OBBBA Breakdown: What High-Net-Worth Retirees Need to Know About the OBBBA Tax Bill
What High-Net-Worth Retirees Need to Know About the OBBBA Tax Bill
For many retirees, tax law changes feel less urgent once paychecks stop. For high-net-worth retirees, that assumption often doesn’t hold.
If you’re retired with roughly $5 million or more in net worth and $300,000+ of annual income, taxes still play a meaningful role in cash flow, flexibility, and long-term planning. The recent OBBBA tax bill doesn’t fundamentally change the tax system, but it does adjust incentives in ways that matter for retirees at this level.
Below are the areas we believe are most relevant.
Why OBBBA Still Matters After You’ve Retired
High-income retirees often continue to generate income from multiple sources: IRA withdrawals, portfolio distributions, capital gains, pass-through income, and real estate "mailbox money". As a result, marginal tax rates still influence real planning decisions.
OBBBA introduces a series of changes that can affect how income is taxed, how deductions work, and when planning decisions are most effective. The impact is rarely obvious in isolation and can compound over time if left unmanaged.
OBBBA Changes for Retirees
While OBBBA expanded certain deductions, it also introduced or reinforced income-based phase-outs that can raise effective marginal tax rates.
For high-income retirees, this often shows up in subtle ways. Starting in 2025, couples with Modified Adjusted Gross Income (for most people, this is your AGI plus municipal bond income) of $150,000 or less receive an additional $6,000 deduction. This deduction is phased out until the $250,000 MAGI figure and is available through 2028.
How to Pay 45% Taxes Without Knowing
For retirees in a higher tax bracket, they must be aware of the SALT Torpedo.
For high-income earners, the $40,000 State and Local Tax cap begins to phase out once MAGI exceeds $500,000. The cap is reduced by 30% of the excess income over $500,000, but it cannot fall below $10,000. The threshold also increases slightly each year with inflation—$505,000 in 2026, and so on.
This means retirees in the 35% tax bracket can effectively be taxed at 45%. To read more about the SALT Torpedo, please read our blog on this topic.
Standard vs. Itemized Deductions: Why This Is Still a Planning Decision
OBBBA makes itemizing deductions more relevant again for some retirees. At the same time, it introduces new considerations that didn’t exist previously.
For retirees who itemize, charitable giving now comes with an additional layer of complexity.
For Itemizers: New 0.5% AGI Floor on Charitable Deductions Taxpayers who itemize can only deduct the portion of their total annual charitable contributions that exceeds 0.5% of Adjusted Gross Income (AGI). To read more about itemizing deductions, please read our blog on this topic.
For example, a retiree with $400,000 of AGI must contribute more than $2,000 to charity before any portion of those gifts becomes deductible. Contributions below this threshold are permanently disallowed for that tax year unless the taxpayer exceeds overall AGI percentage limits and generates a carry-forward.
For high-income retirees who give consistently each year, this floor can quietly reduce the tax benefit of charitable giving if not addressed proactively.
Planning Idea: Charitable Bunching With the new 0.5% AGI floor, spreading charitable gifts evenly across years may reduce their overall tax effectiveness. By bunching multiple years of charitable contributions into a single tax year, retirees may be able to exceed the floor once rather than repeatedly.
Charitable Planning Under OBBBA: Structure Matters
Charitable giving remains an important part of many high-net-worth retirement plans. Under OBBBA, how those gifts are made can matter as much as how much is given.
For high-income retirees, charitable deductions do not always produce the expected benefit due to: – AGI limits on deductions – Interaction with itemized deductions – Higher marginal tax rates
Qualified Charitable Distributions (QCDs) remain a powerful planning tool for retirees who are charitably inclined. By giving directly from an IRA, QCDs reduce taxable income rather than relying on deductions. This can avoid many of the limitations that apply to itemized charitable deductions and improve overall tax efficiency.
For retirees already giving to charity, reviewing the structure and timing of those gifts has become increasingly important.
Retirement Income Timing Matters More Than Most Retirees Expect
Under OBBBA, poor income timing can increase effective marginal tax rates due to phase-outs and deduction limitations. Managing when income is recognized remains one of the most valuable planning levers available to high-income retirees.
While the entire amount distributed for an IRA is taxable at ordinary income tax rates (e.g. 22%, 24%, 32%, etc), distributions from taxable accounts are taxed differently. In fact, many bonds purchased post COVID are near their original cost basis, meaning these funds can be distributed with minimal tax impact.
Another area of retirement income timing is to consider taking distributions from Roth IRA's. Because Roth IRA's are taxed at the time of contributions, the distributions are tax-free for retirees over the age of 59 1/2.
Retirees considering year-end distributions should be aware whether Roth IRA's are the optimal source of distributions.
Planning Idea: At Delta, we monitor capital gains across client portfolios throughout the year. We have automated rules that flag when a short-term capital gain is approaching long-term treatment. When that threshold is near, the trader is notified so timing can be considered before a transaction is executed.
What High-Income Retirees Should Be Watching Going Forward
Some provisions of OBBBA are permanent, while others may evolve with future legislation. There is talk that OBBBA laid the groundwork for substantial overhaul of Medicare. While this is still conjecture, it is an area the AARP and other advocacy groups are monitoring.
For high-income retirees, tax planning is not a one-time exercise. By building a multi-year tax plan, charitable bunching, QCD's, tax-loss harvesting and capital gains can be combined to identify optimal tax outcomes.
Even without major lifestyle changes, periodic review remains important to ensure strategies stay aligned with current law.
Why This Is a Planning Conversation, Not Just a Tax One
For retirees with $5 million or more in net worth, OBBBA impacts more than just the tax return. It can influence: – Net spendable income – Flexibility around gifting and spending – Long-term estate and legacy planning
These decisions are most effective when tax strategy is coordinated with investment and estate planning. That coordination becomes increasingly valuable as complexity rises.