Tax Rates Stay Low: The individual income tax cuts from 2017 are now permanent, avoiding the scheduled 2026 tax hike. Current tax brackets and a large standard deduction remain in place, providing a stable landscape for planning (think Roth conversions and capital-gains harvesting at today’s low rates).
Higher SALT Deduction (Temporary): From 2025 through 2029, you can deduct up to $40,000 in state and local taxes (SALT) if your income is under $500k (phasing out by $600k). This is big news for residents of high-tax states like Connecticut – it opens a window to maximize itemized deductions before the cap falls back to $10k in 2030.
New Tax Breaks for Workers & Retirees: The OBBB created several above-the-line deductions (2025–2028): up to $25,000 of tip income, $12,500 of overtime pay ($25k for joint filers), and $10,000 of interest on new auto loans can now be deducted, subject to income limits. Plus, anyone 65 or older gets an extra $6,000 standard deduction ($12k for a couple), meaning many seniors will owe little to no federal tax on Social Security benefits.
Boosts to Education and Family Savings: The bill expands 529 college savings rules (doubling K-12 withdrawal limits to $20k/year and broadening eligible expenses like tutoring and job training). It also introduces new children’s investment accounts (often called “Trump Accounts” or MAGA accounts) for kids born 2025–2028, with a $1,000 government seed deposit and $5,000/year in contributions growing tax-deferred – usable for college, first home, or even starting a business. Families can also set aside more pre-tax dollars for childcare: the annual Dependent Care FSA limit jumps from $5,000 to $7,500 starting in 2026.
Estate Tax Relief: The federal estate tax exemption, which was set to drop in 2026, is instead going up to $15 million per person (about $30 million per couple) and will be indexed for inflation. This change is permanent. In practice, very few families will owe federal estate tax under these limits – a shift that lets your estate planning focus more on smart asset distribution, income tax efficiency, and legacy goals rather than just tax avoidance.
OBBB Overview – A Big Bill with Big ChangesPresident Trump’s “One Big Beautiful Bill” (OBBB), signed into law on July 4, 2025, is a sweeping package of tax and policy changes. For individuals and families, it brings a mix of new opportunities in tax planning, retirement, education, and estate strategy. As a fiduciary investment advisor based here in Southington, Connecticut, I’ve analyzed the bill to pinpoint the changes that matter most for your financial life. Below, I break down the key provisions and how you might take advantage of them.
Stable Tax Rates Mean More Certainty
One of the most significant outcomes of the OBBB is what didn’t happen: the anticipated tax rate increases in 2026 have been called off. The lower marginal income tax brackets enacted in 2017 (ranging from 10% up to 37% at the top) were due to expire, but OBBB makes these individual tax cuts permanent. In practical terms, this means your tax brackets next year will look very similar to this year’s, instead of jumping up. The standard deduction also remains large (now about $15,750 single or $31,500 married in 2025, slightly higher than before and indexed going forward), which will keep many people in the simpler “standard deduction” camp rather than itemizing.
Planning Angle: With tax rates staying low, we have greater certainty for long-term planning. For retirees and those nearing retirement, this stability is a green light to continue strategies like Roth IRA conversions within your comfortable tax bracket. For example, if you’ve been converting portions of your traditional IRA each year to a Roth to take advantage of the 24% tax bracket ceiling, you can plan to stretch those conversions over more years without fear of an imminent rate spike. The jump from the 24% bracket to the 32% bracket is steep, so keeping income (including any conversions) below that threshold remains a smart move to avoid future tax pain. Now we know that threshold isn’t suddenly dropping on us in 2026.
Similarly, if you’re managing taxable investment accounts, the current capital gains tax structure (0%, 15%, 20% tiers) stays in place. We might look at harvesting gains up to the top of a bracket if it fits your plan, knowing the rates won’t automatically rise next year. The takeaway is that “permanent” in legislation can change with politics, but for now OBBB has removed a big source of uncertainty, allowing more confidence in multi-year tax plans.
