higher Medicare premiums. Large withdrawals, conversions, or other spikes in income under the OBBBA’s tax‑planning window can increase MAGI and thereby trigger or raise your IRMAA surcharge two years later. While the OBBBA doesn’t directly change Medicare, it can impact IRMAA surcharges. Higher taxable income can push you into higher Medicare premium brackets.
• Put simply, understanding how the OBBBA and implementing tax efficiency may help you with tax liability, it may also help to lower future IRMAA premium surcharges you’d pay in the future.

What Retirees Should Watch

• If you’re considering a large Roth conversion, a large taxable payout, or taxable IRA withdrawal in the next few years, model the effect on MAGI two years out and the IRMAA impact.
• Keep in mind the “cliff” nature of IRMAA; a small move above a threshold can trigger materially higher premiums.
• Coordinate income strategy, tax‑deduction strategy, and Medicare premium impact. You don’t want to save on one front (tax) only to pay more on another down the road (Medicare).
• Use qualified charitable distributions (QCDs), timing of required minimum distributions (RMDs), and other tools to smooth or lower MAGI if you’re near key thresholds.

Action Points

• Work with a Certified Financial Planner and your tax advisor to coordinate strategies across the board. One strategy that addresses income needs may affect other areas of your plan.
• Always be “tax aware” when considering how you might alter your finances to fit new tax rules or making lifestyle changes.

4. Other Retiree‑Relevant Points

Beyond the three items above, here are some other items to know:

• The OBBBA does not change RMD rules (age when you must start, etc.). 
• The new standard deduction levels are not  permanent and the age‑65 extra bump continues, meaning more of your income can be shielded from tax.
• Because many of these changes are temporary (senior deduction through 2028; SALT cap revert in 2030), retirees should use the time window wisely.
• Even though the deduction for age 65+ is generous, higher‑income retirees may find it phases out entirely, so “higher income = more complex planning”.
• For homeowners, the combination of SALT cap increase and itemized mortgage interest/mortgage insurance deductions may present opportunities if you itemize and it exceeds the (higher) standard deduction.

Strategize and Shield Your Retirement

The OBBBA legislation brings meaningful tax relief opportunities for retirees—especially through the extra senior deduction and the temporary SALT cap increase. It also raises the stakes on income timing and benefit planning because of the interaction with MAGI and Medicare premiums (IRMAA). The result: thoughtful, integrated planning is more important than ever.

You still may have questions and it’s easy to see why—tax law changes and how they might affect you can feel complicated and sometimes overwhelming. The key to success in turning these into real opportunities is having the right information and guidance.

Our team at Tranquility Path Investment Advisors has the experience to help you navigate these decisions with confidence. We’re here to provide clarity, answer your questions, and help you make tax-efficient choices that support your long-term financial goals.

Schedule a no-obligation conversation or reach us at (732) 856-4324. 

Frequently Asked Questions

How does the OBBBA affect retirement tax planning for 2026?

The OBBBA introduces several changes that directly affect retirement tax planning, including a new senior standard deduction, a temporarily higher SALT deduction cap, and indirect impacts on Medicare premiums tied to income. For retirees, these changes create opportunities to reduce taxable income, but only if withdrawals, deductions, and income timing are coordinated carefully. Thoughtful planning can help retirees take advantage of these provisions while avoiding unintended tax or Medicare cost increases.

Who qualifies for the new senior standard deduction under the OBBBA?

Under the OBBBA, taxpayers aged 65 and older may qualify for an additional senior standard deduction of up to $6,000 per person between 2025 and 2028, subject to income phaseouts. This deduction applies whether or not you itemize and can significantly lower taxable retirement income. However, eligibility depends on modified adjusted gross income, making it important to review how IRA withdrawals, Social Security, and other income sources interact with this benefit.

Does the higher SALT deduction help retirees in New Jersey or New York?

For some retirees, the temporarily increased SALT deduction under the OBBBA may make itemizing worthwhile again, especially for homeowners in high-tax states like New Jersey or New York. That said, the benefit depends on income levels, other deductions, and whether the standard deduction plus the senior bump is still more favorable. Because the SALT increase is temporary and subject to phaseouts, retirees should revisit this decision annually as part of an integrated tax strategy.