What the OBBB Means for Social Security Taxes and Your Retirement: A Wealth Adviser's Guide

For Americans in lower- and middle-income tax brackets, the enhanced deduction for older people reduces taxable income, shielding most of their Social Security benefits from being taxed.

By Ryan K. Snover, Investment Adviser Representative

published 11 August 2025

in Features

A Social Security card sits on top of cash and tax returns.

(Image credit: Getty Images)

Social Security has been the backbone of retirement income for millions of Americans,

Yet, many retirees, especially those with modest investment or pension income, have had their benefits partially taxed for decades, eroding the very support the program was designed to provide.

Now, thanks to the recently enacted One Big Beautiful Bill Act (OBBB), the rules have changed.

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This sweeping legislation introduces an additional deduction for people age 65 and older aimed at reducing or eliminating federal income tax on Social Security benefits for a wide majority of retirees.

The Kiplinger Building Wealth program handpicks financial advisers and business owners from around the world to share retirement, estate planning and tax strategies to preserve and grow your wealth. These experts, who never pay for inclusion on the site, include professional wealth managers, fiduciary financial planners, CPAs and lawyers. Most of them have certifications including CFP®, ChFC®, IAR, AIF®, CDFA® and more, and their stellar records can be checked through the SEC or FINRA.

While headlines and political slogans have emphasized the idea that "Social Security taxes are gone," the truth is more nuanced.

For retirees and high-net-worth individuals alike, understanding how this law alters retirement taxation and how to optimize it is more important than ever.

Before the passage of the OBBB, Social Security benefits could be taxed based on your combined income, which includes:

Adjusted gross income (AGI)
Nontaxable interest (such as municipal bonds)
Half your Social Security benefits

Under that formula:

Single filers earning more than $25,000 could have up to 50% of their benefits taxed
Those earning more than $34,000 could have up to 85% taxed
For couples, the thresholds were $32,000 and $44,000, respectively

These income thresholds were never adjusted for inflation, meaning more retirees were dragged into taxable territory year after year.

As of 2024, about 65% of Social Security recipients were paying federal income tax on part of their benefits, according to an analysis by the Social Security Administration.

What the Big Beautiful Bill actually changed

With many provisions already in effect, the OBBB introduces several immediate and impactful reforms.

The most notable for retirees is the enhanced deduction, a powerful tax adjustment that reduces taxable income for older Americans, effectively shielding most of their Social Security benefits from tax.

Here's what the law now provides:

The new enhanced deduction for older people

Individuals age 65 and older can now claim an additional $6,000 deduction
Married couples (both 65-plus) can claim an additional $12,000
This deduction phases out for those with AGI above $75,000 (single filers) and $150,000 (married, filing jointly)

In practical terms, this means that older people earning below those thresholds can often offset most or all the income that would have triggered taxes on their Social Security benefits.

This is not a repeal of the taxation of benefits, but it operates much like one for the majority of retirees.

The tax relief is temporary

The enhanced deduction is scheduled to expire after the 2028 tax year.
Unless extended by future legislation, retirees might face a return to the old rules beginning in 2029.

No changes to payroll taxes or trust fund financing (yet)

The bill does not address Social Security's broader funding challenges.
It also doesn't raise the payroll tax cap or introduce new sources of funding.
As a result, some analysts warn the bill could accelerate the exhaustion of the Social Security trust fund that pays retiree benefits by reducing tax revenue.

What this means for your retirement income strategy

For retirees, particularly those in the lower- and middle-income brackets, the new deduction represents a meaningful reduction in federal income tax liability.

It boosts purchasing power and makes Social Security benefits feel more like what they were intended to be: a tax-efficient, reliable income source.

But not everyone benefits equally. Here's how it affects different types of retirees:

Middle-income retirees see the greatest benefit. If your AGI is below $75,000 (single) or $150,000 (joint), this deduction will likely offset enough of your income to reduce your tax burden to zero, or close to it, on your Social Security benefits.

High-net-worth individuals still face tax exposure. If your income is well above the phase-out thresholds, you might see no benefit from the new deduction.

For these retirees, Social Security benefits remain up to 85% taxable, and the strategy focus shifts to minimizing AGI through Roth IRA conversions, tax-loss harvesting and strategic withdrawal sequencing.

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Timing becomes critical. Because the enhanced deduction is temporary (2025-2028), retirees and investors must consider how to optimize tax strategies within this four-year window.

The opportunity to shield more income, delay benefit claims or front-load Roth conversions is short-lived.

With these changes in mind, here are five strategic steps retirees and their advisers should consider:

1. Review your AGI every year. Stay below the $75,000/$150,000 thresholds to maximize deduction eligibility. Small adjustments in investment income, withdrawals or tax reporting can make a big difference.

2. Prioritize tax-efficient withdrawal planning. Draw from Roth accounts or taxable investment accounts to stay under AGI thresholds. Defer or reduce IRA withdrawals during these years, if possible.

3. Consider Roth conversions in 2025-2028. For those with large traditional IRAs, now is an ideal time to execute partial Roth conversions while still benefiting from the enhanced deduction.

This can reduce future required minimum distributions (RMDs) that would otherwise increase your AGI and tax liability in later years.

Before converting a traditional IRA to a Roth IRA, it's important to consider a few things:

You'll owe income taxes on the amount converted that year
There are rules around when you can withdraw from a Roth
Income limits can affect future Roth contributions
If you're required to take a minimum distribution that year, you must do that before converting

4. Claim Social Security strategically. The decision of when to claim Social Security (from age 62 to 70) is now intertwined with taxation.

For example:

If your AGI is low now, claiming early could allow you to enjoy tax-free benefits for four years.
If your AGI is high, you might want to delay benefits and use the deduction window for Roth conversions instead.

5. Use qualified charitable distributions (QCDs). For charitably inclined retirees over 70½, QCDs from IRAs can reduce AGI without itemizing, helping maintain eligibility for the enhanced deduction.

Final thoughts

The OBBB is a significant, if possibly temporary, win for many retirees.

It simplifies the tax treatment of Social Security benefits and restores more value to lower- and middle-income households.

But for high earners and wealthy retirees, it presents both challenges and opportunities.

Maximizing the benefits of this law requires a proactive approach: understanding income thresholds, managing AGI, coordinating benefit timing and planning for the law's eventual sunset in 2028.

Disclaimer

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

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Ryan is a veteran wealth adviser with nearly two decades of experience and serves as the managing partner of Aristia Wealth Management’s Nashville office. Before founding Aristia Wealth Management, Ryan successfully established RiverRock Capital Group, LLC, a prominent wealth management firm. His career began at the Wall Street firm Morgan Stanley, where he joined one of the largest teams in the Southeast. This experience allowed him to work closely with Fortune 100 C-suite executives and fostered his passion for prioritizing clients' needs and the importance of planning.