SALT Cap Raised – Seize the 5-Year Window
Residents of states with high income and property taxes – like many of us in Connecticut – get a notable, albeit temporary, break on the federal deduction for those taxes. OBBB raises the State and Local Tax (SALT) deduction cap from $10,000 to $40,000 starting in 2025. However, this higher cap comes with two important caveats:
It only applies if your taxable income is under $500,000 (for married joint filers; the cap is lower for singles). Above that, the allowable SALT deduction phases down, and at incomes of $600k and up you’re back to the $10k cap.
The $40k cap sunsets after 2029. In 2030, we revert to the $10k limit unless new legislation extends it.
Planning Angle: If you do itemize deductions, the 2025–2029 period is an opportunity to deduct a much larger share of what you pay in state income tax, local property tax, and sales tax (if you choose that route). To maximize the benefit, it’s worth planning around those income thresholds. For instance, if your household taxable income hovers near $500k, keeping it below that level (through retirement account contributions, business expense timing, etc.) in those years will preserve the full deduction.
Also consider timing of deductible expenses. Since this SALT expansion is temporary, you might use strategies like “bunching” deductions during the high-cap years. One example: if you’re making large charitable donations or have flexibility in the timing of property tax payments, doing more of that within the 2025–2029 window could push your itemized deductions higher when the SALT cap is generous. In other words, maximize the value of those deductible taxes while the limit is $40k, because after 2029 the incentive will shrink again.
Many of our clients who are charitably inclined may get more tax mileage by giving during the next five years. The higher SALT write-off could help lift you over the standard deduction threshold, allowing your charitable gifts to actually count on your tax return. If you’re in that zone, front-loading some planned donations into this period (or using donor-advised funds to bunch several years of giving) might yield a better tax result than the same donations made later when the SALT cap is lower. As always, this is a personal calculation – we’ll use our tax planning software to model whether accelerating deductions makes sense in your situation.
New Deductions for Tips, Overtime, and More (2025–2028)
To fulfill campaign promises of “no tax” on certain types of income, the OBBB rolls out a set of targeted tax deductions for the years 2025 through 2028. These can benefit a variety of working individuals and families:
“No Tax on Tips”: If you or a family member works in a service job that earns tips (think restaurant staff, hairdressers, etc.), there’s a new deduction for those tip earnings. You can deduct up to $25,000 of qualified tip income per year from your taxable income. (Tips still have to be reported, but this deduction effectively makes a portion tax-free.) This phases out for higher incomes (over $150k single or $300k joint), and you’ll need to ensure tips are properly reported to qualify. Action item here: keep good records of your tip income and make sure it’s reported on W-2s or 1099 forms, so you can take advantage of this deduction at tax time.
“No Tax on Overtime”: Likewise, for hourly employees putting in overtime, the extra pay can now get special tax treatment. The OBBB allows a deduction for the “time-and-a-half” premium portion of overtime wages. In simpler terms, the additional half-time pay you earn for working overtime hours is deductible, up to $12,500 annually (or $25,000 for couples). So if you’re working extra shifts or long weeks, you won’t pay federal tax on that overtime premium up to the limit. This also has similar income phase-outs ($150k/$300k). The key planning move is simply to be aware – if you or your spouse have substantial overtime pay, you should see a lower tax bill. Make sure your tax preparer knows to apply this deduction, and adjust your withholding if necessary to avoid overpaying during the year.
No Tax on Car Loan Interest: In a first-of-its-kind move, interest on a new car loan can be deductible from 2025 through 2028. If you finance the purchase of a personal vehicle (no, this doesn’t cover business vehicles or leases), you can write off the interest portion of your car payments, up to $10,000 per year. There are some conditions – the car must be purchased new (original use with you) and even has to be assembled in the USA to qualify. And this break is intended for moderate incomes (the deduction starts phasing out over $100k single or $200k joint). For many middle-class families, however, this essentially makes car loan interest a tax-deductible expense, much like mortgage interest. Planning Angle: If you were contemplating buying a new car in the next few years, this provision might tilt you toward financing it (even if you could pay cash) to take advantage of the deduction. The interest savings, subsidized by the tax break, could make a low-rate auto loan more attractive. Just be mindful to check that the vehicle you buy meets the final assembly in U.S. requirement – most dealers will have this info, or it can be found via the VIN. Documentation of the loan interest will come from your lender, and you’ll include that with your tax filing.
