Get ready for some major shifts in retirement planning as we head into 2026! The new year brings more than just inflation adjustments; it's a game-changer for savers and retirees alike. With the ongoing implementation of Secure 2.0 and the impact of the One Big Beautiful Bill Act, there's a lot to unpack. Let's dive into three key changes and explore some strategic moves to consider.
Catch-Up Contributions Get a Roth Twist for High Earners
A provision in Secure 2.0 legislation introduces a new rule for high-income earners over 50 investing in 401(k) plans. Starting next year, these individuals must make their catch-up contributions to the Roth option within their plans, rather than the traditional tax-deferred route. For 2026, 401(k) investors under 50 can contribute $24,500, with an additional $8,000 catch-up for those over 50, totaling $32,500. And for those aged 60-63, there's an even bigger boost with "super-catch-up" contributions, allowing for a total of $35,750 in 2026.
Here's the catch: not all 401(k) plans offer the Roth option. If your plan doesn't, you might be locked out of catch-up contributions entirely. In this case, consider making a full IRA contribution alongside your 401(k) baseline. For those over 50, the IRA contribution limit is $8,600 in 2026. If you have the means to invest more, steer the excess to a taxable brokerage account.
But here's where it gets controversial: what if you prefer traditional tax-deferred contributions over Roth? Secure 2.0 forces higher-income older workers into Roth for catch-up contributions. So, if that's your preference, contribute the base 401(k) limit to the traditional option and direct your catch-up to the Roth.
Higher Deductions for State and Local Taxes (SALT)
Thanks to the One Big Beautiful Bill Act (OBBBA), taxpayers can now deduct a higher amount of state and local taxes. The SALT deduction cap, previously at $10,000, has been adjusted to $40,000 starting in 2025, but it reverts to $10,000 from 2030 onwards. This change has implications for retirement planning, especially for high-income taxpayers.
The SALT deduction phases out for those with modified adjusted gross incomes (MAGI) over $500,000, and it drops back to $10,000 for MAGI over $600,000. So, if you're a high-income earner and close to these thresholds, consider strategies to keep your income below the phase-out range. Contributing to traditional tax-deferred retirement plans and maxing out health savings accounts can help reduce your MAGI. Additionally, qualifying for the higher SALT deduction might discourage strategies that increase income, like converting traditional IRAs to Roth IRAs.
However, it's crucial not to get caught up in the details and lose sight of the bigger picture. While deducting a larger portion of SALT may be appealing, especially for those in high-tax areas, long-term strategies like making Roth contributions or converting IRAs might still make sense, even if they limit the deductibility of SALT.
A New Deduction for Seniors
Starting this year and lasting until 2028, individuals aged 65 and above can benefit from a new $6,000 deduction. This deduction is available to both itemizers and non-itemizers, and it doubles to $12,000 for married couples filing jointly, provided both partners are 65.
For non-itemizers, this new deduction stacks on top of the standard deductions already in place. In 2026, the standard deduction for single filers is $16,100, with an additional $2,050 for those over 65. So, the new deduction for single filers over 65 amounts to $24,150, and for married couples filing jointly, it's $47,500, assuming both partners are 65.
However, higher-income seniors should take note of the income limits. The deduction is reduced for single filers with MAGI over $75,000 and married couples with MAGI over $150,000, and it disappears entirely for singles with MAGI over $175,000 and married couples with MAGI of $250,000 or more.
The extra deduction for those over 65 is accessible to both itemizers and non-itemizers, so there's no need for complex strategizing. But the income limits may limit its usefulness for higher-income seniors. For early retirees with control over their taxable income, it might be tempting to keep modified adjusted income low to qualify for the full deduction. But it's important to balance this with other valuable tactics during those early retirement years, such as converting traditional IRA balances to Roth.
These changes highlight the evolving landscape of retirement planning. As always, it's crucial to stay informed and consider your unique financial situation when making strategic decisions. So, what do you think? Are these changes a step in the right direction, or do they raise more questions than answers? Feel free to share your thoughts and experiences in the comments below!
