Senator Max Baucus once noted that "tax complexity itself is a kind of tax." This observation rings particularly true heading into 2026, when substantial shifts in tax policy present both challenges and opportunities for financial planning. Changes affecting retirement savings, deduction limits, and other provisions make it critical for investors to understand how these modifications impact their financial strategies.
These developments are especially relevant for higher-income individuals approaching or past age 50. By examining these policy updates as integrated components of a comprehensive strategy rather than isolated changes, investors can position themselves to make more informed decisions throughout the year.
High earners face new retirement contribution rules
A notable modification for 2026 centers on catch-up contributions to retirement accounts. Employees 50 and older have traditionally been permitted to save beyond standard contribution limits, providing valuable flexibility for those building retirement funds. Beginning in 2026, individuals with Federal Insurance Contributions Act (FICA) wages of $150,000 or above must direct all catch-up contributions to Roth accounts, meaning these funds are contributed after taxes but grow and can be withdrawn tax-free later.
This adjustment eliminates the immediate tax reduction previously available through pre-tax catch-up contributions for high earners. Someone earning $150,000 who formerly reduced current taxable income through pre-tax contributions will now face higher tax liability in the contribution year, though they gain the benefit of tax-free withdrawals during retirement.
State and local tax deductions expand considerably
The state and local tax (SALT) deduction represents another significant change. Previously limited to $10,000 since 2017, this cap has increased to $40,400 for 2026 under the One Big Beautiful Bill Act (OBBBA), with annual 1% increases through 2029. This expansion particularly benefits residents of states with higher tax burdens.
The elevated cap makes itemizing deductions worthwhile for more households. When combined with other itemizable expenses like mortgage interest and charitable contributions, many taxpayers who have been using the standard deduction may find itemizing more advantageous. For example, a married couple with $35,000 in state taxes, $12,000 in mortgage interest, and $8,000 in charitable giving would see their itemized deductions total $55,000, exceeding the $32,200 standard deduction by a substantial margin.
Coordinating changes with broader financial goals
Understanding individual tax changes matters less than recognizing how they interact within your complete financial picture. For retirees, this includes considerations around Social Security taxation, which hasn't seen threshold updates in decades. Income increases from required Roth contributions could push more Social Security benefits into taxable territory.
Additionally, a new senior bonus deduction of $12,000 for married couples or $6,000 for individuals aged 65 and older applies from 2025 through 2028, though it phases out at higher income levels. The expanded SALT deduction creates opportunities for strategic planning, such as concentrating charitable giving or timing deductible expenses, though these benefits expire in 2030.
The bottom line? Tax changes for 2026 create a multifaceted environment requiring integrated planning. Taking a comprehensive approach to these updates can help strengthen long-term financial outcomes.
If you’re thinking about how current earnings trends fit into your broader financial picture, we’re happy to explore that perspective with you.
References
1. https://taxpolicycenter.org/briefing-book/what-are-itemized-deductions-and-who-claims-them
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