What does the new One Big Beautiful Bill really mean for federal employees nearing retirement? Passed on July 4th, 2025, this sweeping tax legislation has stirred conversations across the country, but today we’re zeroing in on how it impacts federal employees with significant investable assets. While business owners and high-income earners also feel the effects, our focus is on helping you understand what this bill means for your retirement planning, your tax strategy, and your financial future.

Joining us in this episode is Stephen Kimberlin of Forvis Mazars US, the ninth largest accounting firm in the country. Together, we break down the positives, the negatives, and the unanswered questions surrounding the bill. From the extension of tax brackets to Roth conversion opportunities and planning strategies for married versus single filers, this episode will give you the insights you need to adjust your plan with confidence.

Listen to the full episode here:

What you will learn:

• How to contact Stephen and Forvis Mazars. (7:00)
• Several exciting things about the One Big Beautiful Bill. (10:15)
• Which proposed changes did not go through. (13:45)
• What tax brackets most people find themselves in and what these changes mean. (15:45)
• The difference between marginal versus effective tax rates. (17:20)
• The complexities behind tax rates and tax brackets. (21:20)
• What is happening with Roth conversions. (26:00)
• The importance of having a flexible strategy. (31:00)
• Who would be a prime target for a Roth conversion. (39:00)

Ideas Worth Sharing:

• “The biggest change I see for our clients is the extension of those tax brackets. I think that and the standard deduction is what impacts people the most people under $300,000 of income.” – Mason & Associates
• “For those of you who know somebody bragging about being in a 0% tax bracket, they’re failing, because they should be taking advantage opportunistically of doing some Roth conversions.” – Mason & Associates
• “If they don’t hurt, they help. Meaning if Roth conversions don’t appear to be harmful to you in the initial, if it appears to be a wash, then we would contend that there’s probably some significant advantages to still doing them.” – Mason & Associates

Resources from this episode:

• Stephen Kimberlin: LinkedIn
• Forvis Mazars
• Mason & Associates: LinkedIn 
• Tommy Blackburn: LinkedIn 
• John Mason: LinkedIn

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Read the Transcript Below:

Congratulations for taking ownership of your financial plan by tuning into the Federal Employee Financial Planning Podcast, hosted by Mason & Associates, financial advisors with over three decades of experience serving you.

John Mason: Welcome to the Federal Employee Financial Planning Podcast. In this episode, we’re discussing the one big, beautiful bill and the impact that it will have on federal employees across the country. We may discuss pieces that impact business owners and those in the highest tax brackets, but we’re gonna do our best to focus these episodes on the conversation around how it impacts our niche, the federal employee in or near retirement, typically, who has around a million dollars or more of investible assets. The big, beautiful bill is tax legislation that passed by reconciliation on July 4th, 2025. With any legislation, there are positives, negatives, and of course, unanswered questions. Today, we hope to unpack as many of those as we can so that you can adjust your financial plan and your tax plan accordingly.

Today, we’re joined by my business partner, Tommy Blackburn, who’s an owner and partner at Mason & Associates, along with a special guest, Mr. Stephen Kimberlin from Forvis Mazars. Stephen is a partner at Forvis Mazars Accounting Firm in Richmond, Virginia. Forvis Mazars is the ninth-largest accounting firm in the United States.

And Stephen practices with family-held or owner-held businesses, generally providing services like tax compliance, planning and strategy, both for the business and for the personal income tax returns. Folks, remember, unlike many content creators, we’re financial planners first, and we do this second. And in each episode, we share real life experiences from decades of helping federal employees navigate the complexities of their benefits package and lead to a successful retirement.

Tommy, Stephen, welcome to the Federal Employee Financial Planning Podcast.

Tommy Blackburn: John, thanks for the excellent intro as always, and for teeing this up. I’m looking forward to it. It is always just a blast co-hosting this podcast with you into our audience. Thank you, as always, for joining us now for a few years.

It’s been a lot of fun as we continue to bring you content and join us in a conversation. And Stephen, thank you for joining us. You’ve been a friend for a while, and just an expert that we’re happy to bring in on this topic. So, thank you for being here and we’re excited.

Stephen Kimberlin: Yeah. Appreciate you guys having me on today. And hopefully, we can have some interesting topics to discuss for your audience and they learn a little bit today about some upcoming tax changes for the 25 and 26 tax years.

John Mason: Well, thank you both again for being here. And I think before we dive into this content, audience, we’re going to do our best to keep these episodes about 30, 40 minutes.

We’re probably going to break and hopefully, we’ll do a good job breaking at a great point, and then we’ll release a second episode. There’s so much to unpack here, guys, that I just don’t think there’s any possible way that we could produce one episode of digestible content. So this is gonna be broken into at least two, maybe three episodes.

