On July 4, 2025, the One Big Beautiful Bill Act (often shortened to OBBBA) was signed into law as Public Law 119-21. It is one of the most significant pieces of tax legislation in nearly a decade. Most of its provisions took effect on January 1, 2026.
If you are nearing retirement, already retired, or earning a higher income, this law affects you in real ways. Some of the changes are straightforward. Others come with phaseouts and fine print that can swing your tax picture by thousands of dollars, depending on where your income lands.
Here is a plain English walkthrough of the parts that matter most for your financial plan, what changed, what stayed the same, and where the planning opportunities live.
The Headline: TCJA Tax Brackets Are Now Permanent
The 2017 Tax Cuts and Jobs Act was set to expire at the end of 2025. That sunset clause created years of uncertainty. Were brackets going up? Was the standard deduction getting cut roughly in half? Was it time to rush Roth conversions before rates climbed?
The OBBBA settled it.
The seven federal tax brackets created by the TCJA, which are 10%, 12%, 22%, 24%, 32%, 35%, and 37%, are now permanent. The standard deduction stays at its expanded level. The personal exemption stays at zero.
For long-term planning, this is the biggest takeaway in the entire bill. You can finally build a multi-year tax strategy without trying to guess what Congress is going to do next.
Standard Deduction for 2026
For 2026, the standard deduction is:
- Married filing jointly: $32,200
- Single or married filing separately: $16,100
- Head of household: $24,150
If you are age 65 or older, you also get an additional standard deduction on top of this. For 2026, that is $1,650 per qualifying spouse if you file jointly, or $2,050 if you are single or head of household.
The New Senior Bonus Deduction
This one is brand new and worth understanding carefully.
The OBBBA created a temporary "senior bonus deduction" of $6,000 per qualifying taxpayer age 65 or older. A married couple where both spouses qualify can claim up to $12,000. It is available for tax years 2025 through 2028 only, unless Congress extends it.
A few important details:
- It stacks on top of the standard deduction and the existing age 65+ additional standard deduction
- It is available whether you itemize or take the standard deduction
- You must have a valid Social Security number
- Married taxpayers must file jointly to claim it
- The full deduction is available if your modified adjusted gross income (MAGI) is at or below $75,000 for single filers and $150,000 for joint filers
- The deduction is reduced by 6 cents for every dollar of MAGI above those thresholds
- It is completely phased out at $175,000 MAGI for single filers and $250,000 MAGI for joint filers
A common misconception worth clearing up. This deduction does not eliminate the tax on Social Security benefits. The taxability formula for Social Security is unchanged. What this does is reduce your taxable income, which for many retirees has a similar effect at the margin.
For a married couple where both spouses are 65 or older and MAGI is under $150,000, this is a meaningful tax break for the next three years. After 2028, it disappears unless extended.
The SALT Cap Increase
For taxpayers in high-tax states, or those with substantial property tax bills, the State and Local Tax (SALT) deduction cap got a significant temporary boost.
For 2026, the SALT cap rises to $40,400, up from $10,000 under the prior law. The cap increases by 1% per year through 2029, then reverts back to $10,000 in 2030 unless Congress takes further action.
For higher earners, here is where it gets complicated.
The increased cap is subject to a phaseout. For 2026, it begins phasing out when MAGI exceeds $505,000. Above that threshold, the SALT cap is reduced by 30% of the excess MAGI. The cap cannot drop below $10,000.
A quick example. A married couple with MAGI of $605,000 in 2026 would be $100,000 over the $505,000 threshold. A 30% reduction equals $30,000, taking their cap from $40,400 down to $10,400. By roughly $605,000 of MAGI, the entire expanded benefit is gone.
For households whose income lands between $505,000 and roughly $605,000, this creates what some are calling a "SALT torpedo," where each additional dollar of income reduces your deduction and bumps your effective tax rate higher than the bracket alone would suggest. Managing your MAGI in these years becomes especially important if you are anywhere near that range.
Estate, Gift, and Generation-Skipping Tax Exemption
For 2026, the federal estate, gift, and generation-skipping transfer (GST) tax exemption is set at $15 million per person, up from $13.99 million in 2025.
The OBBBA makes this exemption permanent. Beginning in 2027, it will be indexed for inflation using 2025 as the base year.
For families with sizable estates, this is a big deal. The previous concern, that the exemption could be cut roughly in half on January 1, 2026, is no longer on the table. That removes the pressure to rush lifetime gifting before year end and opens up a longer planning horizon.
