The New Enhanced Senior Deduction: What Retirees Need to Know

A New Way Seniors Can Save on Taxes

If you’re 65 or older, there’s some exciting news that could make a real difference in your retirement years. Starting in 2025, the Enhanced Senior Deduction goes into effect, and it may save you thousands in taxes.

Most Americans already take the standard deduction, which reduces taxable income. Retirees get a little extra—an additional $1,600 per person once they turn 65. But now, thanks to a new law, seniors may qualify for an extra $6,000 deduction between 2025 and 2028.

That’s not just pocket change—it’s a meaningful boost that can keep more of your retirement income in your hands instead of going to taxes.

⬇️ Watch our Wealth Wednesday video for a breakdown, then keep reading for the details. ⬇️

Who Qualifies?

The deduction is designed for retirees with moderate incomes. Here’s the breakdown

• Married couples filing jointly: Adjusted gross income under $150,000.
• Single filers: Adjusted gross income under $75,000.

For many, this means a combined deduction package of over $46,000 (including the regular standard deduction, the age 65 add-on, and the new enhanced deduction).

Why This Matters

Retirees often rely on Social Security and withdrawals from retirement accounts like IRAs or 401(k)s. These income sources can push you into higher tax brackets, which means paying more than you might expect.

The Enhanced Senior Deduction lowers your taxable income, helping:

• Reduce taxes on Social Security benefits.
• Keep you in a lower tax bracket.
• Free up room for tax planning strategies, like Roth IRA conversions.

Think of tax brackets like buckets of water. You fill one bucket at a lower tax rate before spilling into the next one at a higher rate. This new deduction helps keep more of your “water” in the lower-rate buckets.

Realistic Examples

Let’s see how this plays out for two couples.

Planning Opportunities

The deduction isn’t just about lowering your tax bill this year—it opens doors for future planning.  One of the biggest strategies? Roth IRA conversions.

Here’s why this matters:

• Growth on money converted to a Roth IRA is not taxed (provided you follow the rules.)
• Future qualified Roth withdrawals don’t count as taxable income.
• It can reduce the size of your Required Minimum Distributions (RMDs) later, which could otherwise push you into a higher tax bracket.
• It’s also a great estate planning tool, since heirs can inherit Roth accounts tax-free.

By using the Enhanced Senior Deduction to stay in a lower tax bracket, you may have more room to convert some IRA money into Roth accounts at a cheaper tax rate.

Here's a visual illustration of what this would mean for Tom and Lucy...

With the new senior standard deduction, Tom and Lucy can now convert $8,650 from an IRA to a Roth IRA at a 12% tax rate.  Prior to this, all conversions would have been taxed with a 22% federal tax cost.

Taking Action

So, what should you do?

1. Check your income against the limits to see if you qualify.
2. Run the numbers—what does this deduction mean for your taxable income?
3. Consider Roth conversions if you have space in a lower bracket.
4. Review your retirement plan—this deduction could shift the way you draw income.

Most importantly, don’t let this opportunity pass by without a plan. This isn’t just a short-term tax break—it could impact your financial picture for decades to come.

Final Thoughts

The Enhanced Senior Deduction is one of the most meaningful tax breaks retirees have seen in years. It’s a chance to save money, lower your tax burden, and create smart strategies for the future.

At Commonwealth Financial Services, we specialize in helping retirees understand opportunities like this and put them to work. If you’d like a personalized look at how this deduction could help you, reach out to one of our advisors.

Smart planning today means more confidence and security in the years ahead.