Managing New Tax Changes to Optimize Your Financial Plan
As former Senator Max Baucus once observed, "tax complexity itself is a kind of tax." While this is true every year, it’s especially relevant in 2026 as significant policy shifts create new opportunities—and a few new hurdles—for your financial plan.
From new restrictions on retirement "catch-up" contributions to a massive increase in the state and local tax deduction, understanding these changes is essential. Rather than viewing tax laws as a series of isolated rules, I want you to see them as a way to refine your strategy and strengthen your long-term security.
Catch-Up Contributions Face New Roth Requirements
One of the biggest changes this year involves how you "catch up" on your retirement savings. For years, if you were 50 or older, you could contribute extra money to your 401(k) to boost your nest egg. This is a vital tool for anyone who started saving late or simply wants to maximize their security before hanging up the cleats.
Traditionally, you could choose to make these contributions pre-tax (lowering your current tax bill) or Roth (paying taxes now to get tax-free income later). However, starting in 2026, high earners face a new restriction:
The Rule: If you earned $150,000 or more in FICA wages last year, any catch-up contributions you make must be Roth contributions.
The Limits: The standard catch-up amount for those 50+ has increased to $8,000.
The "Super" Catch-Up: If you are between the ages of 60 and 63, you may be eligible for an even higher "super" catch-up of $11,250, provided your employer’s plan allows it.
Why does this matter? If you’ve always used pre-tax contributions to lower your taxable income, this change might feel like a bit of a "tax hike" today because you'll no longer get that immediate deduction. However, there’s a silver lining: those funds will grow tax-free and can be withdrawn tax-free in retirement. Think of it as paying the "toll" now so you can enjoy a smooth, tax-free ride later.
The SALT Deduction Cap Has Been Raised Significantly
For years, many of my clients in high-tax states felt like they were being taxed twice. This was due to the $10,000 cap on State and Local Tax (SALT) deductions. But there is good news for 2026: The "One Big Beautiful Bill Act" (OBBBA) has significantly raised this limit.
New Limits: The SALT cap has jumped from $10,000 to $40,400 for the 2026 tax year.
The Opportunity: This change makes itemizing deductions a winning strategy for many more households. For years, the standard deduction was so high (and the SALT cap so low) that most people didn't bother itemizing. Now, the math has changed.
Ric’s Note: If you live in a state like California and have a mortgage, you might find that your total deductions now far exceed the standard deduction ($16,100 for singles; $32,200 for married couples). This is a "window of opportunity" because this higher cap is currently scheduled to revert back to $10,000 in 2030.
A New "Senior Bonus" for Those 65+
There is a brand-new tax break designed specifically for seniors that I’m calling the "extra floor" in your financial house. For the tax years 2025 through 2028, there is a Senior Bonus Deduction.
The Benefit: You can take an additional $6,000 deduction ($12,000 for married couples if both are 65+) on top of your standard or itemized deductions.
The Phase-Out: This bonus is designed for middle-income earners. It begins to phase out if your modified adjusted gross income (MAGI) is above $75,000 (single) or $150,000 (married).
This is particularly powerful because it can help lower your overall income to a level where less of your Social Security becomes taxable. It’s like a "double win" for your cash flow.
Putting the Pieces Together
The real trick to tax planning isn't just knowing the numbers; it’s knowing how they dance together. For example:
Strategic "Bunching": Since you might be itemizing now due to the higher SALT cap, you might consider "bunching" your charitable donations into a single year to blow past the deduction threshold even further.
Watch Your AGI: Decisions that increase your income (like doing a Roth conversion) could potentially phase you out of that new $6,000 Senior Bonus.
The 2026 tax landscape is a bit of a puzzle, but with the right pieces in place, it can lead to a much stronger foundation for your retirement. My goal is to help you navigate these "storms" so you can focus on what really matters: enjoying the life you’ve worked so hard to build.
