What Retirees Need to Know About the One Big Beautiful Act (OBBA)
A New Bill with Big Impacts
There’s been a lot of buzz around the new tax legislation that was passed over the July 4th holiday, officially known as the “One Big Beautiful Act,” or OBBA. And naturally, clients are asking:
Is it true that Social Security is no longer taxed?
Will this reduce my retirement tax obligation?
What does this mean for my financial plan?
As fiduciaries and financial advisors in Bel Air, MD, we’ve been helping clients interpret what the OBBA means for their financial future. The short answer: The OBBA introduces several tax changes that could impact retirees and pre-retirees, but the details are more nuanced than headlines suggest.
In this new series, we’re breaking down what the law really says, starting with what retirees should understand about enhanced deductions and Social Security.
What Is the One Big Beautiful Act?
Passed in July 2025, the OBBA is a sweeping piece of legislation designed to reduce the tax burden for individuals, families, and businesses. Key updates include:
Adjustments to federal income tax brackets
Modifications to deductions and credits
An enhanced deduction for seniors (ages 65+) available whether or not you’re claiming Social Security benefits¹*
Future shifts in estate tax exemptions and retirement withdrawal rules (which we’ll explore in future posts)
While the jury is still out on how this will affect long-term federal revenue, the bill is designed to ease the tax load for working families and retirees, particularly those in middle-income brackets.
Social Security Isn’t Technically Tax-Free Now
One of the most widely circulated headlines claimed that “Social Security is no longer taxed.” But that’s only partially true.
Early drafts of the OBBA aimed to eliminate taxes on Social Security benefits altogether. But in the final version, lawmakers opted for a different path: enhancing an existing deduction for older Americans.
The OBBA provides an additional deduction for seniors 65 and older, regardless of whether or not they’re drawing Social Security income¹,².
This new deduction helps offset taxes owed regardless of whether you take standard or itemized deductions, but it doesn’t make Social Security income completely tax-free. That depends on your total income.
Who Qualifies for the Enhanced Senior Deduction?
The OBBA introduces a new, expanded deduction for seniors age 65 and older that aims to reduce taxable income in retirement. Here's how it works:
Deduction Amounts:
$6,000 for single filers
$12,000 for married couples filing jointly
Eligibility:
Must be age 65 or older
You do not need to be currently receiving Social Security benefits to qualify
The deduction applies regardless of whether standard or itemized deductions are used²
This means a married couple over 65 can now claim the standard deduction plus the additional $12,000, lowering their taxable income by a meaningful amount.
Important Income Limits to Know
There is a phaseout for higher-income earners:
The deduction phases out at a 6% rate for incomes above:
$75,000 for single filers
$150,000 for joint filers
Social Security income is included when calculating total income for the phaseout³
Those with significant income from pensions, investments, or business ownership may see the deduction reduced or eliminated
How This Affects Your Retirement Plan
Whether or not this credit deduction applies to you, the OBBA is a timely reminder to revisit your tax and retirement strategy. Legislation like this underscores why tax planning isn’t a one-time task but a continuous process.
Here are a few questions we’re helping clients answer:
Could adjusting your income help you stay under the phaseout threshold and preserve your full deduction?
Are there strategies like timing withdrawals or using Roth accounts that can help you stay below the income threshold?
How does this bill affect your estate or gifting plans?
If you haven’t had a recent strategy session, this is a great time to schedule one.
Additional Answers to your Top Questions
Is Social Security income now fully tax-free?
Not exactly. Taxes may still apply depending on your total income. The OBBA enhances standard or itemized deductions for seniors, but only those age 65 or older are eligible, regardless of when they begin taking Social Security².
Do I need to change anything right now?
Not necessarily. If you feel that you are closed to the income phaseout, it is definitely time to revisit your planning to see if there are ways to adjust your income prior to year end or for next year in order to qualify.
Does this affect how I draw income in retirement?
It might. If you’re taking distributions from multiple account types (IRA, Roth, brokerage), reviewing your income mix could help you stay under deduction phaseout thresholds.
How does this interact with the standard deduction?
This extra deduction is available to all taxpayers regardless of whether you take standard or itemized deductions. Think of it as a bonus for seniors but with income limits².
Will state taxes on Social Security change too?
No. This is federal legislation. States set their own tax rules on retirement income.
The Bottom Line: Stay Informed, Not Alarmed
Tax law changes can be confusing, but you don’t have to figure it out on your own. Our team specializes in helping families, retirees, and federal employees navigate transitions with clarity. Whether you’re based in Bel Air, MD, Harford County, or beyond, we offer financial planning and wealth management services that evolve with you.
If you’re searching for a trusted financial advisor in Bel Air, MD, or Harford County who can help you understand how the OBBA affects your specific retirement strategy, let’s talk.
Sources:
1https://www.fidelity.com/learning-center/personal-finance/one-big-beautiful-bill
3https://taxfoundation.org/research/all/federal/one-big-beautiful-bill-act-tax-changes/
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