Extra Standard Deduction for Seniors: For those aged 65 and above, OBBB provides an additional $6,000 per person on top of the normal standard deduction. (A married couple both over 65 can add $12,000.) This is on top of the existing senior add-on (which was around $1,500 each), so it significantly bumps up the amount of income older Americans can shield from taxes. With roughly $45,000 of standard deduction available to a 65+ couple, a large portion of retirees will have no taxable income once you factor in that Social Security is at most partially taxable. In fact, this provision is why you may hear that OBBB “eliminated income tax on Social Security for 90% of seniors” – many middle-income retirees will find that, after the deductions, their Social Security benefits (and even some IRA withdrawals) fall below the taxable threshold. Note that this extra deduction for age 65+ will expire after 2028, and it phases out for higher incomes (for joint filers the bonus starts to reduce above $150k of income and is fully gone by $300k).
Planning Angle for Retirees: If you’re over 65 and not earning high income beyond Social Security, you can likely stop worrying about federal tax on those benefits. This doesn’t mean you stop planning – in fact, the next few years may offer a chance to realize taxable income at very low or zero tax cost. For instance, you could consider Roth conversions or IRA withdrawals in amounts that fill up your now-larger zero-tax bracket. With an extra $6k (or $12k) cushion, you might convert a bit more of your IRA to a Roth each year while still paying little to no tax, effectively leveraging the temporary deduction to move money into tax-free growth for the future. Additionally, if you’re charitably inclined and over 70½, remember you can do Qualified Charitable Distributions (QCDs) directly from your IRA – those were already tax-free and still are, which is great, but now even smaller cash gifts (see next section) get a special break if you don’t itemize.
Speaking of which, charitable giving got a nod in OBBB as well: for the years 2025–2028, taxpayers who claim the standard deduction can additionally deduct up to $2,000 of cash gifts to charity ($1,000 if single). This above-the-line charitable deduction hadn’t been available since 2021 (when a smaller version expired). It’s back now for a limited time, letting generous givers who don’t itemize still get a bit of tax benefit for their donations. If you’re someone who gives, say, $500 to your church or favorite cause each year, you can do so and know that up to $1k or $2k of those gifts can be written off even while you take the standard deduction. (One catch for those who do itemize: the law introduced a small hurdle – the first 0.5% of your income given to charity doesn’t count toward a deduction. For example, with $100k income, the first $500 of donations has no effect. This primarily affects itemizers; non-itemizers use the new $2k above-line rule instead.)
Bottom line: The new deductions for tips, overtime, car interest, and the senior boost are all temporary and targeted, but each can put a bit more money back in your pocket if you’re eligible. Make sure to document these types of income and expenses and discuss with your tax professional to capitalize on them while they last.
Enhanced Education Savings Opportunities
Helping clients fund education – whether for children, grandchildren, or even continuing education for themselves – has always been a key part of financial planning. The OBBB includes several provisions that bolster education-related savings and expenses:
Expanded 529 Plan Benefits: 529 college savings plans have become even more flexible. First, the annual limit on using a 529 for K-12 schooling costs doubled – you can now take out $20,000 per year (previously $10k) for private school tuition or other eligible K-12 education expenses. Importantly, the definition of “qualified education expenses” for K-12 was broadened. It’s not just tuition anymore; the plan can cover things like textbooks and curricular materials, tutoring programs or online classes, standardized test fees, and certain expenses for students with disabilities. This means if you have money in a 529 and your child is in, say, high school, you could use those funds to pay for an SAT prep course or a dual-enrollment community college class, without incurring tax or penalty.
At the college and post-secondary level, 529 withdrawals can now be used tax-free for a wider array of programs. OBBB permits funds to cover expenses for vocational and technical training programs that are approved under the Workforce Innovation and Opportunity Act, and even continuing education costs required for professional credentials. In plain language, this could help if you have a beneficiary who pursues a non-traditional education path – for example, attending a certified trade program or getting a professional certification – your 529 money can likely be used for tuition, fees, books, and exam costs for those programs as well.
