As you may have heard, Congress has introduced a sweeping tax reform proposal known as the One Big Beautiful Bill (OBBB). While most headlines focus on high-level politics, many of the most impactful changes—especially for retirees—are buried deeper in the fine print.
This blog kicks off a 6-part series unpacking what the Big Beautiful Bill could mean for your retirement strategy. Over the coming weeks, we’ll explore Roth conversions, estate planning, charitable giving, and how your Social Security benefits might be affected. But first, we start at the foundation: income tax bracket changes.
Why Tax Brackets Still Matter in Retirement
Many retirees assume that once they stop earning a paycheck, taxes become a non-issue. But the truth is: retirement doesn’t mean retirement from taxes. Between:
- Required Minimum Distributions (RMDs) from pre-tax IRAs or 401(k)s
- Social Security income (which can be up to 85% taxable)
- Pensions (common for Massachusetts state employees and teachers)
- Taxable investment interest, dividends, and capital gains
…it’s easier than you think to be pushed into a surprisingly high bracket in retirement.
This is especially true for retirees living in high-cost areas like Boston, Wellesley, or Brookline, where lifestyle spending often remains elevated—and so do the withdrawals needed to fund it.
3 Key Bracket Changes That May Affect Retirees
While the final version of the bill is still in flux, early drafts include several proposed changes to how your income might be taxed in 2025 and beyond:
1. Compression of Middle Brackets
What’s changing: The current 12% and 22% brackets may be merged into a broader bracket taxed at 18%. On the surface, that seems neutral—but it could actually raise taxes for retirees currently benefiting from the 12% bracket.
Example:
A married couple in Massachusetts with $90,000 in retirement income (including RMDs and Social Security) currently falls comfortably in the 12% federal bracket. Under the new rules, they may end up in the proposed 18% bracket—paying 6% more on much of their income.
In real dollars, that’s a $3,000–$4,000 increase in annual federal taxes—and that doesn’t even include the 5% flat state income tax in Massachusetts, which remains unchanged.
2. Higher Thresholds for Top Brackets
What’s changing: For high-net-worth retirees—especially those with large brokerage accounts or multiple income streams—the proposed bill may raise the income thresholds for when the top 35% or 37% federal rates kick in.
Example:
Let’s say a Boston-area couple with $500,000 in annual retirement income (due to real estate income, large IRA withdrawals, and dividends) is currently in the 35% bracket. Under the OBBB, they might stay in the 32% bracket longer, potentially saving tens of thousands annually—especially if they have flexibility over how they draw income.
Planning opportunity: For business owners selling their practice, or those planning to sell investment properties in Hingham, Newton, or Belmont, timing the sale around the new thresholds could be crucial.
3. Capital Gains Alignment
What’s changing: Long-term capital gains (currently taxed at 0%, 15%, or 20%) may be partially or fully aligned with ordinary income tax brackets, at least above certain income levels (e.g., $250,000 for individuals or $500,000 for joint filers).
Example:
Jane, a retiree in Duxbury, has a $1.5M brokerage account and plans to sell $400,000 of appreciated stock to help fund a second home on the Cape. Today, most of that gain would be taxed at 15%. Under the new rules, she could be paying 22%, 28%, or more—the same as if it were ordinary income.
Massachusetts note: The state already taxes capital gains at the same rate as income (5%). So any increase in federal rates just compounds the pain—especially for Boston-area residents who also face high property taxes and living expenses.
What You Can Do Now
Here are four key actions to consider before the new rules take effect:
- Run a Tax Projection: Don’t wait until filing season. Use tools like Evergreen’s Holistiplan or work with a financial planner to project your 2025 income and tax exposure based on the proposed brackets.
- Time Your RMDs Strategically: If you’re 72+ or turning 73 soon, consider whether larger withdrawals this year (at potentially lower rates) could lower future RMDs and reduce long-term taxes.
- Harvest Gains (or Losses) Smartly: Selling appreciated stock in 2024 may lock in lower capital gains rates—especially relevant for those with large taxable accounts or property sales planned.
- Roth Conversions to Fill Brackets: With bracket compression coming, 2024 might be your last, best chance to convert traditional IRA dollars to Roth at today’s lower rates. We’ll go deeper on this in our next post.
Massachusetts-Specific Tip:
Massachusetts does not conform to federal Roth conversion rules. While Roth conversions are allowed, the state does not offer the same tax deferral, meaning Roth conversion amounts are fully taxable at the 5% state income tax rate, even if the federal bracket is favorable.
Planning in a high-tax state like MA makes it all the more important to be precise about timing, bracket fill levels, and coordination with other income sources.
Coming Up Next: Roth Conversion Strategies
In our next post, we’ll talk about Roth conversions—and why this legislative window might be a once-in-a-retirement opportunity to reposition your tax-deferred assets before higher effective rates kick in.
Have questions about how these proposed changes might affect your personal retirement plan?
If you’re in Boston, Newton, or anywhere in Massachusetts, we can run a customized projection and walk you through how the bill could impact your income, taxes, and long-term strategy.
Have questions about how these proposed changes might affect you? Reach out and schedule a 1-on-1 review to walk through your personal numbers.
Evergreen Wealth Management provides flat-fee financial planning and investment management to individuals and families preparing for or living in retirement. Based in the Boston area, we specialize in helping clients create tax-efficient retirement income strategies that support the life they want to live.
The information contained herein is for educational purposes only and should not be construed as specific tax, legal, or investment advice. You should consult with a qualified tax professional or financial advisor before making decisions based on the content of this article. Evergreen Wealth Management is not a tax advisor or legal firm. All examples are hypothetical and intended for illustrative purposes only.