Key Changes in OBBBA Enhance Saving Options
By Lisa Haberman, Ed.D., QKA, ChFC, CLU
The One Big Beautiful Bill Act (OBBBA), passed by Congress on July 3, 2025, introduces several significant changes aimed at enhancing retirement savings options and financial security for individuals. Here are the key provisions that retirement savers should be aware of.
Introduction of "Trump Accounts"
What are Trump Accounts and how do they work?
Trump Accounts are Traditional IRAs designed to provide financial support from birth to retirement. Here’s a breakdown of their key features.
Eligibility and Establishment: These accounts can be created by the Treasury Secretary for individuals under age 18 with a Social Security number. Parents or guardians can also establish these accounts with a qualified rollover contribution, which is an amount rolled over directly from one Trump account to another Trump account for the same child.
Contributions: Contributions are limited to $5,000 per child per calendar year until the year before the child turns 18. Contributions are not tax deductible, and starting in 2028, the limit will be indexed for inflation. Any accrued earnings will remain tax deferred until distributed.
Distributions: Distributions are generally prohibited until the child turns 18, except for specific exceptions (e.g., qualified rollover contributions). After age 18, distributions follow Traditional IRA rules.
Extension of ABLE Account Provisions
How does the OBBBA affect ABLE accounts?
The OBBBA makes permanent several key provisions affecting ABLE accounts (including the following), which were set to expire at the end of 2025.
Additional Contributions: Employed eligible individuals can contribute amounts above the annual limit, capped at the prior year’s federal poverty level or the beneficiary’s yearly compensation, whichever is less.
Nonrefundable Saver’s Credit: Eligible individuals making qualified contributions to their ABLE account can receive a nonrefundable Saver’s Credit, with the annual limit for the credit increasing to $2,100 in 2027.
Enhancements to 529 Plans
What changes does the OBBBA bring to 529 plans?
The OBBBA introduces several enhancements to 529 education savings plans, including the following.
Increased K-12 Expense Limit: The annual limit for using 529 plan assets for K-12 expenses increases from $10,000 to $20,000 starting in 2026.
Expanded Definition of Qualified Expenses: The definition now includes expenses for postsecondary credentialing—such as tuition, fees, books, and supplies required for recognized postsecondary credential programs.
Expansion of Health Savings Accounts (HSAs)
What are the new provisions for HSAs under the OBBBA?
The OBBBA includes two significant HSA provisions.
Direct Primary Care Arrangements: Individuals with high deductible health plans (HDHPs) can enroll in direct primary care arrangements while remaining HSA eligible, provided the monthly fee does not exceed $150.
Telehealth Safe Harbor: The special telehealth safe harbor for HSA-compatible HDHPs, which expired in 2024, is permanently extended and made retroactive.
Changes to Executive Pay and Tax-Exempt Compensation
How does the OBBBA affect executive pay and tax-exempt compensation?
The OBBBA introduces new rules for executive pay and tax-exempt compensation:
Aggregation Rule for Executive Pay: The $1 million deduction limit for employee pay now applies to specified covered employees within a controlled group of publicly held corporations.
Expanded Tax on Excess Compensation: The 21 percent excise tax on compensation over $1 million now includes all current and former employees of applicable tax-exempt organizations.
Tax Rate Changes and Other Adjustments
What are the key tax rate changes in the OBBBA?
The OBBBA includes several tax rate changes and adjustments:
Permanent Reduced Individual Tax Rates: The reduced individual tax rates from the Tax Cuts and Jobs Act (TCJA) are made permanent, with additional inflation adjustments.
Enhanced Standard Deduction: The increased standard deduction from the TCJA is made permanent and further enhanced.
Qualified Business Income Deduction: The 20 percent deduction for qualified business income (QBI) is made permanent, with increased phase-in limits and a new minimum deduction for active QBI.
What are the next steps for the OBBBA?
The bill was signed into law on July 4, 2025. Stay tuned for the latest developments and how these changes may affect your retirement savings strategy. And for more detailed information on the OBBBA, see our Washington Pulse - 2025 Tax Bill Provides Key Changes for Savers.
