The One Big Beautiful Bill Act, signed into law on July 4th, is one of the most sweeping economic overhauls in recent history. Whether you’re a working parent, a retiree, or a small business owner, this legislation is likely to affect your household budget, tax strategy, and long-term financial planning.
At the heart of the law is an extension of the 2017 tax cuts, now made permanent. This extension will create certainty for many as the discussion of qualified retirement funds and their taxation in the future has created much doubt and urgency to timely tax planning. This legislation includes lower income tax rates, an expanded standard deduction including a $6000 per person additional deduction for those over 65, and a boost to the Child Tax Credit increasing from $2,000 to $2,200 per child starting in 2025. A new rule also disqualifies children and parents without Social Security numbers, which will particularly impact mixed-status households.
One of the most talked-about features of the bill is the introduction of “Trump Accounts” - a $1,000 tax-deferred investment account automatically opened for every child born between 2025 and 2028. These accounts are invested in a U.S. stock index fund and roll into a traditional IRA when the child turns 18. Parents can contribute up to $5,000 annually, and employers may add an additional $2,500 per year. For families focused on building generational wealth or setting their children up for a strong financial future, these accounts present a unique new saving tool.
To balance the cost of tax relief and new programs, the law makes deep cuts to Medicaid and food assistance programs. Medicaid faces over $900 billion in reductions over the next decade, and new work requirements could result in millions losing coverage. For those in rural areas - where hospitals often rely on Medicaid funding - this could lead to service reductions or even closures.
The bill also shifts national energy priorities, expanding oil, gas, and coal development on federal lands while reducing credits and deductions of clean energy choices. If your investment portfolio includes renewable energy or ESG-focused holdings, these changes could impact long-term performance and risk profiles. In the effort of balanced investment portfolio design that has leaned on energy primary and subsidiary companies for nearly a decade, a transition to different investment holdings will need to be considered.
Finally, the law raises the debt ceiling and is projected to add between $3 and $5 trillion to the national deficit. All this said, and awaiting announcements from the FED on interest rate considerations in September, we hold our breath on the short-term outlook to borrowing and interest bearing investments, in whole.
The bottom line? The One Big Beautiful Bill offers answers to concerning questions about taxes and brings forward concerns to the “Main Street” effect on the short-term economy. As we have recently announced in our office, “Taxes were on sale” the last few years…..now the “sale has been extended.” If you haven’t reviewed your financial strategy recently, now is the time.
Enjoy the rest of the summer.
-Blessings,
Dan