Just on a personal note, enjoying summer. It’s been, it was really, really hot in Virginia. We spent a lot of time at the pool. We spent a lot of time doing summer camps and no RV trips this summer just yet. RV is getting a new roof soon from some wind damage, but overall, it’s been a good summer. I hope the same is true for both of y’all.

Tommy Blackburn: Yeah, I guess I’ll jump in there. John, as you know, we were just got back from a trip in Switzerland about a week or two ago, which was a really fun family experience. I would recommend it to anybody. It is probably no surprise if anybody’s familiar at all with Switzerland.

It is an expensive destination. It may be one of the highest costs of livings in the world, I believe, but the Alps are absolutely beautiful. Lake Geneva is gorgeous. There is so much to do from an outdoor perspective and to just take it all in. And of course, it is challenging with young kids as all of us on this podcast have children.

Family just always adds a new flavor to it. But what great memories, you get to do and try to show them the world, broaden their horizon. And it was hot over there, John, but it was not hot like it is here. I think we, I don’t ever recall the humidity feeling anything like the Virginia Summer humidity that we get and I got a welcome home as soon as you step off the plane, and you just feel that blanket go around you that is the humidity.

And as I think about the temperature, when we were kind of really deep in the Alps, we’re in a town called the Grindelwald, which to me was deep in the Alps, that you were high enough up and the breeze was pretty refreshing. So even though it was warm, yeah, not like the summers here.

John Mason: Well, that’s awesome man. We’re so happy that you guys had a good trip and escaped some of the July heat in Virginia. For the audience, today is August 6th, 2025, by the way. Stephen, you guys having a good summer too?

Stephen Kimberlin: Yeah, absolutely. We have about two weeks left until the kids go back to school.

So actually, just this morning, my wife and kids jumped on a plane to go to Washington State to visit my sister-in-law. So they are heading off for their last vacation before the school starts. I’m staying back to take care of a couple things at the office and take care of her dog back home, but they’re looking forward to some nice weather as well, obviously, much cooler out that way, hopefully for them.

And check out the sites around Seattle and Portland area and hopefully come back and ready to get back to with school right after they return from their trip.

John Mason: That’s awesome.

Tommy Blackburn: I think you are ready for them to go back to school. Probably as many parents are this time of summer.

Stephen Kimberlin: Yeah. At this point in the year, it’s about ready for them to get back to bed on time, wake up at a reasonable hour and get the routine done. But no, it’s a nice break. We finished up our swim season a couple weeks ago, did a little mini vacation with a family, and they’re doing their last hurrah, so trying to go out, with a summer with a nice bang and have them settle in and have a really good year at school coming up.

John Mason: Well, Stephen, as we dive into the meat and potatoes of this podcast, Forvis Mazars is an accounting firm in Richmond. You’ve been there quite some time, I think maybe since you graduated, but our audience is national, so there’s gonna be people listening, Virginia, throughout the United States, we know internationally as well.

Maybe just a quick 30 seconds on if somebody wants to reach out to Forvis or is looking for a partner like you or like somebody within your firm, what’s the best way for them to get in contact with you?

Stephen Kimberlin: Yeah, absolutely. Well, we’re, like John said, we’re the ninth largest firm in the country, so we actually have offices in roughly 30 to 35 states.

So we’re pretty well covered throughout the United States. So obviously, if you’re in one of those states where we operate, there should be a local office. And on our website, there’s actually contacts for local office leaders. That way if you are close to one and like to visit, you can certainly contact one of them to set up a meeting.

Otherwise, happy to share my direct contact individually and we can help get you connected with someone that may be more local to your market or more aligned with the expertise that you’re needing on a tax side.

John Mason: We’ll share the link to your website in the show notes and include hopefully, your bio and stuff too. But just for the audience, quick, what is the website?

Stephen Kimberlin: Sure, it is forvismazars.us is our US-based website.

John Mason: Perfect. Alright, audience, so if you like what you hear, Forvis has done a good job and we think that if you’re looking for a professional tax preparer, they could be a good fit for you. I guess one thing that I would wanna lead into with this big, beautiful bill or the one big beautiful bill is that I’m kind of just confused by it in general.

Like there was a lot of promises, there was a lot of talk about what was gonna happen. I believe President Trump ran in 2017 under the assumption that we would be able to file an income tax return on a postcard. And yet we are now two presidencies later, or two terms later, and the tax bill’s not getting any simpler.

I think it’s actually expanding and getting more complicated. So we’ve certainly deviated, guys, from the postcard. We’ve added new deductions. We’re changing things. Things phase in, phase out. Some are temporary, some are permanent. Audience, if you’re not working with a professional, it just continues to amaze me how folks are continuing to go out this alone, unless you’re dedicating countless hours to understanding these bills. But for both of you, I’d love to hear what’s the most significant part of this bill, or what you’re most excited about. And then I’m also curious, similar, what’s the most negative, or if you think there’s a big negative or a big kind of negative surprise that came from the legislation, would love to hear y’all’s thoughts.

