Depending on who you ask, the Big Beautiful Bill (BBB) is either our “best chance in a generation” or will lead to the deaths of tens of thousands of people every year.
The truth, as always, is somewhere in the middle. It’s not all great, it’s not all terrible. Here at Clarity, we like some of it, and we would change some of it (if someone were to ask for our opinion, that is).
But the main thing we’re looking at with our clients is how the bill could impact retirees. Notice the word could. It’s important to note that the bill has NOT become law yet.
Yes, it made it through the House, but it faces quite a bit of opposition (including from Elon Musk himself) before it makes its way to the president’s desk for signature. The Senate has vowed to vote on it by Independence Day, so we’ll see what happens between now and then.
But back to my question: What items in the Big Beautiful Bill could have the greatest impact on retirees or near-retirees? The answer is a mixed bag, but here are five big ones:
1. ‘Bonus’ Deduction for People Age 65 and Older
Thanks to the Tax Cuts and Jobs Act (TCJA), which passed in 2017, the standard deductions are now $15,000 per individual and $22,500 for married couples filing jointly. In addition, individuals age 65 and older get an additional $2,000 deduction.
The BBB not only seeks to make the current deduction levels permanent, it also includes a $4,000 “bonus” deduction for people 65 and over that would last until 2028. So if you and your spouse are both over 65 and are joint filers, you could deduct up to $12,000 more than everyone else.
One note: The proposed deductions include income thresholds, beginning at $75,000 for single and $150,000 for joint filers. The deductions phase out entirely for single filers earning $175,000 or more and joint filers who earn more than $250,000.
2. HSAs Available for People on Medicare Part A
Currently, people on Medicare cannot contribute to Health Savings Accounts (HSA), even if you are still employed and have always used an HSA through your employer-provided health plan. Once you start claiming Social Security, you are automatically enrolled in Medicare Part A, and current law states that no one on Medicare can contribute to an HSA.
(Quick refresher: HSAs are tax-free accounts that allow you to save money and pay for certain medical expenses. Learn more here.)
Under the new bill, working seniors who are eligible for Medicare Part A would be permitted to continue contributing to HSAs. That’s great news, because the funds in an HSA can be used to reimburse yourself for Medicare premiums and co-pays, thus reducing the financial burden of Medicare.
Related: The 5 Most Common Questions We Get on Medicare
In addition, the BBB seeks to double the amount people can contribute to their HSAs, provided they earn less than $75,000 (or $150,000 if filing jointly). That means individuals could contribute up to $8,600 and families up to $17,100.
3. Increase Estate Tax Exemption to $15 Million
If charitable giving is part of your tax efficiency plan in retirement, you’ll be pleased to hear that the BBB would increase the estate tax exemption (currently $13.99 million) to $15 million – permanently. Before the TCJA went into effect, the exemption limit was $5.6 million, so it’s already increased quite a bit.
If you are married, you and your spouse could pass on up to $30 million in assets without triggering the estate tax.
4. Increase SALT Cap from $10,000 to $30,000
When the TCJA implemented a cap on how much of your state and local taxes (SALT) you could claim as a deduction on your income, people were not too happy.
In 2021, Oregon was one of 36 states to pass legislation that created a SALT workaround so individuals could continue to claim a federal deduction on pass-through income. It worked well for a couple years, but now the federal government is seeking to close that loophole.
The BBB tries to strike a compromise by simultaneously eliminating the pass-through workaround and increasing the SALT cap to $30,000.
5. Missing: No Tax on Social Security
As recently as April, the president promised that the Big Beautiful Bill would remove the tax on Social Security. It was understandably a popular idea – but it’s not in the bill. Why isn’t it in there? Your guess is as good as mine.
People have speculated that the $4,000 “bonus” deduction for seniors is intended as compensation for the missing Social Security tax break.
Again, the BBB has not passed the Senate and is likely to undergo some pretty big changes before (and if) it does.
Whatever Happens, Keep Your Eyes on Your Plan
New financial legislation tends to make people nervous, but it doesn’t have to be that way.
If you’re wondering how these changes could impact your specific situation, we’d be happy to help you think it through. Click here to schedule a consultation with one of our advisors.
