One of President Trump’s campaign promises during the 2024 election cycle was to eliminate taxes on Social Security benefits. While the One Big Beautiful Bill Act (OBBB) doesn’t go that far, it includes a related provision intended to fulfill that promise in a different form: a new age-based deduction for seniors. Like the proposed exclusions for tips and overtime pay, this provision is part of a group of campaign-style tax measures limited to a four-year window.
Key OBBB Provision: The Senior Deduction
For tax years 2025 through 2028, taxpayers age 65 or older can claim an additional $6,000 deduction on top of their standard or itemized deduction. Married couples filing jointly may claim $12,000 if both spouses are age 65 or older. The deduction applies regardless of whether the taxpayer itemizes.
Income Limits and Phase-Out Ranges
So that’s the deduction—but not everyone will qualify. Generally, higher-income households will see this benefit reduced or eliminated due to income phase-outs. Eligibility is based on Modified Adjusted Gross Income (MAGI):
- For single filers, the deduction begins to phase out at $75,000 MAGI and phases out completely at $175,000.
- For joint filers where only one spouse is 65 or older, the phase-out begins at $150,000 and phases out completely at $250,000.
- For joint filers where both spouses are 65 or older, the phase-out begins at $150,000 and phases out completely at $350,000.
This design allows for meaningful benefits to middle-income retirees while excluding high earners from eligibility.
Planning Opportunities and Considerations
Because of the phase-out under OBBB, the senior deduction becomes yet another factor to consider when it comes to managing income levels through IRA withdrawals, Roth conversions, and capital gain realization or when evaluating broader financial planning decisions—such as when to begin collecting Social Security. Layered on top of IRMAA thresholds, Social Security taxation rules, and the interplay of marginal tax rates on both ordinary income and capital gains, the new senior deduction adds another piece to an already complicated puzzle—one where the right timing and coordination can make a big difference.
With so many moving parts, an ongoing and annual tax planning regimen is more important than ever. Some of the practices and strategies to consider include:
- Monitor MAGI annually: Track income sources to stay below phase-out thresholds for the senior deduction. Even modest adjustments can preserve eligibility.
- Coordinate Roth conversions carefully: Spread conversions over multiple years in an effort to reduce income spikes that might otherwise disqualify you from the deduction.
- Optimize withdrawal order: Be intentional about when and how to draw from taxable, tax-deferred, and tax-free accounts.
- Review IRA distributions: Align withdrawals with your RMD strategy to help smooth taxable income across your retirement years.
How We Can Help
At Core Wealth Management, we specialize in integrating financial and tax planning to help retirees make decisions with confidence. By working closely with our affiliated CPA firm, Schanel CPA, we are able to not only design strategies with tax implications in mind, but to also execute agreed-upon plans and help ensure transactions are accurately reported. We are committed to making sure that your financial and tax planning works together in a coordinated and efficient manner.
Disclosure: This material is for informational purposes only and does not constitute specific tax advice. Tax preparation and advisory services are provided separately by Schanel and Associates, P.A., a certified public accounting firm. Schanel CPA is a registered fictitious name.