Retirement planning can feel complex. You want your money to last for decades. You also want to pay as little tax as possible.
Let’s discuss how to build a long-lasting, tax-efficient retirement paycheck. The recently enacted One Big Beautiful Bill Act (OBBBA) offers expanded possibilities.
Start with a clear vision
Effective retirement planning begins with creating a clear and comprehensive vision of your future. This first step is crucial because it informs every decision you make.
Here’s how to approach this critical phase.
Build tax-diverse account layers
When managing your investments, it’s important to understand that different tax accounts operate differently. By using a mix of taxable accounts, traditional tax-deferred accounts, and Roth or tax-free accounts, you can create a flexible financial strategy that can help you minimize your tax burden.
Let’s break these down:
Taxable accounts: These are regular investment accounts where you can buy and sell stocks, bonds, or mutual funds. The money you earn from these investments is taxed in the year you sell them for a profit. You have to pay taxes on dividends and interest as you receive them. One advantage is that you have control over when you realize most gains or losses, which can be beneficial when managing taxes.
Tax-deferred accounts: These include retirement accounts like a traditional IRA or 401(k). With these accounts, you can contribute money before taxes. You don’t pay taxes on the money you put in until you take it out, usually in retirement. The main benefit is that your investments can grow without being taxed yearly, but you’ll eventually be taxed on your withdrawals at an unknown tax rate.
Roth or tax-free accounts: Roth IRAs and Roth 401(k)s are examples of this type of account. You contribute money already taxed, but when you take it out in retirement, you won’t owe any taxes. This can be especially advantageous if you expect your future tax rate to be higher.
By diversifying among these accounts, you’ll have the flexibility to strategically choose from which account to withdraw money based on your current financial situation. For example, if you’re in a lower tax bracket during retirement, you might withdraw from your taxable accounts first to minimize the tax hit. If you’re in a higher tax bracket, you may want to tap into your Roth account to avoid taxes altogether.
Take advantage of the OBBBA senior deduction
The OBBBA created a new senior deduction. If you are 65 or older, you may claim up to $6 000 (or $12 000 for couples) in addition to the standard deduction. That can shield Social Security from taxation for many retirees. This deduction phases out at $75 000 of modified adjusted gross income (MAGI) for singles and $150 000 for couples. The benefit expires after 2028.
Consequently, 2025–2028 is a key window. Try to keep your AGI low enough to benefit fully during these years. Plan withdrawals, Roth conversions, and Social Security timing to maximize the deduction.
Use Roth conversions strategically
Consider converting some assets from your traditional IRA or 401(k) into Roth accounts. While you’ll need to pay taxes on the amount you convert today, the benefit is that any future growth in these accounts and any withdrawals you make after retirement will be tax-free.
Doing partial conversions during years when your AGI is lower, especially when you can take advantage of the senior deduction, can be a strategic choice.
Partial Roth conversions reduce the amount you’ll need to withdraw for Required Minimum Distributions (RMDs) and help keep your future AGI lower, which can save taxes and reduce the tax impact on other income.
The OBBBA extended the low tax rates established under the Tax Cuts and Jobs Act (TCJA). These low rates were set to expire in 2025, but will continue beyond that date. This change enhances the cost-effectiveness of converting your traditional retirement accounts to Roth accounts since you’ll benefit from these lower tax rates when you convert.
Manage RMDs and Social Security timing
RMDs generally begin at age 73 under SECURE 2.0. Those born in 1960 or after do not have to take RMDs until the year they reach age 75.
The OBBBA did not change that schedule but directed the Treasury to study imposing RMDs on Roth IRAs and large 401(k) accounts. This could affect Roth accounts in the future.
When considering when to claim Social Security, think about the impact of timing on your benefits. Delaying your claim can result in higher monthly benefits, which can be advantageous in the long run. However, a higher AGI could reduce your eligibility for the senior deduction.
