What’s on Deck for Taxes in 2026?

Key Concepts

• SALT Deduction: State and Local Tax deduction, temporarily increased to $10,000 to $40,000 (under $500,000 income) but set to revert.
• Senior Tax Deduction: $6,000 deduction for those age 65+, with income limits.
• Charitable Giving Changes: New deduction for non-itemizers ($1,000/$2,000 for married filing jointly) and a deduction reduction/floor for high-income itemizers.
• Retirement Contribution Limits: Increased limits for 401(k)s and IRAs, with inflation adjustments.
• Roth 401(k) Mandate: High-income earners (over $150,000 W-2) must contribute catch-up contributions to Roth 401(k)s.
• QCD (Qualified Charitable Distribution): Increased limit for direct charitable donations from IRAs.
• Super Catch-Up Contribution: Additional contribution for those aged 60-63.
• Educator Expense Deduction: New unlimited itemized deduction for unreimbursed expenses for teachers, educators, and coaches.

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Tax Changes for Investors in 2026: A Detailed Overview

Introduction

The year 2026 is poised to bring significant tax changes impacting investors and retirees. These changes stem from various legislative acts, most notably the “One Big Beautiful Bill Act” (often referred to as ABBA), and ongoing inflation adjustments. This overview details these changes, providing specific figures and implications for financial planning.

1. State and Local Tax (SALT) Deduction

The SALT deduction, which allows taxpayers to deduct state and local taxes (property, income, and sales taxes) from their federal income tax, experienced a temporary increase under the ABBA Act. This raised the cap from $10,000 to $40,000 for those with incomes under $500,000. However, this increased cap is scheduled to expire after 2029, reverting to the $10,000 limit. This change is significant as a $40,000 deduction can often push taxpayers over the standard deduction threshold, making itemizing more beneficial. Christine Benz notes that individuals previously relying on the standard deduction should re-evaluate their tax situation, particularly those residing in states with high taxes. The SALT deduction was also available in 2025, meaning those filing 2025 returns in 2026 can also benefit.

2. Senior Tax Deduction

Another deduction set to expire is the senior tax deduction, offering a $6,000 deduction to individuals aged 65 and over. This deduction is “below the line,” meaning it doesn’t reduce adjusted gross income (AGI) and doesn’t impact Social Security taxability. It’s available regardless of whether the taxpayer takes the standard deduction or itemizes. However, this deduction is only available through 2028. Income thresholds apply, though they were described as “kind of low” for some individuals.

3. Charitable Giving Adjustments

Several changes impact charitable giving. A new deduction allows non-itemizers to deduct up to $1,000 (single filers) or $2,000 (married filing jointly) for charitable contributions. For those who do itemize, the ABBA Act introduces a reduction in the benefit of charitable giving for those in the top 37% tax bracket, limiting the deduction to 35% of AGI. Additionally, a new 0.5% AGI floor is introduced. This means that only charitable contributions exceeding 0.5% of AGI are deductible. For example, with an AGI of $100,000, only contributions exceeding $500 are deductible.

4. Retirement Savings Contribution Limits – 2026

2026 will see increased contribution limits for both 401(k)s and IRAs, driven by inflation adjustments and the Secure 2.0 Act.

• IRAs: The traditional IRA contribution limit increases from $7,250 to $7,500. The catch-up contribution for those age 50 and over, historically $1,000, is now indexed for inflation, increasing to $1,100. This brings the total potential contribution for those 50+ to $8,600 (or $17,200 for married couples).
• 401(k)s: The employee contribution limit increases to $245,000, up from $235,000. The catch-up contribution remains at $8,000.
• Qualified Charitable Distributions (QCDs): The QCD limit, allowing individuals age 70.5 and over to donate directly from their IRAs to charity, increases to $111,000, reflecting cost-of-living adjustments from its initial $100,000 limit.
• Super Catch-Up Contribution: The super catch-up contribution for those aged 60-63 remains at $11,250, exceeding the standard $8,000 catch-up.

5. Roth 401(k) Mandate for High Earners

A significant change introduced by Secure 2.0 mandates that employees earning over $150,000 (based on their prior year’s W-2) must contribute any catch-up contributions to a Roth 401(k) rather than a traditional 401(k). This is the first instance in tax law where a Roth contribution is required. Ed Slott expressed that while not necessarily negative (given the benefits of Roth accounts), it removes the choice for affected individuals.

6. New Deduction for Educators

A lesser-known provision, effective in 2026, provides an unlimited itemized deduction for unreimbursed expenses incurred by teachers, educators, and coaches. This replaces the previous $300 deduction and aims to address the significant out-of-pocket expenses often borne by these professionals. Receipts are crucial for claiming this deduction. This deduction is not subject to the miscellaneous itemized deduction limitations previously eliminated by the Tax Cuts and Jobs Act.

Logical Connections & Synthesis

The various changes are interconnected. The expiration of temporary provisions (SALT deduction, senior deduction) necessitates a reassessment of tax strategies. Increased contribution limits for retirement accounts offer opportunities for greater tax-advantaged savings, while the Roth 401(k) mandate steers high earners towards Roth accounts. The educator expense deduction provides a targeted benefit to a specific group.

Conclusion

The tax landscape in 2026 will be markedly different. Investors and retirees should proactively review their financial plans, considering these changes to optimize their tax strategies and maximize their savings. Staying informed about these adjustments and seeking professional advice are crucial for navigating the evolving tax environment. As Ed Slott emphasized, taking advantage of increased contribution limits and considering Roth options can be particularly beneficial.