Key Tax & Retirement Updates from the One Big Beautiful Bill Act
The recently passed One Big Beautiful Bill Act introduces several changes that may significantly shape retirement strategies, tax planning, and everyday financial decisions. While this isn’t a comprehensive summary, we’ve highlighted the updates most likely to have an impact, and other provisions of the bill that may apply based on your specific situation.
To start, the bill increases the annual contribution limits for 401(k)s, 403(b)s, and similar retirement plans by about 10% beginning in 2026, with automatic annual inflation adjustments going forward. For reference, in 2025, the standard contribution limit is $23,500, with an additional $7,500 catch-up for those age 50 and older. Under the new rules, both the base and catch-up amounts will grow more consistently over time.
The bill also expands Roth features across workplace retirement plans. Employers are now permitted to make matching contributions into Roth accounts within 401(k), 403(b), and 457 plans. Additionally, SEP and SIMPLE IRAs, which previously only supported pre-tax contributions, can now accept Roth contributions. These changes provide greater flexibility for tax diversification and allow workers to grow more of their retirement funds tax-free.
Taxpayers in California and other high-income, high-tax states, will want to pay close attention to changes in the state and local tax (SALT) deduction cap. From 2025 through 2029, the cap is raised to $40,000 for those with modified adjusted gross income below $500,000 (or $250,000 if married filing separately), with annual inflation adjustments. However, for those above the income threshold, the deduction phases out gradually—reduced by 30% of the income above the cap—though it will never drop below the original $10,000 limit. This could make itemizing deductions worthwhile again for many households.
Seniors also receive targeted tax relief. Beginning in 2025, individuals age 65 and older will qualify for an enhanced standard deduction—up to $6,000 above the regular amount—which helps lower their overall taxable income during retirement years. This increase is temporary but significant, and it could improve cash flow and reduce tax liability for older Americans.
Two additional changes may be worth planning around. Starting in 2026, charitable contributions will only be deductible to the extent they exceed 0.5% of your adjusted gross income (AGI). While this threshold is relatively modest, it does slightly reduce the tax benefit of smaller, recurring donations. If you typically itemize, it may be more advantageous to group or “bunch” charitable gifts into certain years—especially through a donor-advised fund—to maximize deductibility. Also notable: the federal tax credit for electric vehicle purchases is set to expire on September 30, 2025, rather than the original 2032 sunset. If you were planning to purchase a qualifying EV and want to take advantage of the credit (up to $7,500), you may want to act before that deadline.
Finally, the bill introduces a new deduction for interest paid on certain car loans. Specifically, taxpayers may deduct interest on loans for vehicles assembled in the U.S., provided their income falls below specified thresholds. This provision is aimed at encouraging domestic manufacturing, while offering some additional relief amid rising interest rates and auto prices.
Taken together, these changes open up new opportunities to reduce taxes and accelerate savings. If you're wondering how these updates could impact your personal situation, please reach out! We can model the changes using our tax planning software to demonstrate how these changes impact you.
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