Understanding 2026 Tax Changes and Your Financial Plan

Tax rules can be confusing. As one former Senator said, "tax complexity itself is a kind of tax." This is especially true in 2026 when several important tax rules are changing. These changes affect retirement savings, tax deductions, and overall financial planning. Understanding what's new can help you make better money decisions this year.

These changes are particularly important for people over 50 with higher incomes. Instead of seeing tax changes as problems, you can view them as chances to improve your financial strategy.

New rules for retirement catch-up contributions

Starting in 2026, there's a big change for retirement savers. Workers who are 50 or older can normally add extra money to their retirement accounts beyond regular limits. These are called "catch-up contributions." They help people save more for retirement, especially if they started saving late or need to rebuild their savings.

Here's what's new: If you earn $150,000 or more per year, you must now make catch-up contributions as Roth contributions. Roth contributions use money that's already been taxed. The money grows tax-free and you won't pay taxes when you take it out in retirement. The catch-up amount is now $8,000 for people 50 and older. People aged 60-63 can contribute $11,250.

Before these changes, high earners could make pre-tax catch-up contributions, which lowered their taxes right away. Now, they must use after-tax money, which means higher taxes today. However, you'll benefit from tax-free money in retirement.

Higher deduction limits for state and local taxes

There's good news about the state and local tax (SALT) deduction. This deduction lets you reduce your federal taxable income by the amount you pay in state and local taxes. Since 2017, this deduction was capped at $10,000. Now it has been raised to $40,400 for 2026. This helps people who live in states with high taxes, like California, New York, and New Jersey.

This change makes itemizing deductions more valuable. When you file taxes, you choose between the standard deduction or itemizing. The standard deduction for 2026 is $16,100 for single people and $32,200 for married couples. Itemizing means you add up specific expenses like mortgage interest, charitable donations, and state and local taxes.

Here's a simple example: A married couple in California pays $35,000 in state taxes, gives $8,000 to charity, and pays $12,000 in mortgage interest. Under the old $10,000 cap, their itemized deductions totaled $30,000, which was less than the $32,200 standard deduction. Now they can deduct the full $35,000 in state taxes, bringing their total itemized deductions to $55,000. This saves them significantly more on taxes.

How these changes work together

Tax planning gets complicated because these changes affect each other. For example, the new Roth catch-up rule increases your taxable income, which could make more of your Social Security benefits taxable. There's also a new "senior bonus" deduction of $6,000 for single filers aged 65 and older (or $12,000 for married couples). However, this bonus phases out at higher income levels.

The higher SALT deduction creates planning opportunities. If you're close to the itemizing threshold, you might consider strategies like grouping charitable donations into one year or timing other deductible expenses. Remember that the higher SALT cap is temporary and goes back to $10,000 in 2030.

Tax rules for 2026 and in general are complex and affect different households in different ways. This is just an example of how it’s important to look at these changes in whole and planning carefully to help you reach your financial goals.

References

1. https://taxpolicycenter.org/briefing-book/what-are-itemized-deductions-and-who-claims-them

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