The 40% top federal estate tax rate is unchanged.
2026 Retirement Contribution Limits
These are not OBBBA provisions, but they take effect alongside it and are worth having in one place. The IRS released the official limits in Notice 2025-67 on November 13, 2025.
- 401(k), 403(b), 457(b), and Thrift Savings Plan: $24,500
- Catch-up contribution for ages 50 and older: $8,000 (for a total of $32,500)
- Enhanced catch-up for ages 60 through 63: $11,250 (for a total of $35,750)
- Traditional and Roth IRA: $7,500
- IRA catch-up for ages 50 and older: $1,100 (for a total of $8,600)
- HSA self-only coverage: $4,400
- HSA family coverage: $8,750
- HSA catch-up contribution for age 55 and older: $1,000
One important rule for higher earners. Starting in 2026, under a SECURE 2.0 Act provision, if your prior-year W-2 wages from a single employer exceeded $145,000, your catch-up contributions to 401(k), 403(b), or governmental 457(b) plans must be made on a Roth (after-tax) basis. This is a separate rule from OBBBA but it kicks in this year and affects a lot of pre-retirees.
What the OBBBA Did Not Change
It is worth noting what the law left alone. There was a lot of speculation about retirement account changes that never made it into the final bill.
- Roth IRA contribution rules and income limits are unchanged
- Required Minimum Distribution (RMD) ages are unchanged (age 73 currently, age 75 starting in 2033 under SECURE 2.0)
- The formula for taxing Social Security benefits is unchanged
- The 40% top federal estate tax rate is unchanged
- Backdoor Roth and mega backdoor Roth strategies remain in place
- No new caps were placed on high-balance retirement accounts
There were earlier drafts in Congress that contemplated some of these changes. They could resurface in future legislation, but for now the rules are stable.
What This Means for Planning
A few practical takeaways as you think about 2026 and beyond.
Long-range tax planning is finally possible again. With brackets, standard deductions, and the estate exemption all set on a permanent or semi-permanent basis, multi-year strategies are far easier to model.
For pre-retirees, the window for Roth conversions at today's rates remains wide open. The 12%, 22%, and 24% brackets are not going anywhere. If you expect your income to be higher in retirement than it is today (which catches more people off guard than you might think, especially when RMDs and Social Security combine), converting some traditional IRA dollars to Roth while you are still in a moderate bracket can still make a lot of sense.
For higher earners with MAGI near $500,000, the SALT cap phaseout is a new variable. The timing of charitable gifts, Roth conversions, capital gains realization, and even bonus deferrals can swing your effective rate noticeably depending on where your MAGI lands.
For families with larger estates, the permanent $15 million exemption is a relief. There is less pressure for rushed lifetime gifting, but plenty of reasons to revisit your estate plan, beneficiary designations, and trust structures to make sure everything still fits the new landscape.
For retirees under the senior bonus deduction thresholds, this is real money for the next three years. If you are 65 or older with MAGI under the limits, do not overlook it. And if your MAGI is in the phaseout zone, strategies like Qualified Charitable Distributions (which satisfy your RMD but do not count toward MAGI) can help preserve more of the benefit.
A Final Thought
Tax laws are complex, and OBBBA is no exception. The provisions interact with each other, and the right strategy depends on your specific situation, including your state of residence, your income mix, your retirement timeline, and your estate plans.
Disclosure
This content is for general educational purposes only and is not intended as tax, legal, or investment advice. Tax laws are subject to change, and individual situations vary. Please consult with a qualified tax professional regarding your specific circumstances.
Sources
- Internal Revenue Service, "One, Big, Beautiful Bill Provisions," irs.gov/newsroom/one-big-beautiful-bill-provisions
- Internal Revenue Service, "IRS Releases Tax Inflation Adjustments for Tax Year 2026, Including Amendments from the One, Big, Beautiful Bill," Revenue Procedure 2025-32
- Internal Revenue Service, "401(k) Limit Increases to $24,500 for 2026, IRA Limit Increases to $7,500," IR-2025-111, Notice 2025-67, November 13, 2025
- Internal Revenue Service, "One, Big, Beautiful Bill Act: Tax Deductions for Working Americans and Seniors," FS-2025-03, July 14, 2025
- Public Law 119-21, "One Big Beautiful Bill Act," signed July 4, 2025