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A podcast designed to help retirees and those nearing retirement navigate finances and life planning with expert insights from financial advisor Trevor Lawson. Tune in for practical strategies and inspiring ideas to ensure your retirement years are purposeful, fulfilling, and truly your best chapter yet.
*Securities and investment advisory services offered through Osaic Wealth, Inc. member FINRA/SIPC. Osaic Wealth is separately owned and other entities and/or marketing names, products or services referenced here are independent of Osaic Wealth. Branch phone: 919-546-0400.
Welcome to The Retirement With and On Purpose Podcast. I'm your host, Trevor Lawson, and this show is all about helping you not just reach retirement. But truly thrive in it. You've put in the work. Now let's make sure you can enjoy every moment to the fullest.
Today's episode folks is very timely, so we're interrupting our current mini series on various cognitive and biases that affect investors' behavior to talk about nothing other than the big, beautiful bill. So I guess the most obvious thing that stands out with this bill is its title. I can't imagine Trump calling it anything else but the Big Beautiful Bill.
It's such a a, a, a Trump-esque title. But today we're going to dive very deep [00:01:00] into this, this bill, and this sweeping piece of legislation, and we're gonna use this recent CNBC article titled, what Trump's One Big Beautiful Bill Means For Your Money? Riff on this article, and I will post a link for your reference in the show notes so that you can kind of follow along as you listen here.
But first and foremost, this is a massive piece of legislation, really the biggest, um, in a while and. The final bill I'm quoting here makes permanent Trump's 2017 tax cuts while adding new relief, including a senior bonus, which we'll we'll dive into to offset social security taxes and a bigger state and local tax deduction.
The plan also has tax rates for tip income, overtime pay, and auto loans, among other provisions. Trump's legislation could benefit higher earners [00:02:00] while hurting the lowest income Americans who rely on Medicaid and Snap according to a Yale budget Lab analysis released on Monday. So here are some of the mega bills, key provisions and how those measures could impact your wallet.
So most immediately, the tax Cuts and Jobs Act that Trump passed in 2017 was set to expire at the end of this year. But this sweeping piece of legislation has essentially made that permanent, so absent extensions for this tax cuts and Jobs Act provision, more than 60% of taxpayers could have seen higher taxes in 2026.
However, because this big, beautiful bill was passed, the current tax rates are staying the same. So a couple. A couple things here. The standard deduction, so one thing the tax cuts and jobs acts did was significantly [00:03:00] increase the standard deduction. So now more and more tax filers actually use the standard deduction versus itemized.
So for married couples filing jointly for 2025, the standard deduction is now gonna be 31,500. A very large number, making it much harder for people to itemize like they did historically. So that's one big change. The other, and this is something that in my professional opinion, is going to to change under a future administration, but the estate in gift tax exemption has gone up from 13.99 to 15 million.
Per person or 30 million for a married filing jointly. So essentially what that means is a married couple now can either give or leave behind $30 million and have that be free and clear of estate tax. That's a huge number that most American households don't [00:04:00] even come close to. In terms of their net worth, more sophisticated estate planning principles involving trust are becoming increasingly less popular because that estate and gift tax exemption is so high.
Right now. I can, I. See that number coming down substantially in our future administrations. But for those right now that do have a much higher net worth, uh, consider that a gift as you're not going to have to worry more than likely about estate taxes unless your estate exceeds $30 million for a married couple.
The child tax credit, it's up from 2000 to 2200 per child. And I think one of the biggest pieces of, of legislation here is the state and local tax deduction limit. It's up from 10,000 to 40,000 in 2025 with 1% increases through 2029. So. This is a big deal, especially for those living in higher state tax states such as New York, New Jersey, California.[00:05:00]
So when you itemize tax breaks, the state and local tax deduction known as salt, SALT, provides a federal deduction for state and local income taxes and property taxes. Trump's 2017 tax cuts added a 10,000 salt deduction cap. So the most you could deduct for your state and local tax was 10,000. That number has been increased to 40,000 starting in 2025.
However, that benefit does begin to phase out or decrease for consumers with more than 500,000 of income. For folks, though, again, living in these higher state income tax states whose income is lower than 500,000, that's a big deduction that they've got available to them now. A couple other noteworthy items here.
So the senior bonus deductions. So you've likely received an email at this point, um, if you're registered for on the Social Security Administration website about social [00:06:00] security not being taxed and a lot of changes there. So. What all this means is older Americans may receive an extra tax deduction under the legislation, which includes a temporary enhanced deduction for Americans age 65 and over.
Dubbed a bonus. So the full $6,000 deduction would be available to individuals with up to 75,000 in modified adjusted gross income and 150,000 if married filing jointly. It phases out for taxpayers who are above those thresholds, so ultimately seniors are gonna get a up to a $6,000 deduction they can use regardless if they itemize or use the standard deduction.
Which is gonna help on their taxes. The caveat there though, is if your income exceeds 75,000 for an individual or 150,000 for a couple, that that deduction's gonna phase out. [00:07:00] So when you, when you're hearing others talk about social security's not gonna be taxed any longer, kind of take that with a grain, grain of salt 'cause it's getting bundled in with a a $6,000 deduction and that deduction may only apply to you if your income is below these thresholds.