For families with a special needs member, the bill made permanent some expiring rules that coordinate 529 plans with ABLE accounts (tax-advantaged accounts for disabled individuals). You can continue to roll over 529 funds into an ABLE account without tax consequences, which is useful if one child ends up not needing the college fund and another family member with disabilities can use it. The law also kept in place the higher contribution limits to ABLE accounts (the ABLE-to-Work rule) and the ability to claim the Saver’s Credit for contributing to an ABLE. The permanence of these features gives more confidence in using 529s and ABLE accounts together in long-term planning for a child with disabilities.
“Trump Accounts” for Kids (MAGA Accounts): Perhaps the most talked-about new feature is the creation of a new children’s savings account program, officially termed the “Money Account for Growth and Advancement” (yes, the acronym is MAGA). Colloquially, many are calling them Trump Accounts. These accounts blend elements of college savings, Roth IRAs, and custodial accounts, and they come with a notable kicker: the government will make a $1,000 contribution for every child born from 2025 through 2028 to jump-start their savings. Parents (and other family members) can then contribute up to $5,000 per year per child, with the funds growing tax-deferred. The child must be under 18 for contributions to be made (and the $5k limit will adjust with inflation).
Now, how can the money be used? Unlike a 529 that’s strictly for education (with some small exceptions), the Trump/MAGA account funds can eventually be used for a broader set of young adult milestones: qualified uses include higher education expenses, the down payment on a first home, or even costs to start up a small business when the child is an adult. Withdrawals for these qualified purposes will be taxed at long-term capital gains rates (which are generally lower than ordinary income rates, and could be 0% for lower incomes) on the growth portion. If the funds are not used by a certain age (30 years old), the account rules allow withdrawal for any reason (the details get a bit technical, but essentially after age 30 the remaining money can be pulled out with taxes on the gains and possibly a penalty, similar to how unused education funds might work).
One interesting feature: when the child beneficiary reaches age 18, the account can convert into a sort of retirement account for them. In fact, the law treats these accounts akin to an IRA once the child is an adult. That means any unused money can keep growing toward retirement if not spent on education or a home by early adulthood. Think of it as seeding a young person’s Roth IRA with potentially thousands of dollars head-start, albeit under a different name and with those special withdrawal options in young adulthood.
Planning Angle: If you’re a parent or grandparent of a newborn (or expecting one in the next few years), the MAGA account is a compelling new tool. Opening the account will get that $1,000 federal contribution for eligible babies – essentially free money to invest for the child’s future. Beyond that, if you have the means, contributing the maximum $5,000 annually could set up a child with a significant nest egg by the time they reach college age or young adulthood. For example, contributing $5k/year from birth to age 18, invested for growth, could yield a tidy sum for college tuition or that first house.
Also note that some employers may get on board with this; the law allows employers to contribute up to $2,500 a year into their employees’ children’s Trump accounts as a fringe benefit, tax-free. It’s early yet, but it’s worth checking if your employer plans to offer this perk – it could be a nice addition to maternity/paternity benefits.
For those already saving in 529 plans, the new accounts won’t replace a 529 for everyone, but they provide another avenue with more flexible end-uses. In practice, families might use both: a 529 for dedicated education funding and a MAGA account for more flexible future use (education or otherwise). We’ll keep an eye on how Connecticut implements any of this (for instance, whether there will be a state tax deduction for contributions, as some states do with 529s). But regardless of state incentives, at the federal level this is an attractive offer to encourage investing for kids.
Higher Dependent Care FSA Limits: In welcome news for working parents of young children, the OBBB increased the cap on Dependent Care Flexible Spending Accounts. Starting in 2026, you’ll be able to set aside up to $7,500 pre-tax (up from the current $5,000) to cover daycare, preschool, and after-school care expenses for your little ones. If you’re married filing separately, the individual limit goes to $3,750 (up from $2,500). This change acknowledges the rising cost of childcare and lets you shield more of your income from tax to pay those bills. Planning Angle: If your employer offers a Dependent Care FSA, be prepared to elect a higher contribution during open enrollment to take advantage of the new limit. Every dollar you put in one of these accounts avoids federal (and often state) income tax and Social Security/Medicare tax, so raising the limit to $7,500 can mean substantial tax savings for families with hefty childcare costs. Just remember the “use it or lose it” nature of FSAs – contribute what you know you’ll spend within the year on qualifying care.