Tommy Blackburn: Sure. That’s a lot. I imagine we’ll sprinkle things in as we go through the podcast. I was listening this morning to some other friends in the industry talk about this and supposedly, so you had, TJ, TJCA, the Jobs Act of 2017, and I think we called it the Trump Tax Cuts or something.

Anyway, the one big bill, beautiful bill I hear is now by some being referred to as OBBA, but we are not talking about the band, I believe, out of the seventies. We’re talking about a tax bill. If you hear OBBA thrown around, or I would’ve thought OBBA, but OBBA, and John on the postcard comment, the joke behind that has always been, right, it’s like we could get it down to a postcard. We’re just gonna have a thousand postcards attached to it because that’s essentially, I think, what we’re gonna do is we’re just gonna have more and more schedules to support a small front page of the 1040, but we’ll have many schedules to go along with that 1040.

I think quick and fast, at the most high level, what do I like about this is that we kept our tax brackets. That certainly was a win, a nice, historically low y tax brackets. I like that the standard deduction stayed where it was and actually got enhanced a little bit increased there because standard deduction is certainly in the name of simplicity, a good direction to go versus all of the complexity that itemization and so forth can bring in.

John Mason: How about you, Stephen?

Stephen Kimberlin: Yeah, I’ll kind of say the same. I mean, I think overall there’s gonna be some wins for a lot of taxpayers, whether it be from business owners or individual taxpayers. Kind of along the income spectrum, as Tommy mentioned, the income tax rates are largely staying the same with some inflation adjustments.

There’s an increased SALT deduction, so there may be some benefit even for lower-income earners who may have additional property or real estate taxes or income taxes they weren’t able to take advantage of for the past handful of years. And there’s also some favorable business items that were extended permanently, such as the QBI deduction.

I will say that the negative that comes along with that is there probably is a little bit more increased complexity, as you mentioned, John. For the longest time, generally speaking, a lot of taxpayers were able to, for example, take the standard deduction and that made their return a little bit more streamlined, given the SALT cap, limited the deduction there, and also in the low mortgage interest rate environment, there just wasn’t a lot of expense to be deducted there.

So now with the increased SALT cap, again, the pro is that we’ll hopefully get some more benefit out of it, but the con there is that there is some more complexity, there’s some more rules to keep up with. So that’s where it does make a lot of sense, either to dedicate some time to make sure you’re putting yourself in the best position possible if you’re preparing it personally, or making sure that you’re consulting with a knowledgeable advisor to make sure you’re not missing the boat on some of the potential opportunities.

John Mason: Well, I think typically, we’re all aligned in our thoughts, guys, and I had jotted down a few things too is, I don’t know if it’s fair to say this seems relatively insignificant, but that to me there were things like there were gonna be federal employee changes wrapped into this, that none of that happened.

We were gonna make social security tax-free, that didn’t happen. And certainly extending the tax brackets, it adds up to being significant over time. It feels insignificant because it’s like we just kept what we had, but when you put it in the global context of over the next 70 years of my life, hopefully we have these lower brackets, or at least for four years.

Yeah, so it feels, I guess to me, a little bit of a letdown. Like there was a lot of promises, there was a lot of things that were gonna be done. Some things happened, but it doesn’t feel like a gigantic win. Maybe I’m just being a little pessimistic here. The biggest one I see for our clients is the extension of those tax brackets.

I think that is probably, that and the standard deduction is what impacts people the most, I would say, under $300,000 of income is those two things.

Tommy Blackburn: I think you made a great point. I’m glad you brought it in too though, was also that federal benefits did not really have any changes and all the changes that were being proposed would’ve been negative.

I don’t think there were any that would’ve been a win for federal employees. And so just to quickly maybe hit them for the audience, there was discussion and in, I think, what came out of the house committee originally, going from instead of the high three on the pension calc, the first calc to a high five, there was talk about increasing the amount you contribute for your first benefits, there was talk of eliminating the first supplement, so that bridge to get us from retirement to age 62 when we could take social security. And I think another major one, John was, and it may have been even more proposed, but that’s coming to my mind, is the health benefits FEHB, switching from the government contributing a kind of fixed percentage to more of a voucher system of here’s what we’re gonna contribute in dollar terms, and any changes from here is kind of up to you.

So none of that made it through, which I think is honestly a huge positive, particularly for the federal employees who are maybe not as near to retirement.

John Mason: No doubt. I mean, those changes were substantial and it was still unclear even during the proposals what would impact or not impact or when things would phase in or when they wouldn’t.

So, it’s nice for us. It’s one less rule to keep up with. So I’m certainly happy that those changes didn’t impact our clients in a negative way and one less rule for us to keep up with. So, we’ve said a couple times, guys, that the tax brackets remain unchanged, so we’re not gonna go through all of the different thresholds and all of the different things. Throughout the episode, audience, we’re gonna be for simplicity, talking married, filing jointly. Generally, single is doubled to married filing jointly. That’s not always the case, but you can kind of get an idea here.

