The dawn of 2026 brings significant shifts for those planning their financial future, moving beyond simple inflation adjustments to retirement contribution limits. New legislation, including the ongoing implementation of Secure 2.0 and the One Big Beautiful Bill Act (OBBBA), is reshaping the landscape for both savers and retirees. Here are three pivotal changes demanding your attention this year.
Roth-Only Catch-Up Contributions for High Earners
A key provision from the Secure 2.0 retirement legislation takes full effect in 2026. It mandates that high-income investors, specifically those aged 50 or over with FICA earnings of $150,000 or more in the previous year, must direct their catch-up contributions into their workplace plan's Roth option. This rule applies to 401(k) and similar company schemes, moving these additional funds from the traditional tax-deferred path.
For context, the 2026 contribution limits stand at $24,500 for investors under 50. Those aged 50 and above can add a catch-up contribution of $8,000, bringing their total to $32,500. Furthermore, a "super-catch-up" provision allows individuals aged 60 to 63 to contribute an extra $11,250 on top of the base limit.
Actionable Steps:
- If your employer's 401(k) plan lacks a Roth option, consider maximising an Individual Retirement Account (IRA) alongside your core workplace contributions. IRA limits for 2026 are $8,600 for those over 50 and $7,500 for younger savers.
- For further savings, a taxable brokerage account becomes the next logical port of call.
- High-earners preferring traditional pre-tax contributions can still allocate the base $24,500 limit to the tax-deferred option, routing only the mandatory catch-up portion to Roth.
Enhanced SALT Deduction Cap
Thanks to the OBBBA, taxpayers can now deduct a substantially higher amount of state and local taxes (SALT) from their federal returns. The cap has been raised from $10,000 to $40,000 effective from the 2025 tax year, though it is scheduled to revert to the lower limit in 2030.
This change holds retirement implications because the deduction begins to phase out for higher-income individuals—specifically those with a modified adjusted gross income (MAGI) exceeding $500,000.
Actionable Steps:
- Taxpayers near the $500,000 MAGI threshold should explore strategies to remain below it, potentially prioritising traditional pre-tax retirement contributions or maximising Health Savings Accounts (HSAs) to reduce taxable income.
- Consider pausing or delaying income-boosting tactics like Roth IRA conversions if they risk pushing you over the phase-out limit and eroding the SALT benefit.
- Maintain a long-term perspective: the enduring advantages of Roth growth or conversions may outweigh the temporary gain from a larger SALT deduction.
New Deduction for Seniors
A fresh tax break is available for individuals aged 65 and over, valid through the 2028 tax year. This $6,000 deduction is accessible regardless of whether you itemise, effectively stacking on top of the standard deduction for those who don't. For married couples filing jointly where both spouses are 65, the deduction doubles to $12,000.
To illustrate the impact for 2026: a single filer over 65 could see their total deduction reach $24,150, while an eligible married couple could achieve $47,500.
Important Note: This benefit phases out for single filers with MAGI over $75,000 and joint filers over $150,000. It disappears entirely for singles with MAGI above $175,000 and couples exceeding $250,000.
Actionable Steps:
- Early retirees with flexible income sources, such as those not yet taking State Pension or Required Minimum Distributions (RMDs), might manage their MAGI to qualify for the full deduction.
- As with the SALT strategy, balance this short-term tax saving against other prudent long-term plans, which may include executing Roth conversions in lower-income years.
Navigating these changes requires a careful review of your individual circumstances. The interplay between new deductions, contribution rules, and income thresholds makes 2026 a critical year for a proactive retirement planning check-up.
