2026 Retirement Changes: Secure 2.0 and One Big Beautiful Bill Act Impact on Retirement Contributions and Deductions
As we enter the new year, retirement savers and retirees should be aware of the changes coming their way. Secure 2.0 and the One Big Beautiful Bill Act will impact retirement contributions and deductions. High-income earners over 50 investing in company retirement plans must now make catch-up contributions to their plans' Roth option. Younger investors can contribute up to $24,500 to their 401(k) plans, with an additional $8,000 in catch-up contributions for those over 50, totaling $32,500. Those aged 60 to 63 can make "super-catch-up" contributions of $11,250 on top of the base contribution.
If your 401(k) plan does not offer a Roth option, consider making a full IRA contribution in addition to your 401(k) contributions. The IRA contribution limit for 2026 is $8,600 for individuals over 50 and $7,500 for those under 50. If you have more to invest, consider putting the excess into a taxable brokerage account. Secure 2.0 may push higher-income older workers into Roth contributions, so they can contribute the base 401(k) limit to the traditional tax-deferred option and direct catch-up contributions to the Roth option.
The One Big Beautiful Bill Act has increased the SALT deduction cap from $10,000 to $40,000, starting in 2025. This deduction phases out for taxpayers with modified adjusted gross incomes over $500,000. To benefit from the higher SALT deduction, high-income earners should consider strategies to keep their income below $500,000, such as contributing to traditional tax-deferred retirement plans or maximizing health savings accounts. While these strategies may limit the deductibility of SALT, long-term benefits like making Roth contributions or converting IRAs may still be worthwhile.
Seniors aged 65 and above can take advantage of a new $6,000 deduction through 2028. This deduction is available to both itemizers and non-itemizers and doubles to $12,000 for married couples filing jointly if both are 65. Income limits apply, with the deduction reducing for single filers with modified adjusted gross incomes over $75,000 and married couples filing jointly with MAGI over $150,000. The deduction is eliminated for singles with MAGI over $175,000 and married couples with MAGI of $250,000 or more.
For early retirees with control over their taxable income levels, keeping MAGI down to qualify for the full deduction may be tempting. However, it's essential to balance this goal with other strategies like converting traditional IRA balances to Roth. Overall, it's crucial to consider the long-term benefits of various retirement planning tactics alongside the immediate deductions available.