If you divide all the numbers by two, at least gives you some sort of baseline is where we’re looking at for single rates, but the brackets most people find themself in 10%, then 12%, then 22%, then 24%. Most of America does not exceed the 24% tax bracket, and the 10% was staying the same, regardless, I believe. So the big win was the 12 not becoming the 15. The 22 not becoming the 25 and the 24 not being grossed up to 28. That was all substantial wins.

And then also, Stephen, I think one of the big wins from TCJA was that not only did the brackets come down, they got wider. And there was quite a bit of room in that 24% bracket. So extending all of those things seems to be a big win.

Stephen Kimberlin: Yeah, exactly. And also, you mentioned the 10 and 12% brackets; there is going to be an inflation adjustment in 2026.

You could potentially see those brackets get a little bit larger as well, so that might be beneficial to folks either within that bracket or just over that bracket, where more of their income might be taxed at those graduated rates. So that could be a big win for that population. Kind of in that 12 to 24% bracket.

John Mason: And maybe, I think it’s good to hit on, I know we’ve talked about it in previous episodes, Stephen, but maybe you can define for our audience the difference between a marginal tax rate and an effective tax rate, because these two things get thrown around like they’re the same and they’re completely different.

So when we say you’re in the 10% or 12% or 22, describe marginal versus effective.

Stephen Kimberlin: Sure. Absolutely. So we have to remember that we have a graduated system for the individual tax rates. So where that comes into play is that the first portion of your income is taxed at that first bracket, 10%.

The next tranche of income above that is that next rate, so on and so forth until you hit the highest rate, which is 37%. So those are your marginal rates in that the sort of the top tax rate that you are taxed on is sort of your tax rate, if you will. However, because we have the graduated system and certain portions of your income are taxed at lower rates as you move up that bracket system, your effective rate or sort of that blended rate, which is your true tax rate once you consider the ultimate tax liability, over the income, ends up being a much lower number because of that graduated system.

John Mason: Absolutely. So kind of adding my thought to it as well is like if you were gonna make another dollar, what rate would that dollar be taxed at?

That’s your marginal. So if you find yourself $1 into the 22% tax bracket, yes, that is marginally, you’re in the 22% if you go get another job, but your effective tax rate is going to be less than 12%, because you had some at 10% and some at 12%. So, marginal versus effective. Very important, Tommy, that we understand that.

And I guess you just briefly wanted to hit on credits first deductions. So a tax credit reduces your tax liability, right? So if we owe $10,000 and then we get a $2,000 tax credit, we owe eight grand.

Stephen Kimberlin: Yeah. The way to think about that–

John Mason: Oh, go ahead.

Stephen Kimberlin: I was gonna say, the way to think about that is the credit is a dollar-for-dollar reduction to your income tax liability, whereas the deduction is going to be adjusted for your tax rate, right? So you’re only gonna get a percentage of that. So if let’s say you were in that 24% bracket, the tax deduction would actually only be, for every dollar of deduction, you’re only getting a 24% reduction to the credit.

So, or excuse me, to the liability. So the credit, dollar for dollar, is actually more powerful given that it’s a one-for-one offset versus a percentage offset depending on your tax rate.

Tommy Blackburn: Definitely. John and I was thinking about too, so marginal, it’s really interesting for me. Effective is really good.

‘Cause that tells us the truth of like what we’re actually paying here. Marginal is really important from a planning perspective, ’cause a lot of times it’s, here’s where we are, we can’t control this, and now what is the next dollar of income or deduction due? And now that’s where we’re usually planning.

So both concepts are extremely important and it’s also very important, and this is probably way into the weeds, and while we’ll try to cover things over a few episodes here, it is far more complicated than looking at what marginal bracket you are in. So we may say, “I am in the 12% tax bracket.” But there are a lot of stealth taxes that I think we’ll begin to kind of go through today for you to be aware of.

That could be some of these new deductions that all have income phase-outs to them, meaning that as we start crossing certain thresholds, we begin losing these deductions. So we may say, “Hey, I’m only in the 12% bracket.” This is a great place to realize income. But depending on the situation, it could be double that or more as we begin losing other things.

So we need to be, we need to be thoughtful. We need to have a professional, and we need to, honestly, we need good resources to help us model these things out and fully understand the ramifications of decisions. So I know that’s like going way down and saying, “Hey, it’s not as…” I just want everybody to be aware, and this is a lot of what we do and I imagine Stephen too and he is helping clients. It’s way more complicated than just, “Hey, I’m in this tax bracket.” That’s the first step.

Stephen Kimberlin: And your role, Tommy, and with John being, you know, in financial planning, you’re also dealing with items like capital gains, which are a whole different tax bracket, right? Because that’s at the capital gains rate. So there’s also different considerations of which deductions offset, which types of income, kind of the stacking rules.