Use qualified charitable distributions (QCDs)
If you’re over 70½ years old, making Qualified Charitable Distributions (QCDs) from your Individual Retirement Account (IRA) can be a strategic financial move. A QCD allows you to directly donate up to $108,000 annually from your IRA to a qualified charity without reporting that distribution as taxable income, which can lower your Adjusted Gross Income (AGI).
By reducing your AGI, you maintain eligibility for the senior deduction and reduce or eliminate taxes on your Social Security benefits.
Expand use of HSAs and 529s
The OBBBA introduced important modifications to 529 plans and Health Savings Accounts (HSAs). These changes increase the flexibility and effectiveness of these accounts for individuals and families, promoting overall financial health and educational opportunities.
529 Plans: Under OBBBA, 529 funds can cover more than college. Before the law, these accounts were primarily limited to post-secondary expenses, with only a $10,000 annual cap for K–12 tuition.
Starting with distributions made after July 4, 2025, 529 accounts can be used for a wide range of K–12 expenses, including curriculum materials, books, and even online instructional tools, dual-enrollment fees, standardized test fees (like SAT, ACT, AP), tutoring by qualified non-related providers, and educational therapies for students with disabilities.
Beginning in 2026, the annual K–12 withdrawal limit doubles from $10,000 to $20,000 per beneficiary, federally tax-free. State tax conformity varies and may affect these benefits.
Beyond K–12, OBBBA also expands qualified postsecondary uses. Now eligible are workforce training and credential programs recognized under the Workforce Innovation and Opportunity Act or approved by federal/state authorities, which cover tuition, fees, supplies, and credentialing exams.
The law permanently extends favorable ABLE account features, including rollover from 529s and the “ABLE-to-Work” provision.
ABLE accounts, which allow individuals with disabilities to save money without affecting their eligibility for government benefits, will now permanently include the ability to roll over funds from 529 college savings plans. This benefits families who initially saved for education expenses in a 529 plan but later want to utilize those funds for disability-related expenses without facing tax penalties.
The “ABLE-to-Work” provision allows ABLE account holders to contribute additional income from their employment to their accounts without jeopardizing their eligibility for means-tested benefits.
Qualified withdrawals from 529 plans are tax-free when used for qualified education expenses.
HSAs: HSAs remain among the most powerful tax-advantaged tools for managing healthcare costs. They offer three benefits: contributions are deductible, growth is tax-free, and withdrawals for qualified medical expenses are not taxed.
Previously, to qualify for an HSA, you needed a high-deductible health plan (HDHP), which required you to pay out of pocket until you hit your deductible.
The OBBBA made significant changes to eligibility for HSAs.
Your plan can still be an HDHP even if it covers telehealth visits immediately, without requiring you to meet the deductible first. This rule applies retroactively starting January 1, 2025. Telehealth gets treated like a first-dollar benefit, and you don’t lose HSA eligibility.
The OBBBA allows anyone enrolled in Affordable Care Act (ACA) Bronze or Catastrophic plans (those low-premium, high-deductible plans available on the state and federal insurance exchanges) to open and contribute to an HSA.
Before this change, you had to be in a specific type of HDHP to qualify. This expansion means many more people could now get the tax advantages of an HSA.
Many people are signing up for direct primary care (sometimes called concierge medicine), where you pay a flat monthly fee for unlimited access to your doctor rather than billing insurance for each visit. Under prior rules, enrolling in direct primary care (DPC) often disqualified you from using an HSA.
Starting January 1, 2026, you can sign up for DPC and keep your HSA, as long as the monthly fee is no more than $150 for individuals or $300 for families (these numbers will be adjusted for inflation). Those fees are now considered qualified medical expenses, meaning you can pay them directly from your HSA.
Final thoughts
Building a multi-decade retirement paycheck involves making intentional choices on when and how to draw income, balancing tax-deferred and tax-free sources, and adapting as the rules change. The OBBBA gives you valuable opportunities for the next few years, but the long view requires flexibility and discipline.
Staying proactive, tax-aware, and open to adjustments will help you preserve your income and peace of mind.
