The New Tax Law Helps Retirees Slash Their Tax Bills

(Illustration by Jori Bolton)

Taxpayers over 65 can expect an average annual 4.5% increase in after-tax income compared with 3% for all age groups, according to the Tax Foundation.

Key Points

• Taxpayers age 65 and older can expect an average annual 4.5% increase in after-tax income due to the new tax bill.
• The One Big Beautiful Bill Act, or OBBBA, introduces a new, $6,000 per-person deduction for taxpayers age 65 and older.
• The tax bill extends historically low income-tax rates, keeping the top rate at 37% instead of increasing it to 39.7%.

Retirees have the most to gain from this year’s new tax bill and could start saving as early as this year with some last-minute strategies.

Under changes enacted under the One Big Beautiful Bill Act, or OBBBA, taxpayers ages 65 and older can expect an average annual 4.5% increase in after-tax income compared with 3% for all age groups, according to the Tax Foundation.

This is partly due to a new $6,000-per-person deduction for age 65-plus taxpayers, a perk that phases out for single taxpayers with income of $75,000 to $175,000 and couples filing jointly earning $150,000 to $250,000.

But retirees earning more stand to benefit, too. The tax bill’s changes are favorable to higher-income people, “and basically we have a lot of rich senior tax filers,” says Huaqun Li, a senior economist and director of modeling projects at the Tax Foundation.

The centerpiece of the bill is the extension of historically low income-tax rates, which were set to go up next year. The top rate will remain at 37% rather than rising to 39.7%.

Here are ways retirees can take advantage of low rates and other rule changes.

Consider Early or Bigger IRA Withdrawals

While required minimum distributions, or RMDs, from retirement accounts begin at age 73, consider starting withdrawals earlier.

Individual retirement account and 401(k) withdrawals are subject to income taxes, and RMDs often push income into the next-higher tax bracket, says Rob Williams, head of wealth management research at the Schwab Center for Financial Research. “By taking withdrawals early, you’ll have smaller future RMDs and potentially avoid a higher bracket.”

If you are already taking RMDs, consider withdrawing more than necessary if there is room in your tax bracket before hitting the next-higher bracket, says Ed Slott, president of Ed Slott & Co.

These moves make even more sense if you believe that tax rates may go up in the future, Slott adds.

“The OBBBA made rates permanent, but the word permanent in the dictionary is different than in tax policy, where it means only until Congress changes it,” Slott says.

Gift Directly From Your IRA

The OBBBA set limits on charitable giving beginning next year, allowing itemized deductions to the extent that gifts exceed 0.5% of your adjusted gross income and capping the value of itemized deductions at 35%.

This has triggered a scramble to bunch gifts into this year. But investors ages 70½ or older can rest easy: They can get around new limits by gifting directly from their IRAs through a qualified charitable distribution, or QCB.

A QCB counts as all or part of your RMD and reduces your taxable income—and that’s as good as a full tax deduction, says Rob Burnette, a tax preparer at the Outlook Financial Center.

Shave Back Income to Snag the Senior Deduction

Income-reducing moves may help you qualify for some or all of the $6,000 senior deduction, not to mention other perks, such as a higher cap on state and local tax, or SALT, deductions—$40,000, up from $10,000. It phases out on incomes of $500,000 to $600,000, then drops to $10,000.

Consider selling losing investments, says Blake Harrison, executive vice president of wealth management at CapWealth. Losses can cancel taxable gains, and up to $3,000 of income annually.

“Also, if you’re taking RMDs, use a QCD to reduce income,” Harrison adds.

Other moves: Avoid buying a mutual fund about to make a year-end capital-gains distribution, defer a bonus into 2026, and max out on retirement plan contributions.

“If you have a side hustle, you can reduce taxable income by contributing to an individual 401(k) plan,” says Jennifer Baick, vice president of Mercer Advisors’ financial planning group. “As an individual, you are employee and employer, so you can make both an employee and a profit-sharing contribution.”

Revisit Medical Expense Deductions

With a higher SALT cap deduction, your itemized deductions are more likely to exceed the standard deduction, so you should be gathering up receipts for deductible expenses and accelerating eligible expenses into this year, Baick says.

For retirees, medical expenses could add up to a big itemized deduction. Out-of-pocket medical expenses are deductible to the extent that they exceed 7.5% of your adjusted gross income.

To accelerate medical expenses, “tell a provider you want to pay for a future procedure before year end,” says Erin Scannell, private wealth advisor for Ameriprise.

The Internal Revenue Service says an expense is deductible if a procedure isn’t scheduled “substantially beyond” the end of the year.

Consider a Roth Conversion

For many retirees living off IRA assets, converting to a tax-free Roth doesn’t make sense because it can take years to offset the upfront tax hit—converted assets are subject to income taxes.

But with the new senior deduction, combined with the higher SALT cap and other deductions, you may lower your taxable income enough for a conversion to make sense. If you don’t qualify for the senior deduction, consider accelerating a charitable gift, says Jere Doyle, a senior estate planning strategist at BNY Wealth. Converted assets are subject to income-tax rates.

“You can pair a conversion with a big charitable contribution,” Doyle says. “So, when you realize taxable income from converting, it’s offset by the charitable deduction.”

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