How the One Big Beautiful Bill (OBBBA) can Impact your Pension Decision
By Christopher L. Hudson, Financial Advisor, CIMA
The recently passed One Big Beautiful Bill Act impacts several aspects of our financial lives but one especially important aspect is how it could affect pension decisions moving forward.
Many of our clients face the decision of what is the best way to take their company pension when they transition into retirement and separate from service.
Although this is a very nuanced decision based on a number of factors such as age, risk
tolerance, spending needs and life expectancy – the One Big Beautiful Bill Act can also impact this decision from a tax standpoint. Let’s look at a few examples:
- The law keeps federal tax brackets at historically low levels meaning that retirees will keep more money in their pocket whether they decide to take a monthly annuity pension or on the distributions taken from their IRA account.
- The standard deduction has been increased to $15,750 for a single taxpayer and $31,500 for a married couple filing a joint tax return.
- The additional deduction of $2,000 for a single taxpayer and $3,200 for a married couple filing jointly remains in place starting at age 65.
- In addition, individuals aged 65 or older are eligible for an additional $6,000 deduction in 2025 through 2028. This additional deduction begins to phase out for single taxpayers with a modified adjusted gross income (MAGI) above $75,000 and married couples with a modified adjusted gross household income (MAGI) above $150,000.
- Social Security income remains tax free (at the state level) in a number of states in the U.S. lowering your overall tax burden in retirement.
- At the federal level, Social Security retirement income remains tax advantaged as at least 15% of your Social Security benefit remains federally tax free based on your income
- The lower federal tax brackets offer an attractive opportunity for Roth conversion planning moving forward.
As stated, there are a number of critical factors that go into making an informed decision regarding your company pension. Unfortunately, there is no “one size fits all.” But through proper planning and having an understanding of how the ever-changing tax laws impact your options, you will be able to make the decision that is right for you and your personal situation.
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Opinions expressed are not necessarily those of Raymond James. Every investor’s situation is unique and you should consider your investment goals, risk tolerance and time horizon before making any investment. The forgoing is not a recommendation. Raymond James and its advisors do not offer tax or legal advice. You should discuss any tax or legal matters with the appropriate professional.
