As we move into 2026, several important changes affecting retirement accounts are now in effect. While the headlines may suggest sweeping reform, the real impact for most investors will come from how these rules interact with income planning, taxes, Medicare, and estate goals.
Below, we summarize the most relevant developments—and, more importantly, what they may mean for you.
Tax Rates Remain Stable—Creating Planning Opportunities
For years, investors were warned that 2026 could bring a sharp increase in income tax rates. Instead, recent legislation preserved the current individual tax brackets, avoiding the long-anticipated “sunset.”
-
Lower tax rates make Roth conversions and strategic withdrawals more appealing for some households.
-
Predictability allows for multi-year planning rather than last-minute decisions.
-
Stable rates reduce the urgency of accelerating income but do not eliminate the value of proactive planning.
Even with rates holding steady, your effective tax rate can still rise due to Medicare surcharges, Social Security taxation, or lost deductions. Tax planning is no longer just about brackets—it’s about managing the entire income picture
A New Senior Deduction for Ages 65 and Older
Beginning in 2026, eligible taxpayers age 65 or older may qualify for a new senior deduction of up to $6,000 per person, on top of the standard deduction.
-
The deduction is income-tested and phases out at higher adjusted gross income (AGI) levels.
-
Married couples may qualify for up to $12,000 if both spouses are eligible.
-
Certain income sources—such as required minimum distributions (RMDs) or Roth conversions—can reduce or eliminate the benefit.
This deduction can significantly reduce taxable income for retirees with moderate income levels. However, even modest increases in income may push a taxpayer into the phase-out range.
Thoughtful sequencing of withdrawals—deciding which accounts to tap and when—can help preserve this deduction over multiple years.
Roth Planning Takes Center Stage
Mandatory Roth Catch-Up Contributions for Higher Earners
Starting in 2026, workers earning more than $150,000 (indexed for inflation) must make any retirement plan catch-up contributions on a Roth (after-tax) basis.
Affected plans include:
-
401(k)
-
403(b)
-
Governmental 457 plans
What this means:
- Catch-up contributions no longer reduce current taxable income for higher earners.
- Future qualified withdrawals from these Roth amounts will be tax-free.
While this rule increases near-term taxes, it may improve long-term flexibility by increasing tax-free income in retirement—especially valuable for managing Medicare premiums and Social Security taxation.
Required Minimum Distributions: Less Punitive, Still Critical
The penalty for missing a required minimum distribution has been reduced, but the obligation remains.
- Standard penalty reduced from 50% to 25% of the missed amount
- Penalty further reduced to 10% if corrected within the allowed correction window
Why this still matters:
Even at reduced levels, RMD penalties can be costly. More importantly, missed distributions can create ripple effects across tax returns, Medicare premiums, and estate planning.
Automation, annual reviews, and coordination across multiple retirement accounts are key to avoiding unnecessary penalties.
Charitable Giving from IRAs: Still Powerful, Now More Regulated
Qualified Charitable Distributions (QCDs) remain one of the most tax-efficient ways for charitably inclined retirees to give.
QCD highlights:
- Available beginning at age 70½
- Can satisfy RMDs
- Excluded from taxable income
What’s new in 2026:
- New IRS reporting requirements make accurate classification mandatory
- Taxpayers must ensure QCDs are properly reported on their tax returns
For retirees who give regularly, QCDs can reduce taxable income, preserve deductions, and help manage Medicare surcharges. Proper execution and reporting are essential.
New Savings Vehicles for Younger Generations
Legislation also introduced “Trump Accounts,” a new type of tax-advantaged savings account for minors, available beginning mid-2026.
Key features:
- Contributions allowed from parents, grandparents, and others
- Tax-deferred growth
- Subject to contribution limits and investment restrictions
These accounts may appeal to families focused on long-term wealth building, though they are not a replacement for traditional education or retirement savings strategies.
Why Coordination Matters More Than Ever
Many of the 2026 changes do not operate in isolation. Income decisions can affect:
- Eligibility for deductions
- Taxation of Social Security benefits
- Medicare Part B and D premiums
- Long-term estate outcomes
A well-coordinated plan considers all of these elements together—not one at a time.
Recommended Actions
The 2026 retirement rules reward planning and penalize inattention. We recommend clients consider:
- Reviewing withdrawal and Roth conversion strategies
- Confirming RMD and beneficiary details
- Coordinating charitable giving with tax planning
- Evaluating how income decisions affect Medicare and deductions
Our role is to help you connect these dots and make informed decisions aligned with your retirement goals.
Please contact us to schedule a review and discuss how these changes may apply to your situation.
Author:
|
Henry Tanaka, CTFA™, ChSNC®, NQPC™ Vice President, Senior Relationship Manager, Manager of Retirement Plan Services First American Trust |
Henry brings 20 years of experience in financial services to his role as Senior Relationship Manager and Manager of Retirement Plan Services.
He acts as a trust officer for high-net-worth families and manages retirement plans for corporations and business owners, which include the administration of Rabbi Trusts. He is part of a team that collaborates with families and institutions to help preserve, protect and grow their wealth.
The following article is for informational purposes only and is not and may not be construed as legal, tax and/or investment advice. Investments contain risks, no third-party entity may rely upon anything contained herein when making legal, tax and/or investment determinations regarding its practices, and such third party should consult with an attorney, tax advisor and/or an investment professional prior to embarking upon any specific course of action.
Past performance is no guarantee of future results. Individual account performance will vary. Not FDIC insured. No Bank guarantee. May lose value.
