How the "One Big Beautiful Bill" Is Changing the Tax Landscape for Retirees

During my recent trip to Australia, I learned that navigating a foreign country can feel normal but different all at the same time.

On the one hand, my family and I enjoyed the familiar experiences of being on vacation, such as unplugging from our daily routines, relaxing on a long flight, seeing the sights, and spending time with loved ones.

But once we arrived in Brisbane, we had to get used to a new landscape and a new set of rules. The huge time zone difference. Driving a "ute" (utility vehicle) on the left side of the road and overtaking (passing) on the right. Calling "French fries" chips and our friends “mate.” Keeping an eye out for wild kangaroos.

Retirees may feel like they're facing a similar "familiar but different" financial landscape this tax season. While many of the strategies my team at Keen Wealth are discussing with folks are tried-and-true, some rules and details are changing due to new legislation that's going into effect. Your financial plan, and your financial team, need to be ready to adapt to these new rules so that you don’t miss a key deduction and pay more in taxes than you really owe.

On today's show, we discuss the One Big Beautiful Bill Act's changes to the tax code and some specific provisions that require thorough proactive planning before you file your taxes in April.

1. The "Senior Bonus"

Starting this year through 2028, filers over age 65 can take a $6,000 "Senior Bonus" deduction, whether they itemize or not. And folks who do itemize can claim this bonus on top of the standard senior deduction, which is $2,050 for single filers and $1,650 per spouse for married couples filing jointly.

However, unlike the standard senior deduction, this bonus deduction has phase-outs that begin at $150,000 for married couples filing jointly and $75,000 for single filers. The bonus disappears completely for couples earning over $250,000 and single filers earning over $175,000.

To avoid those phase-outs and potentially take advantage of this bonus for the next few years, seniors should start examining if moves like tax-loss harvesting and Roth conversions might be beneficial -- before the end of a given tax year. That's one example of why tax planning is part of Keen Wealth's comprehensive process during the whole year, not just every April.

2. Early Retirees Could Face a Health Care “Cliff”

Most pre-65 retirees who can't jump on a working spouse's health care plan bridge their gap to Medicare by buying insurance from their state's health care marketplace.

Around 2020, the government enhanced some marketplace premium subsidies for a little added financial relief during the pandemic. At the end of last year, those extra subsidies lapsed, which means marketplace customers are once again facing a "cliff." If your income is 400% of the Federal Poverty Level or lower, you probably still qualify for subsidies. But if your income exceeds the Federal Poverty Level, you fall over the cliff and subsidies drop to zero.

We recently ran the numbers for a Keen Wealth client, and being $1 over the cliff would have triggered around $1,500 in additional premium costs per month.

For 2026, the cliff sits at $84,600 for a married couple and $62,600 for a single filer. However, many early retirees who are living off their investments have some control over how much taxable income hits their tax return in a given year. During your pre-Medicare years, you might lean on cash reserves or tax-advantaged accounts, or use tax-loss harvesting to lower your taxable income, and your monthly premiums.

3. High Earners Have to "Catch Up"

Making pre-tax "catch-up" contributions to top off retirement accounts is often a valuable wealth-building strategy for folks over 50 who are still working.

But starting in 2026, if you’re over 50 and your FICA wages from the previous year exceeded $150,000, your catch-up contributions have to go into a Roth account. You'll lose the immediate tax deduction on catch-up dollars contributed to non-Roth accounts, but they will grow tax-free until you need them.

Because of this change, if you usually max out your 401(k) to lower your tax bill, you might see a slightly higher tax liability this year than you expected. And if you do want to make catch-up contributions, confirm with your payroll department that you’re enrolled in that part of your benefit program.

4. SALT Cap Relief

The "SALT Cap" (State and Local Tax deduction) has been an irritating tax problem for high-earning residents in high-tax states. The OBBBA raises this cap significantly from $10,000 to $40,400 for 2026 through 2029.

If you pay high property taxes or state income taxes, this new cap might make itemizing your deductions more attractive than taking the standard deduction for the next three years. But, like the Senior Bonus, this deduction does have phase-outs for high earners, starting at $500,000 for couples and $250,000 for folks filing separately.

5. Planning for the Next Generation 

The estate tax exemption has increased again going to $15 million per person ($30 million for a married couple). This higher threshold means that even many high-net-worth families won't face federal estate taxes, although state estate taxes vary depending on where you live.  

New grandparents in our audience should also make sure that mom and dad are on top of the new "Trump Accounts." Children born between 2025 and 2028 can receive a $1,000 federal contribution into a retirement-style investment account. While $1,000 may not seem like much, in a few years this could be a great opportunity to teach your grandkids about the power of compounding interest.

Are You Just Prepping? Or Planning?

What's the difference?

Tax prep is what you do from the beginning of the year until Tax Day in April: mostly gathering your financial documents and having a quick check-in with your CPA. While it's important to make sure you're covering all your bases, essentially, you're just putting together a report about what happened last year and submitting it to the IRS.  

Comprehensive tax planning is what my team at Keen Wealth does throughout the year for our clients. It's the ongoing process of putting your wholistic plan in the best shape possible while also managing your lifetime tax liability.

With so many changes to tax law going into effect, 2026 is not the year to fire up tax software on your own. Put a visit to Keen Wealth on your tax prep checklist so we can review your situation now and get started on a proactive tax plan that could save you money for years to come.

About Bill

Bill Keen is a financial advisor with over 30 years of industry experience. As the founder and CEO of Keen Wealth Advisors, a registered investment advisory firm, he focuses on providing personalized retirement planning designed to help people thrive before and during their retirement years. With a passion for educating others, Bill regularly blogs about retirement planning, hosts the podcast Keen on Retirement, and has contributed to Forbes, U.S. News and World Report, Reuters, Wall Street Journal’s Market Watch, Yahoo Finance, and other publications. Based in Overland Park, Kansas, Bill and his team work with clients throughout the greater Kansas City area and across the nation. To learn more, connect with him on LinkedIn or visit www.keenwealthadvisors.com.

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