On July 4, the One Big Beautiful Bill Act (OBBBA) became law, as a broad tax and spending package aimed at easing inflation and delivering financial relief to Americans. One of the most notable provisions for retirees is a new $6,000 “senior bonus deduction” for individuals age 65 and older.
The $6,000 bonus deduction is available to all eligible seniors, whether they take the standard deduction or choose to itemize. This is different from the age-based standard deduction, which is only allowed if you take the standard deduction.
Unlike the age-based standard deduction, this new bonus stacks on top of your existing deductions, making it one of the most generous tax breaks retirees have seen in years.
Here’s what’s changing and how to take advantage of it in your retirement plan.
How the stacked tax deduction will work
Starting for tax year 2025, taxpayers age 65 and older will be able to combine:
A standard deduction of $15,750 (single) or $31,500 (married filing jointly), with
An age-based addition of $2,000 (single) or $1,600 per spouse if married, and
A new $6,000 senior bonus deduction under the OBBBA.
That means a single filer over 65 could deduct up to $23,750(previously $16,550). A married couple where both spouses are 65 or older could deduct $46,700 (previously $32,300).
The catch?
Eligibility is income-based. The full deduction is available to those with modified adjusted gross income (MAGI) up to $75,000 for single filers or $150,000 for joint filers. The deduction begins to phase out once above those thresholds and is fully phased out at $175,000 for single filers and $250,000 for joint filers.
It’s also worth noting that this senior bonus deduction is temporary. As of now, it only applies for the 2025 through 2028 tax years. It’s possible Congress could extend it further, but we likely know until 2028.
Why It Matters: Five Planning Opportunities Worth Exploring
This deduction will reduce taxes for many retirees. But its real value lies in the doors it opens for proactive planning. Here are several strategies we’re helping clients explore:
1. Rethinking Roth Conversions
Roth conversions allow you to shift money from traditional IRAs to Roth IRAs, paying tax now to enjoy tax-free withdrawals later. The bonus deduction gives retirees more room to convert IRA dollars at lower effective tax rates.
By combining the standard deduction, the age-based addition, and this new $6,000 bonus, some retirees may be able to convert dollars each year with minimal tax impact. This can lower future required minimum distributions (RMDs), reduce lifetime taxes, and create more income flexibility down the road.
There’s a sweet spot between retirement and RMDs where this approach can have the most impact.
2. Smoothing Income Over Multiple Years
Retirees often experience uneven income from asset sales, business wind-downs, or large IRA distributions. With this senior bonus deduction in place for four years, now is the time to think about spreading income more evenly across tax years, so you can qualify for this deduction while it’s available.
To make the most of the deduction each year from 2025–2028, consider ways to spread income more evenly across those years:
Delaying large sales or distributions to avoid spiking above the income threshold in a single year.
Accelerating income from future high-tax years into lower-income years.
Using multi-year tax projections to identify the optimal path.
This smoothing strategy can help avoid unnecessary spikes in tax liability while making full use of the available deduction each year.
Same Income, Different Results - This chart compares two retirees, each with an average annual income of $160,000 over four years.
Uneven Income: Income spikes in 2026 and 2028 push this retiree above the $175,000 phaseout limit, causing them to miss out on the $6,000 deduction in two years. Total lost deductions: $12,000
Smoothed Income: By spreading income more evenly across all four years, this retiree stays under the threshold and qualifies for the full $6,000 deduction every year. Total deductions preserved: $24,000
Strategic income timing can preserve valuable deductions, even when total income stays the same.
3. Funding the Cashflow Gap Before Claiming Social Security
Delaying Social Security often results in higher lifetime benefits. The challenge is funding those interim years. The senior bonus deduction provides a helpful cushion, allowing retirees to generate income from taxable or IRA accounts without incurring as much tax.
This deduction could help bridge the gap, making it easier to delay Social Security while keeping tax costs under control.
4. Revisiting Withdrawal Order
The traditional guidance suggests pulling from taxable accounts first, then IRAs, and Roth accounts last. But with this expanded deduction, it may be worth adjusting that sequence.
You might instead:
Draw more from IRAs early, taking advantage of low tax rates and the temporary senior deduction. You’re essentially using the government’s tax break to convert IRA assets into spending money at a low cost. This can also reduce future IRA balances (and future taxable RMDs).
Reserve taxable accounts for later, especially after the senior bonus deduction expires.
Preserve Roth assets for high-income years or future tax flexibility.
Coordinating withdrawals across all account types with the new deduction in mind can improve long-term tax efficiency.
5. Aligning With Charitable Giving
If you’re charitably inclined, this is a good time to revisit your giving strategy.
Qualified Charitable Distributions (QCDs) from IRAs remain a powerful tool to give directly to charity without increasing taxable income. This also keeps your MAGI lower, which may help you stay under the $250k Joint/$175k Single threshold to qualify for the senior bonus deduction.
For others, donor-advised funds can be used to bunch gifts in one year to claim a high itemized deduction, then take advantage of the standard deduction in the next. In both cases, retirees can still benefit from the new $6,000 bonus deduction each year they qualify.
This new deduction adds flexibility, helping you give with greater intention and less tax friction.
Bottom Line
If you’re 65 or older, the next few years offer a unique window of opportunity. From 2025 through 2028, this new deduction can help lower your tax bill today and create long-term planning advantages that stretch well into the future.
It’s a reminder that good tax laws are only as valuable as the plans they inspire. Used thoughtfully, this expanded deduction can help you reduce lifetime taxes, generate tax-efficient income, and leave a stronger legacy.
The next four years offer a rare opportunity to rethink how you generate income in retirement. Whether you're considering a Roth conversion, adjusting withdrawal strategies, or supporting causes you care about, we’re here to help you build a plan that puts this deduction to work.
Disclosure: This material is for informational and educational purposes only and is not intended as personalized tax, legal, or investment advice. You should consult your own tax, legal, and financial professionals before making any decisions based on the information provided. Tax laws and regulations are subject to change, and their application can vary based on your individual circumstances. While the strategies discussed may be appropriate for some individuals, there is no guarantee that any specific tax outcome or investment result will be achieved. Any examples, scenarios, or case studies are hypothetical and for illustrative purposes only. They do not represent actual client situations and should not be relied upon to predict or project results. Investing involves risk, including the potential loss of principal. Past performance does not guarantee future results. All investments and tax strategies carry certain risks and may not be suitable for all investors. Advisory services offered through Human Investing, LLC, an SEC registered investment adviser.
