Pre-Retiree Alert: New Senior Tax Deduction and Key 2025 Tax Changes

As markets hover near record highs and the latest tax reforms take effect, pre-retirees face a pivotal moment for optimizing their financial plans. Here’s what you need to know about the new Senior Income Tax Deduction and other timely updates that could impact your retirement readiness.

New Senior Income Tax Deduction: What’s Changed?

Let's delve into the potential benefits of the new senior tax deduction. This significant tax reform package offers those age 65 and older a targeted $6,000 income tax deduction per qualifying individual—that’s up to $12,000 for married couples filing jointly. This deduction is available for tax years before January 1, 2029, and does not require you to be receiving Social Security benefits. Key features include:

• Income Phaseout: This means that the deduction gradually decreases as your income exceeds certain thresholds. For individuals, the phaseout begins at a Modified Adjusted Gross Income (MAGI) of $75,000, and for joint filers, it starts at $150,000. The deduction is reduced by 6% for every dollar your income exceeds these thresholds.
  
  
• Eligibility: Both the taxpayer and their spouse (if applicable) must be 65 years of age or older and provide valid Social Security numbers.
  
  
• Filing Status: Available only to individuals and married couples filing jointly; not applicable to married couples filing separately.
  
  
• Stackable: This means that the new senior deduction can be added on top of the standard deduction, providing an additional tax benefit. It is also unaffected by the elimination of personal exemptions, making it a valuable tool for reducing your taxable income.
  
  
• Temporary: The new senior deduction is set to expire after 2028 unless extended by Congress. This temporary nature underscores the importance of taking advantage of it while it's available, especially given the potential for higher tax rates and lower standard deductions after the Tax Cuts and Jobs Act expires in 2025.
  

Why This Matters for Pre-Retirees

The new senior deduction offers a window of opportunity to reduce taxable income and preserve more of your nest egg during these transitional years.

Additional 2025 Tax Updates Impacting Pre-Retirees

• Standard Deduction: For 2025, the standard deduction rises to $15,750 (single) and $31,500 (married filing jointly).
  
  
• Required Minimum Distributions (RMDs): The RMD age is now 73, and penalties for missed RMDs have been reduced, with Roth accounts in employer plans now exempt from RMDs.
  
  
• Charitable Giving: Non-itemizers can deduct up to $1,000 (single) or $2,000 (joint) for qualified philanthropic gifts, while itemizers face a new 0.5% AGI floor for deductions.
  
  
• SALT Deduction: The cap increases to $40,000 for joint filers, with phaseouts for high earners.
  
  
• Auto Loan Interest: Up to $10,000 in interest on new personal auto loans may be deductible through 2028, subject to income limits & qualifications.
  

Action Steps for Pre-Retirees

• Review your projected income: If you’re nearing the phaseout thresholds, consider timing income and deductions to maximize the new senior deduction.
  
  
• Coordinate with other deductions: Stack the senior deduction with the standard deduction and other available breaks for optimal tax efficiency.
  
  
• Plan for future changes: With major tax provisions set to sunset after 2025, now is the time to consult with a financial advisor about Roth conversions, charitable giving, and income timing strategies.
  

Are you ready to take full advantage of these new tax breaks before they expire? Act now. Review your expected income, coordinate all available deductions, and plan for upcoming tax reforms. Contact your Farther advisor today for a personalized consultation to optimize your pre-retirement tax strategy and protect more of your hard-earned savings in this changing financial landscape.