These annual updates typically focus on recalibrating income thresholds, contribution maximums, and standard deduction amounts to ensure your financial strategy remains aligned with current economic conditions. Occasionally, Congress passes major legislation that changes the underlying tax code. The One Big Beautiful Bill Act (OBBBA), signed into law in July 2025, is one example. It goes beyond routine IRS updates and includes provisions that affect the 2025 tax year. As you file your return during the 2026 tax season, understanding both these structural changes and regular IRS adjustments can help guide your retirement strategy.
What did the OBBB Change?
The legislation permanently extended most individual tax provisions from the 2017 Tax Cuts and Jobs Act that had been scheduled to expire after 2025. It also added several temporary tax benefits, some of which run through 2028 and may affect planning timelines for certain taxpayers.
Some of the updates provide broad tax cuts for individuals, such as higher standard deductions and lower income tax brackets. Other changes create targeted deductions for specific groups, including seniors, families, and retirees. A few provisions can directly influence how you save, withdraw, and plan for retirement. Here’s what matters most if retirement is on your radar.
Key updates for the 2026 filing season include:
- Higher SALT Caps: The State and Local Tax deduction cap jumped from $10,000 to $40,000.
- New Senior Deduction: A $6,000 deduction for those age 65 and older.
- No Tax on Tips/Overtime: New federal deductions for specific types of earned income.
- Trump Accounts: New tax-deferred savings accounts for children.
- A small increase to the child tax credit.
Many of these provisions are temporary and currently scheduled to expire after 2028. That expiration timeline matters for retirement planning because it means some tax advantages available today may not last, so planning with flexibility is key.
1. A new tax break for older adults: the $6,000 Senior Deduction
One of the most retirement-relevant updates is a new deduction for taxpayers age 65 or older. Eligible filers can claim up to $6,000, or $12,000 for married couples who both qualify.
The Phase-Outs: To qualify for the full amount, your Modified Adjusted Gross Income (MAGI) must be below:
- $75,000 (Single)
- $150,000 (Married Filing Jointly). The deduction phases out at $175,000 (Single) and $250,000 (Joint).
For some retirees, claiming this deduction now or in future years can reduce taxable income and potentially lower overall federal tax liability, depending on total income and filing situation.
2. Higher SALT Deduction Could Help Pre-Retirees
For homeowners in high-tax states who itemize, the SALT deduction cap increase could significantly boost deductions for those in peak earning years. The law raises the cap on the SALT deduction from $10,000 to $40,000 in 2025 for taxpayers with a modified adjusted gross income (MAGI) of $500,000 or less. Itemizing taxpayers can deduct up to $40,000 in combined state and local property, income, or sales taxes already paid that year.
In 2026, the cap rises slightly to $40,400 for taxpayers with MAGI of $505,000 or less. From 2026 through 2029, both the cap and income threshold will increase by 1% each year. For taxpayers whose MAGI exceeds the threshold, the deduction will be reduced by 30% of the excess income until the cap gradually returns to $10,000. By 2030, the SALT deduction cap reverts fully to $10,000.
This higher cap could increase after-tax cash flow for some taxpayers during peak earning years, which may influence financial planning decisions such as contribution timing, retirement account conversions, or other strategies to manage taxable income.
