Retirement Planning and the One Big Beautiful Bill

This blog post examines the “One Big Beautiful Bill” (OBBB) and its potential influence on your tax and investment strategies, both currently and in the future. This information is particularly relevant if you are nearing retirement or are already retired with at least $500,000 in investable assets.

As you shift from saving for retirement to taking distributions from your retirement assets, various tax liabilities come into play. Your goal should be to preserve as many assets as possible to sustain a retirement for both spouses that could last 30 years or longer.

Your retirement accounts, like a 401(k) or traditional IRA, have grown with deferred taxes for years. But the IRS will eventually want its share, and that’s where the bill comes in. That deferred tax liability could be sizable if you’ve saved diligently over a long career. When you consider required minimum distributions (RMDs), Social Security income, and investment gains all being taxed simultaneously, it’s easy to find yourself paying far more taxes in retirement than you expected.

As a fee-only, financial fiduciary in New Haven, I’ll share some insights about the OBBB in greater detail and suggest steps you can take now to prepare for its potential impact. 

What is the “One Big Beautiful Bill”?

The One Big Beautiful Bill (OBBB), signed into law on July 4, 2025, introduces several tax provisions that benefit working Americans, families, and seniors. While some benefits target specific groups, one of the larger impacts is how Required Minimum Distributions (RMDs) will be handled for retirees. 

New RMD Rules Under the “One Big Beautiful Bill” (OBBB)

The IRS requires you to take Required Minimum Distributions (RMDs), which are mandatory withdrawals from your tax-deferred retirement accounts like traditional IRAs and 401(k)s. The rules around RMDs have changed, and for many retirees in Connecticut, those changes could be very beneficial. Here’s what you need to know: 

• Under the updated rules (part of the “One Big Beautiful Bill”), you may have more time before RMDs begin. For example, the starting age for RMDs has changed:

1. 1. If you turned 72 after January 1, 2023, your RMDs start at age 73
   2. If you turn 74 after January 1, 2033, your RMDs will begin at age 75
      

That delay gives you more flexibility to plan for taxes before you’re required to start drawing down your accounts. It can be a great time to consider partial Roth IRA conversions or other strategies that may reduce the size of future taxable events.

• Miss an RMD? The penalty just got smaller. Previously, missing an RMD came with a steep 50% penalty on the amount you failed to withdraw. That’s been lowered:

1. 1. The penalty is now 25%; still high, but not as high as 50%
   2. Correcting the mistake quickly (generally within two years) drops the penalty to 10%
      

While the goal is always to stay on top of RMDs, this update offers some breathing room if something happens to slip through the cracks.

• No More RMDs from Roth 401(k)s. Starting in 2024, if you have a Roth 401(k) or Roth 403(b), you will be required to take RMDs even though withdrawals were tax-free. That rule is going away:
  1. Starting in 2024, no RMDs are required from Roth-sponsored employer plans.
     

This aligns them with Roth IRAs, making them even more attractive for long-term tax planning.

• Making strategic gifts? QCD limits are now indexed for inflation. If you’re 70½ or older, you can use a Qualified Charitable Distribution (QCD) to send money directly from your IRA to a qualified charity, satisfying your RMD while avoiding the taxes associated with income distributions.
• The $100,000 QCD limit is now indexed for inflation, meaning it can grow over time.
  

This is a valuable tool if you are charitably inclined to lower taxable income, reduce Medicare premiums, and support causes or institutions you care about.

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Hypothetical Example: How One Connecticut Couple Used the OBBB to Strengthen Their Retirement Plan

Meet John (73) and Susan (71):

They live in New Haven and have a combined $2 million of retirement assets across a 401(k), traditional IRAs, and Roth IRAs. Since John just turned 73, Required Minimum Distributions (RMDs) must begin this year. Here’s how they use the OBBB to their advantage:

• Expanded Roth Conversion Windows: One provision in the OBBB adjusts the tax brackets slightly and phases in higher RMD ages for younger retirees. While John has to take RMDs now, Susan (age 71) still has two years before her RMDs begin. Their advisor uses this window to strategically convert portions of her traditional IRA to a Roth, staying within a favorable tax bracket and reducing future taxable RMDs.

1. 1. Higher QCD Limits + Indexing for Inflation: The OBBB increased the annual Qualified Charitable Distribution (QCD) cap and tied it to inflation. John and Susan direct $100,000 of John’s RMD to their church and local hospital foundation, reducing their taxable income without affecting their standard deduction or triggering Medicare IRMAA surcharges.
   2. Adjusted Income Thresholds for Tax Brackets & Medicare: Thanks to inflation-indexing of Medicare IRMAA brackets in the OBBB, their adjusted gross income stays below the next threshold, saving hundreds annually in Medicare Part B and D premiums.
   3. Flexible Catch-Up Contribution Rules (for Kids’ Roth IRAs): While this doesn’t affect them directly, John and Susan gift money to their adult daughter, eligible for catch-up Roth IRA contributions due to another OBBB update. They see it as part of their legacy plan, helping the next generation build tax-free retirement savings.

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The Value of Working With an AIF® Certified Advisor

One way to improve retirement planning efforts is to work with an AIF® (Accredited Investment Fiduciary) certified advisor. This designation shows that the advisor has specialized training in managing portfolios with a documented, process-driven approach grounded in fiduciary principles (doing what is best for clients).

At Heritage Capital, we believe in always providing advice that is in your best interest, including the benefits of tax-aware strategies. 

If you’re contemplating a change of financial advisors, you should consider partnering with a fee-only financial advisor in New Haven, CT. Ask how they can integrate tax planning into your overall retirement strategy and how they follow a time-tested process for portfolio management.

At Heritage Capital, we help clients across Connecticut make informed financial decisions without the hype associated with a sales strategy. We focus on the big picture: helping you understand what you have, where you want to go, and how you will get there.

Our role is to facilitate the pursuit of your most important financial goals.

Ready to discuss your retirement planning needs? Let’s connect.