So you can really get down into a wormhole if you have multiple items of income on your return or different sort of types of income and types of deductions, that can really affect what rate is applied and how it’s applied. So, that kind of adds a layer of complexity that is not wholly in common.

I’ve gotta think that most of your clients have that element of sort of investment income that could have sur taxes, but then also capital gains that are taxed differently than their ordinary income or salary, for example.

John Mason: Well, it’s such a fun conversation already. ‘Cause we’re defining all of these things.

We’re already going down into the weeds, which I love. You need software. We still, Stephen, you wouldn’t believe it. We still find people that do their tax return by hand. And it’s like, this is just, it has got, it’s long been too complicated. It continues to get more way too complicated to do that.

So a tax or financial plan, you can’t have one unless you have a tax plan. Your financial planner or financial advisor or CFP, whoever, if they’re not, if they don’t have something like Holistiplan or a more sophisticated, Holistiplan sophisticated, but some type of sophisticated tax projection software.

Ultimately, that’s where we add so much value. It’s not necessarily what did the investments do, it’s looking at the entire picture. And you need software to be able to run these simulations and our clients typically leave every year with the beginning of the year and an end-of-year tax projection.

So that’s important. We had one big torpedo before, and the one big torpedo before was the social security torpedo, where every dollar of new income would cause 85 cents of social security to be taxable. So we’ve said for a long time on this episode that there’s not really a 12 or 22% bracket that much in retirement because you’re getting 12 plus the 85 cents of social, or the 22 plus the 85 cents of social. It’s not uncommon for us to find clients, guys, north of 40% marginal tax bracket and some of these torpedo ranges. And this one big, beautiful bill created many different torpedoes. ‘Cause we’ve got phase-outs for QBI, we’ve got phase-outs for these new deductions.

We’ve got phase-outs all over the planet here. And so now you’re gonna see peaks and valleys and torpedoes. And I guess I also just wanna say there’s still a difference between the 0% cap gain rate and where the 22% bracket starts. Those used to be linked. Those used to be the same, but now they’re bifurcated.

And then that difference actually got a little bigger. I think it’s like two or $3,000 difference. So another thing to watch out for is if you think you’re in a 0% cap gains bracket, and then you miss it, that hurts.

Tommy Blackburn: Going from zero to 15% is not insignificant, particularly as we are looking at these numbers.

So we want to be well aware of that. Yeah, it’s fun for us as we think about all the nuances, but it’s also very complex. So in the name of simplicity, I don’t think anything really got much, got simpler. But yeah, we’ll begin going through all of this. So everybody, I think that was great.

Big win. On the surface, it seems, hey, we got some consistent tax brackets. we were joking before we began recording. Many of these things have been made permanent, which stability is, we usually are fans of that, of knowing that we’ve got something stable here. But we have to put quotes around permanent on many of these provisions because it’s just permanent until the next Congress decides to change it.

But they would have to actually be proactive to change it. It wouldn’t just kind of sunset like the previous law did.

John Mason: So last thing, maybe on tax brackets, and then we’ll move on to the standard deduction, is since TCJA of 2017, us and many firms like us have been recommending Roth conversions pretty significantly, Stephen, and you’ve seen that with some of the clients that you help with us too.

And it was all based on, I shouldn’t say all, it was largely based on the fact that we have this window of opportunity to do conversions in these lower rates, thinking that we would revert back to the rates of 2016. Well, that didn’t happen. So for our clients who are listening, the Roth conversions, we don’t believe that hurts you.

We believe we did a really good job. We played by the rules that we knew we had. The tax brackets reverting back was only one part of the consideration of the conversion, your life expectancy, your RMD, your need for distributions, your goal to leave a legacy that’s taxable versus tax-free. So many factors go into “Does a Roth conversion make sense?”

And I know I’m missing some. What I’m getting at here, guys, is that we’re gonna have to go back to the drawing board on some of these conversion recommendations going forward, and if you’re a client who has been doing conversions for the last seven or eight years, we may be done. Maybe not, but we may be done.

Tommy Blackburn: I think, John, I love it. For our clients, hopefully, just to give them a little bit of peace of mind. We’re proactively looking at these as you hopefully know, working with us. And it’s something we look at every year, throughout the year. So we’ll be making adjustments as that’s needed. It just, it hasn’t gotten any simpler on the surface as I think about it, to John’s point of view, probably, we don’t think you were harmed in this. Again, we never know what the future was gonna hold.

We planned with the rules we knew and how the laws were structured. But at the simplest, if you think about if all else is equal, if our tax bracket stay the same, then it doesn’t matter whether it’s pre-tax or Roth, the math boils down to exactly the same. Unfortunately, it’s never that simple because, as you say, we’ve got required minimum distributions. We’ve got these stealth taxes, we’ve got Medicare premiums tied to income. So there’s a lot of things that don’t show up on the surface that we have to also be planning for that are impacted by this.

