If you’re nearing retirement, one of the most important things you can do is understand where your “paycheck” will come from once you stop working. How will you be “paid”? And importantly, how will you be taxed?
Different income sources are taxed differently, and starting in 2026, that distinction will matter even more.
Here’s why:
The One Big Beautiful Bill Act (OBBBA), passed in July, offers new benefits for older Americans (age 65 and up). One key feature is an additional senior deduction of $6,000 per person ($12,000 for couples filing jointly). This deduction applies only for tax years 2025 through 2028, so strategic planning can help you take full advantage of it.
Even better, this new deduction can be added to your standard deduction, and it still applies if you itemize. For example, in 2026 a couple filing jointly—both over age 65—could see deductions that look like this:
- Standard deduction: $31,500
- Additional age 65+ deduction: $3,200 ($1,600 each)
- Special bonus senior deduction: $12,000 ($6,000 each)
That’s a total of $46,700 in deductions.
However, there is a phase-out beginning at $75,000 of modified adjusted gross income (MAGI) for individuals and $150,000 for joint filers. Still, this change could make a noticeable difference in lowering your tax bill.
Besides the potential tax savings, another opportunity may come into play: Roth conversions.
If most of your savings are in pre-tax retirement accounts—like traditional IRAs, 401(k)s, or 403(b)s—these new deductions could create a window for converting some funds to a Roth IRA at a lower tax rate between 2025 and 2028.
Why would that help? Here are three reasons many retirees consider it:
- Tax-free growth. Your Roth money grows tax-free, so as your account balance increases, your tax bill doesn’t.
- Lower future RMDs. Moving money from pre-tax to Roth accounts reduces future Required Minimum Distributions (RMDs), since Roth accounts generally aren’t subject to RMDs. That means more control over your taxable income later.
- Tax-free inheritance. Assets in a Roth IRA can be passed to heirs tax-free—a gift both you and your beneficiaries may appreciate.
As one of my clients said, “When I look at my Roth IRA balance, I know that’s 100% mine. I don’t have to worry about what will go to the IRS.” I think that sums it up perfectly.
Roth conversions can be valuable, but they require careful planning. Consult with a tax or financial professional before taking action. The big idea is to use the tax brackets strategically over the next few years to make the most of these temporary opportunities.
If you have questions or want to explore planning options, we’re here to help.
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