Student Loan Repayment Assistance: Another provision made permanent is one affecting those with student loans (or parents who took loans for their kids). Employers can now contribute up to $5,250 per year toward an employee’s student loan payments, and it’s tax-free to the employee. This was a pandemic-era incentive that was set to end in 2025, but OBBB has not only extended it but also indexed that $5,250 for inflation after 2026. If you’re still carrying student debt, it’s worth seeing if your employer either already has a student loan repayment benefit or might add one, knowing it’s now permanently tax-advantaged. For parents still paying off PLUS loans or other education debt, if you happen to work for a company with this benefit, you could direct it toward those loans as well. It’s “free” money in the sense of not being taxed on that portion of compensation. From a planning perspective, if you have the option between a taxable bonus and an equivalent student loan payment from your employer, taking the loan payment could save you 20-30% in taxes on that amount.
In summary, the OBBB has sweetened the pot for education savings and family financial benefits. If college (or private schooling) is in your family’s future, you now have more ways to save and pay tax-efficiently. We’ll work with you to integrate these new accounts or limits into your overall plan – whether that means starting a MAGA account for a newborn, upping your 529 contributions to utilize expanded features, or increasing your FSA at work. Education costs aren’t getting any cheaper, but at least now the tax code is offering a bit more help to manage them.
Estate Planning – Higher Exemption, Same Strategies (for Most)
Estate planning has long been a balancing act between personal wishes and tax considerations. In recent years, the federal estate tax wasn’t a concern for the vast majority of families because the exemption (the amount you can pass on free of federal estate tax) was very high – roughly $12.9 million per person in 2023. However, that was set to change: prior law would cut the exemption in half after 2025, potentially pulling many more estates into taxable territory.
The OBBB decisively altered that course. It not only avoids the drop but actually raises the estate tax exemption to $15 million per individual starting in 2026, and then indexes it for inflation going forward. In other words, the generous exemption we have now (around $13–14M by 2025) will jump to an even larger ~$15M in 2026 instead of falling. For a married couple, this means you could leave roughly $30 million to your heirs without any federal estate tax, with that amount rising over time with inflation adjustments.
What does this mean for your estate plan? Simply put, federal estate tax is now a non-issue for all but the wealthiest families. The number of estates subject to the tax will be extremely small (even today fewer than 0.1% of estates pay it, and this change will shrink that further). If your estate is well under these thresholds, you won’t need elaborate tax-driven maneuvers solely to avoid federal estate tax.
Planning Angle: With the pressure off of federal estate tax for most folks, we can refocus estate planning on what truly matters: how to best preserve and transfer your assets according to your wishes, minimize income taxes on inherited assets, and provide for your family in a smooth, controlled way. Strategies like trusts can still be valuable – not so much to dodge estate tax now, but to control distribution of assets, protect assets from creditors, or care for a special-needs beneficiary, for example.
If you were considering large lifetime gifts or other tactics mainly because you feared the exemption dropping to ~$5 million, you can breathe easier. There’s no longer a ticking tax clock for estates in the $5M–$15M range. You might choose to hold onto assets longer, knowing that your heirs can inherit up to $15M each without estate tax. This could be beneficial if those assets are appreciating and you want heirs to benefit from a stepped-up cost basis (which wipes out capital gains on assets at death under current law – and OBBB did not change the step-up rule). In fact, for many of our clients, focusing on getting a step-up in basis at death (to save capital gains tax) will yield more tax benefit than any estate tax avoidance would have.
For very high net worth clients who may still exceed $15M/person, this higher exemption is of course welcome breathing room. It may simplify some planned giving – you might not need to rush to use your exemption before 2026 as previously thought. However, keep in mind state estate taxes. Here in Connecticut, we have a state estate tax with its own exemption (currently around $12.9M, scheduled to align with federal levels). We’ll want to watch whether CT follows the federal lead – it may or may not increase its exemption to $15M. If not, some estates could still owe Connecticut estate tax even if they dodge federal. So for large estates, planning isn’t off the table; it just may shift focus to state considerations and to generation-skipping or other advanced strategies if relevant.