And I don’t know, John, as I think on the surface, I know you’re thinking the same thing all of us are, it could be just as much argument or more for Roth conversions for some people, like maybe before 65. And where I’m going, we’ll get into this, at some point, is there’s this now age 65 deduction, but that is based on income.

So I believe at 150,000, I’ll check myself. It begins phasing out, and at 250, it’s gone. And if we’re married, it’s phasing out for both of us. So it could easily make an argument for, we should be doing Roth conversions, particularly before age 65, when we are in those true or lower brackets there. Before that, we have to contend with that provision.

Stephen Kimberlin: Well, and I think we’ve touched a lot on the income tax rates, but that’s really only a component in the decision, right? I’ve had other clients that will do Roth conversions and will take advantages of years where income is down for whatever reason. For example, I had a client who had a tough year with their business and they ended up realizing some losses as a pass-through business owner.

So that was a great year to be able to sort of leverage those losses and convert some of their retirement plan to a Roth. So yes, looking at rates is important and obviously the tax that comes along with that is important, but there’s other factors to the decision in my mind.

And it could be a thing where there’s a life change, where there’s an income change. Maybe moving from one job to the other created an income dip, where it may make sense to do that. So, I wouldn’t get too hung up on the rates as long as sort of the diligence has been done and all of the other factors, sort of, you know, ability to recapture, and that growth and looking at sort of that future planning, if all that makes sense. Again, I think it’s still a win overall as long as all those other things are in place.

John Mason: Well, I love the idea of the opportunistic Roth conversion. For instance, let’s say somebody’s in the 37% tax bracket, ’cause their business is doing great, like you said, Stephen, and they have a bad year and they drop to the 32.

That may be a great Roth conversion opportunity. On the surface, you still think 32 seems high, but for that person, they may find themself in the 37 for the rest of their life. So opportunistically looking at the conversions, or maybe, Tommy, to your point, like we’ve been bunching charitable contributions since TCJA.

Maybe we like barbell Roth conversions. You do some now and some later, or you do bigger ones so that you go through the phase out one time instead of every year. There’s just a lot to unpack here. Couple thoughts, man, this may be like seven episodes. I don’t know if Steve’s got enough time.

So, for those of you who know, somebody bragging about being in a 0% tax bracket, they’re failing because they should be taking advantage opportunistically of doing some Roth conversions. If you’re in the 10 or 12%, which retirees can be, realizing income and opportunistically looking to bracket top is something that we would still consider.

Unfortunately, we have folks who die every year, and that’s the nature of what we do. So if you’re married, filing jointly and your spouse dies in the first two months of the year, for example, you still have those married filing jointly brackets, which means you have the opportunity to do some advanced planning and Roth conversions because next year you’re gonna find yourself in a single bracket.

And it’s impossible for us to quantify when we’re talking to a married couple and we’re trying to provide the value of Roth conversions. When you factor in that change from married to single, and then you start looking at the impact of a taxable income versus a tax-free asset, these conversions become infinitely more valuable or it could become infinitely more valuable depending on when that first death occurs.

So it’s a science, it’s an art. We’ve said for a long time, guys, and then I’ll move us on, is that if they don’t hurt, they help. Meaning if Roth conversions don’t appear to be harmful to you in the initial, if it appears to be a wash, then we would contend that there’s probably some significant advantages to still doing them as long as they’re not detrimental on the surface.

Tommy Blackburn: I think that’s fair. And also a lot of what I’m hearing, John, as we I know, move on to standard deduction, is it’s flexible planning, right? Like we very much don’t like just committing to something with no flexibility to the strategy. We really wanna have a strategy we can…throughout the year and over the years.

John Mason: So standard deduction guys permanently, air quotes, permanently increased, and I don’t know if there’s a lot to talk about here, but it’s 31,500 standard deduction for 2025. This is going to be adjusted for inflation. I don’t know if that’s new or not new, but it is adjusted for inflation going forward.

And the statistic that I saw is that 90% of US taxpayers take the standard deduction. So this is significant. It means you don’t need to keep receipts. It means when you wanna donate things to Habitat for Humanity or Goodwill, it’s probably not necessary to pass that over to Stephen. Probably don’t need to hand over receipts for $25 charitable contributions. Other than, we will get to it, there is a now $2,000 thing.

Tommy Blackburn: There’s a wrinkle.

John Mason: There’s a wrinkle. Standard deduction’s a good thing. It helps renters, it helps people with low mortgage interest, it helps seniors with homes that are paid off. I think in general, I give this a thumbs up. I’m excited about this and I think it does go a long ways to keeping returns simple for a lot of folks. 

Stephen Kimberlin: Yeah, absolutely. Yeah, I think, again, it’s all positive. It keeps things simple and it’s fairly generous compared to sort of the thresholds in prior years. So it makes a lot of sense for a lot of standard kind of tax situations.