So how in the world are we gonna make all of these tax deductions and tax cuts happen? Well, Trump is cutting Medicaid and SNAP programs rather significantly. So Medicaid is, the legislation cuts about 1 trillion for Medicaid according to Congressional budget office estimates. So new federal work rules would require beneficiaries, ages 19 to 64, who apply for coverage or who are enrolled through an Affordable Care Act expansion group to work at least 80 hours per month.
Those start December 31st, 2026 for most states. So Medicaid, the, the funding for Medicaid is [00:08:00] getting cut and the criteria for qualifying for Medicaid is, is increasing. The more interesting pieces of this legislation was. What Trump calls nothing other than Trump accounts for child savings. So again, very clever nomenclature here, but Trump accounts.
So the legislation includes a new savings account for children with a one-time deposit of a thousand dollars from the federal government for those born in 2025 through 2028. So federal government's gonna, we'll deposit up to a thousand dollars for those born in 2025 through. 2028. And this so-called Trump account is a type of taxed advantage savings account that would be available to all children who are US citizens.
So parents, the planning opportunity for parents here is they would then be able to contribute up to 5,000 a year and the balance will be invested in a diversified fund that tracks a US [00:09:00] stock index. Employers can also contribute up to 2,500 to an employee's account, and it wouldn't be counted as income to the recipient.
The earnings here on this Trump savings account, grow tax deferred and qualified withdrawals are taxed as long-term capital gains. So experts are starting to kind of weigh the pros and cons of this versus a 5 29 plan. According to this article here, some experts say a 5 29 college savings plan is still a better alternative because of the higher contribution limits and tax advantages.
So remember, with 5 29 plans, money goes in, grows tax deferred, and if we take it out for education related expenses, it's all tax free. Whereas with this Trump savings account, qualified withdrawals are still taxed at long-term capital gains tax rates. For those that have been left kind of in the dark, um, regarding student loans and what's gonna happen there.
So it is becoming [00:10:00] increasingly clear what's gonna happen with future student loans. So lower federal student loan limits fewer benefits. So the key changes in store for student loan borrowers. I'm gonna highlight a couple here. So CAPS on unsubsidized student loans at 20,500 per year and a hundred thousand lifetime for graduate students.
The more notable ones, CAPS barring for professional degrees such as those for doctors and lawyers at 50,000 per year and 200,000 per lifetime. That's a huge, huge deal. Um, I know several folks, my brother included, who attended medical school and who loans far exceed that $200,000 lifetime limit. This, this cap is a big deal and is going to have potential impacts either steering people away from these, these programs whose schooling may exceed that limit.[00:11:00]
It may decrease the demand, which in turn decrease the potential cost of future education if the demand goes down. Or it could encourage private companies, private banks, to kind of step in and be a go-to resource for student loans exceeding that $200,000 lifetime limit. So these are, these are big changes when it comes to student loans.
And again, these limits are, are a lot lower than they have been in the past. A couple others here. Car loan interest deduction. This is, this is a, an interesting one. So the legislation creates a tax deduction for car loan interest. Certain households would be able to to deduct up to 10,000 of annual interest on new auto loans from their taxable income.
The tax rate would be temporary lasting from 2025 through 2028. There are eligibility restrictions here, though, so the deductions value would start to fall for individuals whose income exceeds a hundred thousand, and the threshold for Mary filing [00:12:00] jointly is 200,000. And then the car must be assembled in the US So this may help some, um, whose income falls below those thresholds and who are purchasing a car that's assembled in the us.
But for others, this may, may not help too terribly much. You guys have probably also heard no taxes or tax break on tip income. So the legislation creates a temporary federal income tax deduction of up to 25,000 per year on qualified tip income. Again, this does phase out for higher income earners. Same thing with overtime pay deduction.
It offers a maximum of a 12,500 above the line deduction for overtime pay, and 25,000 for married filing jointly. However, it does phase out for higher income earners. And I think one of the final I items here worth or two items worth mentioning. So 5 29 plans, the their use has [00:13:00] been expanded rather substantially.
So now there's a lot more school or education related items that a 5 29 can be used for. That would be considered a qualified expense or qualified withdrawal. So that that was a positive change. And then. For small business owners. So the section 1 99, a pass through business deduction, also known as the qualified business income deduction, has been expanded or made permanent, I should say.
So this was a, this massive tax deduction opportunity for small business owners, um, as part of Trump's initial tax cuts in 2017. And it's, again, qualified business income that allows. Business owners to potentially deduct up to 20% of eligible revenue with some, some limits for those earning over certain thresholds.
But the bottom line here, this becoming permanent, provides small business [00:14:00] owners a, a substantial deduction opportunity that could have gone away at the end of this year if, if this was not, um, made permanent. So that's, there's more kind of buried in here, but those are some of the, the, the high points and, and items that stood out that may have a direct impact on your bottom line and, and your wallet.
So for more detailed information, feel free to check out the article again in the show notes and, uh, stay tuned because inevitably. Things could, could change and there could be other, other pieces of, of this bill that get passed along the way. But this is a big piece of legislation worth paying attention to and one that we are staying on top of for you.
Thank you for your time today and I will look forward to being with you again and resuming our series on cognitive biases. That affect investor behavior next week. Take care.[00:15:00]
Thanks for tuning in to The Retirement With and On Purpose podcast. I hope you're walking away with new ideas and a fresh perspective on how to make the most of your retirement journey. And remember, retirement isn't the end. It's your time to live with purpose. Until next time, I'm Trevor Lawson. Here's to a fulfilling and thriving retirement.