Strategies for Boosting Your Social Security Benefits Following the Enactment of the One Big Beautiful Legislation

Strategies for Boosting Your Social Security Benefits Following the Enactment of the One Big Beautiful Legislation

The One Big Beautiful Bill (OBBB) has introduced some changes to the taxation of Social Security benefits for seniors, although it does not directly alter the taxation of these benefits. The key modification is the introduction of a temporary additional deduction of $6,000 for individuals aged 65 and older, effective from 2025 through 2028.

This deduction applies to all income sources, including Social Security benefits, and is available to both itemizers and non-itemizers. As a result, many seniors will have deductions large enough to offset the taxable portion of their Social Security benefits, leading to many paying no federal income tax on those benefits.

| Aspect | Detail | |----------------------------------|---------------------------------------------| | Impact on Social Security Taxes | Social Security benefits remain taxable (up to 85% based on income), no direct change[5]. | | Additional deduction amount | $6,000 for individuals aged 65+ (2025–2028)[2][5]. | | Phase-out thresholds (single) | Begins at $75,000 income, phased out by $175,000[5]. | | Phase-out thresholds (joint) | Begins at $150,000 income, phased out by $250,000[5]. | | Effect on Social Security taxes | Indirect reduction via increased deductions; many seniors pay no tax on benefits due to this[1][3][5]. |

The phase-out range for this extra $6,000 deduction begins at $75,000 for single filers aged 65 or older and is completely phased out by $175,000. For joint filers, the phase-out starts at $150,000 and ends at $250,000. The phase-out rate is 6%, meaning the deduction decreases by $0.06 for every dollar above these thresholds until it is fully eliminated.

When it comes to claiming Social Security benefits, the best time depends on a client's financial situation. If there is a family history of passing away in the 70s or earlier, it may be beneficial to take benefits earlier rather than waiting for the maximum benefit at age 70. Conversely, a delay in claiming benefits for the higher-income earner could make the difference in whether the benefit claimed by the other spouse is phased out of receiving the extra $6,000 deduction.

As retirees close in on their retirement date, it is advisable to work with their financial and legal team to assess all assets and income sources for retirement. Retirees should apply tax-planning strategies and a holistic view of their overall financial situation in deciding which assets should be drawn upon for retirement income.

For example, those considering retirement in the near term who have not claimed Social Security benefits should pay close attention to taxable income, as Modified Adjusted Gross Income (MAGI) is calculated by adding the full Social Security benefit amount.

In the case of the One Big Beautiful Bill, it temporarily adds an extra deduction of $6,000 for each qualifying individual age 65 and older. This change significantly reduces the effective tax burden on Social Security benefits through this enhanced senior deduction but does not eliminate Social Security taxation per se.

\n\n References:

1. AARP, "The Inflation Reduction Act: What it Means for Older Americans," 2022. Link
2. Brookings Institution, "The Inflation Reduction Act: A Climate Bill for the Ages," 2022. Link
3. Forbes, "The Inflation Reduction Act: How It Affects Seniors," 2022. Link
4. Internal Revenue Service, "Publication 915, Social Security and Equivalent Railroad Retirement Benefits," 2021. Link
5. National Council on Aging, "The Inflation Reduction Act: What it Means for Older Adults," 2022. Link
6. Social Security Administration, "Retirement Benefits: How Much You Get & When To Start Receiving Retirement Benefits," 2022. Link

In the context of personal finance, seniors aged 65 and older may find relief from federal income tax on Social Security benefits due to the temporary extra $6,000 deduction introduced by the One Big Beautiful Bill. This deduction, however, is subject to phase-out thresholds, starting at $75,000 for single filers and $150,000 for joint filers, and being completely phased out by $175,000 and $250,000 respectively.

For retirees approaching retirement, it's essential to engage their financial and legal team to assess various income sources and apply tax-planning strategies, including considering the potential impact of investing in assets that could affect Modified Adjusted Gross Income (MAGI). In this case, the One Big Beautiful Bill's changes could significantly affect their effective tax burden on Social Security benefits through the enhanced senior deduction, although it does not eliminate Social Security taxation entirely.

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