But again, there are some carve-outs and some opportunities there where we can still extract some benefits from some deductions as well.

Tommy Blackburn: And, John, I don’t know if we were planning on talking about this later. It just popped in my mind. This is, and this is one of those things that’s not gonna apply to most of our clients, folks listening to this.

But you just never know, and it’s just good information, I think, is that I’m thinking about that haircut now for itemized. And I guess maybe that’ll be if we start talking more about itemized, but it used to be a thing called the PEAs, PEAs deduction, where they would begin based on income, limiting your, or kind of clawing back some of your itemized deductions.

And now I just, the high level, I’m sorry if I took us down this road before we meant to get there, but I’m already going down it. If you’re in the highest tax bracket, that 37% tax bracket starting in 2026 going forward, they will begin to limit it. The value you get to 35%, so treat you as if you’re in the 35%.

Earlier, we talked about deductions in credits. So let’s say we had a $10,000 deduction, itemized deduction. Current 2025, if we are in that highest bracket, which I don’t know the income to get you there, but let’s just say a million dollars of income put you there. That $10,000 itemized deduction, 37%, $3,700 reduction in your taxes. 2026, they’re gonna say, “That’s great that you did, you killed it again, you’re winning the game here.” And you’re in that 37% tax bracket, but you’re only gonna get a 35% deduction. So now that 10,000 only got you 3,500, you lost $200 value there, just a quick, and don’t expect this to impact many people at large in the country, let alone retirees. That would be an amazing retirement if we’re hitting a million dollars of income regularly in retirement. But hey, we want to talk to you if that is you.

John Mason: For sure. I think that’s a great point, Tommy. And then, the standard deduction being extended or made permanent also did things, like if you went back to 2016, we had dependent exemptions.

I don’t remember. It was like $4,000 per dependent or something, if my memory serves. All that’s gone, so I don’t know if that’s a good thing or bad thing, but that is extended, like we didn’t go back to that area where we had the lower standard and then you would start tacking on dependent exemptions and whatnot.

So 90% take standard. That’s great. There is a new seniors, actually, so those 65 and older. Still have the $1,600 boost per person for being over age 65. So like for instance, Tommy’s family, if they take the standard deduction, it’s 31,500. But if him and his spouse were 65 or older, they would get $3,200 more deduction on top of that. So that’s made permanent as well.

Tommy Blackburn: And going back to the standard of the keeping the current nice standard. They did give a boost, which I think you kind of mentioned, but just, so the 31,500, that was a $1,500 increase. So that is in a way an immediate quote, unquote, shot in the arm of you got an extra $1,500 on that standard deduction, which would of course, lower your tax liability depending on where your bracket is.

So that’s, again, another good thing.

John Mason: And then the next one I think we wanted to talk about is the age 65 new enhanced deduction. So, which is $6,000 per person. I think incorrectly you could call this a standard deduction.

Tommy Blackburn: I think that would be, and I was almost wondering if we probably gotta keep going down it, but I almost was wondering if we break this up into like below, below the line, like maybe in the next episode we’ll hit some of these new below, below the line deductions I’m calling them, but let’s keep on it. But you’re right, it is not part of the standard deduction.

Stephen Kimberlin: Yep. It’s an addition to that.

So it could be, either if you have a standard deduction or you itemize, there’s an additional deduction for those who qualify. So it’s kind of a third, another level if you will, on top of the standard, it does phase out at a, I’d call it a fairly low threshold, or starts to phase out with, $150,000 modified adjusted gross income.

So not everyone will get to take advantage of it, but if you are maybe on a fixed income or in a retiree status, you might be under the threshold where this is gonna provide a lot of benefits for you.

John Mason: And this is the exact example of a torpedo that we were talking about earlier, Stephen, is somebody that has a hundred, and modified adjusted gross used to be a really complicated thing. It still is. It says, take your adjusted gross income and modify it based on these variables. This legislation is pretty clear that MAGI or modified adjusted gross equals AGI or adjusted gross for most of us. So there’s not really too many modifiers that we need to worry about, but for somebody with 150k adjusted gross income, they would be a prime target for us to do like a 30 or $40,000 Roth conversion because they’re firmly in the 22% that it’s an awesome opportunity to convert up to the point where Medicare kicks in, but now all of a sudden we’re losing a $12,000 deduction, plus we’re playing 22% on top of it. That deduction just got really not as sexy or cool as it was before. Did I say deduction or conversion? Because I meant conversion. Hopefully, I said the right word.

Tommy Blackburn: It’s really gonna have to be looking tactically every year. And then also looking at the longer strategic picture because, yeah, we need to realize that we could be losing this enhanced senior deduction, but we also, we can’t get always caught up in that. So we really have to look at the big picture here, like maybe, yeah, now we’re effectively converting at 24%.