Another element to note: The bill didn’t eliminate or cut the gift tax – it remains unified with the estate exemption. So you still have that $15M (come 2026) total you can give away during life or at death without federal tax. Annual gift exclusions, etc., stay the same ($17k per recipient for 2023, indexed).
One more subtle shift in estate planning from OBBB is the emphasis on income tax planning for heirs. Since estate tax will rarely apply, the biggest tax hit when passing assets might be capital gains or even ordinary income (for things like inherited IRAs). It’s wise to consider moves like Roth conversions (so your kids inherit Roth IRAs instead of taxable traditional IRAs) or making sure highly appreciated assets are held until death for the step-up. Charitable bequests remain a powerful tool for both philanthropy and tax efficiency – leaving some portion of IRA or pre-tax 401k money to charity, for example, can avoid income tax on those deferred dollars entirely while benefiting a cause.
In short, OBBB’s estate tax change simplifies planning for most families: control and allocation trump tax avoidance now. We’ll continue to ensure your estate plan documents are up to date (wills, trusts, beneficiary designations) and reflect your goals. But we can do so with less worry about a federal estate tax dragnet. As always, we’ll stay adaptive – tax laws can and do change with political winds. But the current environment is the most estate-tax-friendly it’s ever been.
Final Thoughts – Taking Action in the OBBB Era
The One Big Beautiful Bill ushers in a host of changes, but the central theme is opportunity. Whether it’s locking in low tax rates, grabbing a new deduction, beefing up your retirement and education savings, or revisiting your estate plan, there are many actionable angles to consider.
A few action steps to highlight:
Review your tax withholdings and estimates for 2025. With new deductions (tips, overtime, etc.) and the bigger senior deduction, you may be over-withholding if you don’t adjust. Conversely, if you’ll benefit from the SALT cap increase by itemizing, make sure you’re tracking those tax payments – especially here in Connecticut, prepaying some property taxes or timing state tax payments could boost your 2025 deduction under the higher cap.
Plan Roth conversions and investment sales with the stable brackets in mind. We have a clearer runway through 2025 and beyond to spread taxable events across years. Use the 22% and 24% brackets fully if it suits your plan – they won’t vanish on Jan 1, as we once feared.
Take advantage of education savings enhancements. Open that 529 or increase contributions to capitalize on the new K-12 and training uses. And if a new baby is on the way (or just arrived), let’s discuss setting up the new child account to claim the $1k government contribution and start compounding those funds.
Update your estate plan and beneficiary designations. With the higher exemption, your existing plan might be simpler than you thought – perhaps previous tax-driven trust structures can be revisited. Ensure your will/trust reflects current law and your current wishes (for instance, if you plan to use your estate to fund education via these new accounts or 529s, make that clear). And double-check that beneficiary forms (for retirement accounts, insurance, etc.) align with your plan – those designations, paired with the new tax landscape, may open opportunities (like naming a trust or a charity for an IRA knowing there’s no estate tax to worry about).
Finally, keep an eye on some “sunset” dates. A number of OBBB’s benefits are temporary. We have a five-year window (2025–2029) for the SALT relief and the special deductions mentioned. The children’s accounts have a specific birth-year range to qualify for the bonus. The extra standard deduction for seniors ends after 2028. Use these to your advantage now, but be prepared for a different regime later – or for Congress to revisit them. As your advisor, I’ll be monitoring any new developments so we can adapt your plan accordingly.
In the end, the true value of a bill like this is in how we respond. Laws can change the rules, but it’s how we adjust our strategies that makes the difference for your finances. The OBBB has opened up multiple planning avenues. My role is to guide you through them – prioritizing what makes sense for your situation and keeping you on track to meet your goals. As always, feel free to reach out to discuss how these new provisions can be woven into your financial plan. Together, we’ll make sure that “Big Beautiful” translates into meaningful benefits for you and your family’s future. Let’s take advantage of these opportunities while they’re here. Here’s to savvy planning and a prosperous path ahead!