The One Big Beautiful Bill Act (OBBBA) extended several individual provisions of the Tax Cuts and Jobs Act (TCJA) beyond 2025. That extension removed what many federal retirees expected to be a sharp tax-rate increase in 2026.
For years, planning conversations assumed higher brackets were inevitable. OBBBA changed that assumption. The individual tax rate structure in place today largely carries forward. Although certain provisions still require review, the anticipated 2026 sunset is no longer driving most retirement tax decisions.
That shift directly affects how OBBBA 2025 TCJA extension planning should be approached.
Why This Matters for Federal Retirees
Tax brackets influence nearly every retirement decision. With OBBBA in place, near-term federal tax rates appear broadly stable rather than predictably higher in 2026.
That stability shows up in decisions around:
- Roth versus Traditional contribution choices
- Roth conversion timing
- Withholding elections in early retirement
OBBBA preserves the core rate structure while adjusting certain deduction limits and thresholds. Those changes will not affect every retiree, but they can alter itemized deductions and income phase-outs in specific situations.
Provisions affecting the state and local tax (SALT) deduction also changed, with effects that vary by state and filing status. Federal retirees should account for how their state taxes retirement income when reviewing their plan.
With rates extended, planning should be based on current law. Updating projections and withholding matters more than preparing for an increase that did not occur, particularly for federal retiree tax planning in 2026.
Roth vs. Traditional: How to Decide Now
Today’s tax brackets are no longer a short-term placeholder. They form the baseline for planning.
Traditional contributions tend to work when taxable income drops in retirement. That often happens for retirees who rely mainly on Federal Employees Retirement System (FERS) or Civil Service Retirement System (CSRS) benefits and take only modest withdrawals from savings.
Roth contributions, or a partial Roth approach, may be a better fit when pensions, required minimum distributions (RMDs), or Medicare income-related monthly adjustment amount (IRMAA) thresholds push retirement income into the same — or higher — tax brackets faced while working.
In some cases, contributions end up split between Roth and Traditional accounts because future income levels are hard to predict with precision. That mix leaves room to adjust withdrawals later without locking every dollar into a single tax treatment.
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Roth Conversions: Timing After OBBBA
After OBBBA, Roth conversions primarily come into play when future RMDs or Medicare IRMAA thresholds become an issue.
Opportunities often appear in years when taxable income is already lower than usual. That frequently includes the period after retirement but before Social Security begins or years with unusually large deductions that create room in a lower marginal bracket.
What no longer holds is the idea that conversions should be rushed to avoid a statutory tax increase in 2026. With current rates extended, conversions are better evaluated year by year and sized with marginal bracket leverage in mind. When approached this way, Roth conversions continue to play a meaningful role in OBBBA 2025 TCJA extension planning.
Withdrawal Order and RMD Coordination
The mix of income sources in a given year determines how much of a retiree’s income is taxable. For many federal retirees, that means coordinating FERS or CSRS benefits, Social Security, and withdrawals from the Thrift Savings Plan (TSP) or individual retirement accounts (IRAs) so income doesn’t bunch into a few high-tax years.
In some cases, taking taxable withdrawals earlier can keep RMDs from piling up later, while Roth balances remain available for years when additional flexibility is needed. That sequencing issue is relevant to federal retiree tax planning for 2026.
Planning With Current Law In Mind
With the TCJA rate structure still in place under OBBBA, retirement planning needs to start from the rules that actually apply today, not from assumptions about a rollback that hasn’t occurred.
OBBBA provides rate stability for now, but federal tax policy remains subject to change. Retirement plans should account for today’s rules without assuming they are permanent.
If you need help with tax planning, reach out to the team at Serving Those Who Serve at [email protected].
The information has been obtained from sources considered reliable but we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of Serving Those Who Serve writers and not necessarily those of RJFS or Raymond James. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Investing involves risk and you may incur a profit or loss regardless of strategy suggested. Every investor’s situation is unique and you should consider your investment goals, risk tolerance, and time horizon before making any investment or financial decision. Prior to making an investment decision, please consult with your financial advisor about your individual situation. While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors of RJFS, we are not qualified to render advice on tax or legal matters. You should discuss tax or legal matters with the appropriate professional. **
TSP: The Thrift Savings Plan (TSP) is a retirement savings and investment plan for Federal employees and members of the uniformed services, including the Ready Reserve. The TSP is a defined contribution plan, meaning that the retirement income you receive from your TSP account will depend on how much you (and your agency or service, if you're eligible to receive agency or service contributions) put into your account during your working years and the earnings accumulated over that time. The Federal Retirement Thrift Investment Board (FRTIB) administers the TSP.ÐMDs: RMD's are generally subject to federal income tax and may be subject to state taxes. Consult your tax advisor to assess your situation.
IRAs: Contributions to a traditional IRA may be tax-deductible depending on the taxpayer’s income, tax-filing status, and other factors. Withdrawal of pre-tax contributions and/or earnings will be subject to ordinary income tax and, if taken prior to age 59 1/2, may be subject to a 10% federal tax penalty.
Roth IRA: Like Traditional IRAs, contribution limits apply to Roth IRAs. In addition, with a Roth IRA, your allowable contribution may be reduced or eliminated if your annual income exceeds certain limits. Contributions to a Roth IRA are never tax deductible, but if certain conditions are met, distributions will be completely income tax free. Roth IRA owners must be 59½ or older and have held the IRA for five years before tax-free withdrawals are permitted.
Roth Conversions: Unless certain criteria are met, Roth IRA owners must be 59½ or older and have held the IRA for five years before tax-free withdrawals are permitted. Additionally, each converted amount may be subject to its own five-year holding period. Converting a traditional IRA into a Roth IRA has tax implications. Investors should consult a tax advisor before deciding to do a conversion.