We thought we were in 22, but we’re losing this deduction to put us at 24%. But maybe that’s still a good place to be, but we gotta keep Medicare premiums, IRMAA, on IRMAA in mind, like we’ve got a lot to think about there. So we just need to be aware. I think while we’re going down it, so this is for those who are age 65 and you had to be 65 by the end of the year. So if you’re December 31, you’re age 65, you get the benefit of this deduction, which I was actually working on, a tax projection conversation with a client yesterday, as we were filing for Medicare. So wrapping all these things together and husband turned 65 in November, wife in December, and I was like, “Oh yeah, if you get both of these…”

Thankfully, they’re in a place where we’re gonna get those benefits. So that was nice. It helped pad the Roth conversion where now their tax liability is lower than they were planning on. I think it’s worth talking about a little bit, John, we talked about it beforehand, was, Stephen, you’ve probably seen this as well.

This has been billed, this enhanced senior deduction, in the media, I think at least, and maybe politically as well as making social security tax-free. And while we love deductions and that helping our clients, this to us has absolutely nothing to do with social security.

Stephen Kimberlin: No, and there’s typically a lot of deductions for older taxpayers.

For example, Virginia has an age-based deduction as well. So I wouldn’t say it’s actually a wholly new concept or something that was supposed to have some sort of agenda to it, ’cause again, as John mentioned earlier, there was already a little bit of an adjustment or enhancement to your standard deduction anyway, so it’s another deduction that’s available.

But that’s not unheard of before, ’cause again, Virginia’s had their own, specifically to the Virginia return for quite a while now.

John Mason: That’s a great point. So in Virginia, the tax rate’s 575. And in Holistiplan, when we do conversions, I know I have a couple people every year, they’re in like the 12% or 22% bracket, but they’re in an effective 11% Virginia, because they’re getting–

Tommy Blackburn: They lose their age deduction.

John Mason: Yeah. Which is, $24,000 of income in Virginia. It’s 12 per person. So now that person is likely going to also be the one that’s impacted by the phase out of this age 65 boost. So that’s pretty significant to think about. And I also don’t know, this is a good question. So AGI is typically what transfers to the Virginia return.

This age 65 boost is a below the AGI reduction. So this should not impact the Virginia return at all, I would guess.

Stephen Kimberlin: Correct. Correct. It’d be a federal only adjustment, similar to, again, the standard deduction or itemized deductions that obviously has an effect on Virginia, but it’s not a one-for-one. It doesn’t come over one for one to the Virginia return.

John Mason: So this 65 boost, guys, phases out or ends through 2028. So 2028, and then it’s gone. The phase out starts at 150k, ends at 250. For those who qualify for all of the goodies, 46,700 would be your new deduction, standard deduction, age 65 boost, plus this age 65 boost, boost.

You’re typically 46, 7 is what you would be subtracting. And then, Tommy, to your point, the frustrating part about this is that it has nothing to do with social security and in fact, everything like the provisional income calculation, the amount of social security that’s taxable, all of these things have already happened, and then we’re gonna subtract $12,000 after all of the negative things have happened, after we’ve hit a IRMAA bracket, after we’ve went through the tax torpedo, after we’ve exceeded the, all of these thresholds, then we’re gonna maybe be able to subtract something so you can tie it to social, you can tie it to FERS, you can tie it to investment income. It’s a subtraction, but it’s certainly not tied to Social Security

Tommy Blackburn: And it’s fragile. I think, to your point, that it’s based on an income number where everything is happening before it ever comes in. So, depending on, yeah, if we have required minimum distributions, we do Roth conversions, we kick off some capital gains, realize some interest. All of a sudden this deduction could easily begin phasing down. And of course, not impacting whether your social security is taxable or not taxable. I was listening to a stat this morning from what I would say is respectable sources, and they said that the estimate was two-thirds of people before this OBBA, one big, beautiful bill passed, two-thirds of Social security recipients were not taxed on their Social Security. And now the estimate would be maybe 75 to 80% of people will effectively not be paying income tax that are in, receiving social security. So you’re still left with about a quarter to 20 to 25% of people receiving social security will still be taxed on their social security to some degree, which as we joked about for, and I say joke.

I mean, I guess just the reality, most of our clients are gonna fall. Most, not all. We do have some clients who will get the benefit of this and effectively not be taxed on their social, however you want to view it, they’ll get the benefit of it, but most of our clients are probably gonna still be taxed some shape or form. That’s just who tends to, who we tend to work with. They tend to have strong incomes, good assets. So, them being taxed on social security certainly didn’t change tremendously by these provisions. John, you are certainly the mc and coordinating here, but I’m thinking we are at about 45 minutes, maybe we come back and we can hit some charity.

We can hit some state and local tax deduction, as well as some of the other quote-unquote goodies that came out of this bill.

John Mason: I love it, guys. Let’s break and then we’ll come back for episode two of the one big beautiful bill. All right, so audiences, is our content helping you make informed decisions? Do you feel more educated and empowered?

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