What the Tax Cuts and Jobs Act Extension Means for Your Retirement Planning
Permanent tax brackets, a bigger standard deduction, and new estate rules: what the OBBBA means for your retirement planning.
Written by
Tom Wareing, CFP®
For years, financial planners have been working with a looming question mark: what happens when the Tax Cuts and Jobs Act expires? That question has been answered. Congress passed the One Big Beautiful Bill Act (OBBBA), making many of the TCJA's most impactful provisions permanent and adding new ones that could meaningfully change how you plan for retirement.
Here's what it means for you—and the moves worth making right now.
One of the most consequential changes in the original TCJA was the reduction of individual tax rates. Those lower brackets—10%, 12%, 22%, 24%, 32%, 35%, and 37%—are now permanent. That's a big deal for retirement planning because it gives you a stable foundation to build multi-year strategies around.
When tax rates are uncertain, it's hard to know whether to accelerate income now or defer it. With permanent brackets, your financial advisor can model long-term Roth conversion ladders, retirement income distributions, and tax-efficient withdrawal sequencing with a lot more confidence. Converting strategically in lower-income years can significantly reduce your lifetime tax bill, and Roth accounts passed to heirs can continue growing tax-free for another 10 years.
The higher standard deduction introduced under the TCJA is also now permanent. For tax year 2026, that's $16,100 for single filers and $32,200 for married couples filing jointly.
But here's the headline for those approaching or in retirement: taxpayers aged 65 and older receive an additional $6,000 "bonus" deduction per person. For a married couple where both spouses are 65 or older, the total standard deduction climbs to $44,200 in 2026. This provision phases out for incomes above $75,000 (single) or $150,000 (married) and is set to expire after the 2028 tax filing, which makes the next few years a meaningful window to lower your taxable floor while you can.
If you've launched a consulting practice or side hustle in retirement, the OBBBA just saved you real money. The 20% Qualified Business Income (QBI) deduction under Section 199A, which allows many sole proprietors and pass-through entities to shield a fifth of their income from taxes, is now a permanent part of the tax code.
For retirees with modest side income, the bill even added a $400 minimum deduction for anyone with at least $1,000 in qualifying business income. Not bad for your post-career entrepreneurship.
If you've been racing to complete gifting strategies before a potential TCJA sunset, you can take a breath. The elevated estate and gift tax exemptions—currently $13.99 million per individual and $27.98 million for married couples—are now permanent. In 2026, those numbers increase to $15 million per person ($30 million for couples) and will be indexed for inflation going forward.
This removes a significant planning deadline that had many high-net-worth families accelerating transfers they weren't necessarily ready to make. Now you can structure your estate plan on your timeline, knowing the rules aren't going to change overnight.
The step-up in cost basis at death is also retained, meaning heirs who inherit assets can reset their cost basis to fair market value on the date of death, eliminating capital gains accumulated during your lifetime.
Legacy planning for grandchildren just got a meaningful upgrade on two fronts.
Starting in 2026, the annual federal withdrawal limit for K-12 expenses from 529 plans increases from $10,000 to $20,000, and funds can now be used for trade schools, certificate programs, licensing fees, and registered apprenticeship programs. If education savings is part of your legacy plan, this expanded flexibility makes 529s an even stronger tool.
The OBBBA also introduced a new savings vehicle called "Trump Accounts" (Section 530A) for children born between 2025 and 2028. The government provides a one-time $1,000 contribution, and parents or grandparents can add up to $5,000 per year in tax-advantaged contributions. It's a powerful new way to seed a grandchild's financial future with tax-deferred growth—and worth comparing carefully against your existing 529 strategy.
If you live in California, New York, New Jersey, or another high-tax state and you itemize, the SALT cap increase is worth paying close attention to. The limit jumps from $10,000 to $40,000 for married couples filing jointly, though it phases out starting at $500,000 MAGI and fully reverts to $10,000 in 2030. That makes the next four years your window to maximize this before it sunsets.
Shift workers and others who get income from tips, the OBBBA has something for you. The bill provides a 100% deduction for qualified tips (up to $25,000, subject to phaseout rules) and overtime pay (up to $12,500, subject to phaseout rules). However, you will still have to pay applicable state and local taxes.
For those who itemize, the OBBBA introduced a 0.5% AGI floor on charitable deductions. Starting in 2026, your donations are only deductible after they exceed 0.5% of your income. For example, if your AGI is $200,000, your first $1,000 in charitable gifts won't count toward your itemized deductions.
That said, for those who take the standard deduction, the bill adds a permanent "universal" deduction of up to $1,000 ($2,000 for couples) for charitable gifts of cash, making small-scale giving tax-efficient for everyone. For bigger givers, "bunching" two years of donations into one can help you clear the floor and maximize the deduction.
The OBBBA also made it easier to fund what many planners call the "Healthcare IRA." Health Savings Accounts are now compatible with Bronze and Catastrophic plans purchased on state exchanges, and HSA funds can now be used to pay for Direct Primary Care fees—those monthly subscription-style doctor arrangements—tax-free. For retirees, this opens a path toward more personalized care with fewer insurance headaches.
Tax law stability is a gift to long-term planners. With permanent brackets, a higher standard deduction, locked-in estate exemptions, and a suite of new provisions, you now have the clarity to act on decisions that may have been sitting on hold.
The window to plan around changes of this magnitude—before the next shift—is open now. If you haven't reviewed your financial plan in light of the OBBBA, this is the right time.
This article is for informational purposes only and does not constitute tax or financial advice. Please consult a qualified CFP® professional or tax advisor to understand how these changes apply to your specific situation.
