401(k) catch-up now become taxable

The main change to 401(k) catch-up contributions for 2026 is that high-income earners aged 50 or older will be required to make their catch-up contributions on a Roth (after-tax) basis. The standard and “super” catch-up contribution limits are also projected to increase due to inflation.

Roth catch-up rule for high earners

Beginning January 1, 2026, employees who meet all of the following criteria must make any catch-up contributions to their 401(k) on a Roth basis:

Age 50 or older during the year.
Contribute to a 401(k), 403(b), or governmental 457(b) plan.
Had FICA wages greater than $145,000 in the previous calendar year from the employer sponsoring the plan.

Consequences of this rule:

Loss of upfront tax deduction: High-income earners will lose the ability to lower their current taxable income with pre-tax catch-up contributions.
Future tax-free withdrawals: In exchange, the catch-up contributions and their earnings will be tax-free in retirement.
Impact on plan availability: If an employer’s plan does not offer a Roth 401(k) option, these high earners will not be able to make any catch-up contributions at all.

Projected 2026 catch-up contribution limits

The official 2026 limits have not yet been announced by the IRS, but experts project the amounts will rise from 2025 due to inflation.

Eligibility	2025 Catch-up Contribution Limit	Projected 2026 Catch-up Contribution Limit
Age 50–59, and 64+	$7,500	$8,000
Age 60–63 (super catch-up)	$11,250	Up to $12,000 (150% of the standard catch-up limit)

Other key details

Secure 2.0 Act: The Roth catch-up requirement for high earners is a provision of the SECURE 2.0 Act of 2022, which was originally set to take effect in 2024 but was delayed until 2026 to give employers more time to prepare.
Employer responsibility: Employers must track prior-year FICA wages to determine which employees are subject to the Roth catch-up requirement. Plans must also offer a Roth option to all employees if they wish to allow high earners to continue making catch-up contributions.

October 9, 2025 0

NEW SALT (State and Local Tax) deduction cap

President Donald Trump signed the “One Big Beautiful Bill Act” into law on July 4, 2025.
This new legislation significantly changes the State and Local Tax (SALT) deduction cap for individual taxpayers.

Here’s a breakdown of the new SALT deduction cap:
Increased Cap: The SALT deduction limit has increased from $10,000 to $40,000 for tax year 2025.
Income Threshold and Phase-out:
The full $40,000 deduction is available to households with a Modified Adjusted Gross Income (MAGI) of $500,000 or less ($250,000 for married couples filing separately).
-For those with MAGI exceeding these thresholds, the $40,000 cap is gradually reduced at a 30% rate, meaning the deduction decreases by 30 cents for every dollar over the limit.
-The deduction never falls below $10,000, even for the highest earners.
MAGI is calculated by adding back certain components to your Adjusted Gross Income (AGI), such as foreign earned income and housing costs.
*For example, if your MAGI is $550,000, you exceed the $500,000 threshold by $50,000. The deduction is reduced by 30% of $50,000 ($15,000), leaving you with a $25,000 SALT deduction ($40,000 – $15,000).
Households with MAGI above $600,000 are limited to the $10,000 SALT deduction.
-Annual Adjustments: The SALT cap and the income thresholds for the phase-out will increase by 1% annually through 2029.
Sunset Provision: The higher SALT deduction cap is temporary and is scheduled to revert to the $10,000 limit in 2030, according to SmartAsset.com.
-Important Considerations:
Itemization: You must itemize your deductions to claim the SALT deduction. If your itemized deductions (including SALT) do not exceed the standard deduction, it’s more beneficial to take the standard deduction.
Benefits: The increased SALT cap will primarily benefit individuals and families in high-tax states with incomes at or below $500,000. Many low- and middle-income households may find that the increased standard deduction is still more advantageous.

“SALT Torpedo”: Tax experts are warning of a potential “SALT torpedo” or artificially high tax rate for individuals with MAGI between $500,000 and $600,000, as the deduction phases out rapidly in this range.
Business Taxes: The changes to the SALT deduction generally do not apply to businesses. According to Optima Tax Relief, businesses may continue using existing deduction rules or state workarounds, such as Pass-Through Entity Taxes (PTETs).

August 7, 2025 0

Navigating Inherited IRA Taxes

Inherited an IRA? Understanding the new tax laws is crucial to protect your wealth.

The SECURE Act has significantly changed the rules for inherited IRAs. No more stretching withdrawals over your lifetime! Now, you generally must withdraw the entire inherited IRA balance within 10 years of the original owner’s death. This can trigger a hefty tax bill.

Key Strategies to Consider:

Time Your Withdrawals: Spread out withdrawals to manage your tax bracket.
Roth Conversion: If eligible, convert some or all of the inherited IRA to a Roth IRA. This can be tax-efficient if you expect to be in a higher tax bracket in the future.
Beneficiary Designation: Carefully consider your beneficiaries and how you want the IRA to be distributed.
Consult a Tax Professional: Complexities arise, especially with inherited IRAs. Seek expert advice.

Remember: These are general guidelines. Your specific situation may require tailored advice.

Action Steps:

Schedule a meeting with a financial advisor.
Review your inherited IRA account details.
Understand the 10-year rule and its implications.
Explore Roth conversion possibilities.

By proactively addressing these issues, you can make informed decisions to minimize your tax burden and optimize your financial future.

#inheritedIRA #taxplanning #financialplanning #SECUREAct

July 25, 2024 0

Unleash Tax Advantages: Invest in Small Businesses with Section 1202 QSBS

Attention Investors Seeking Big Tax Breaks!

Have you heard of Section 1202 Qualified Small Business Stock (QSBS)? It’s a game-changer for investors looking to support innovative startups and emerging companies while reaping significant tax rewards. At [Your Website], we’re here to break down the benefits of QSBS and how it can supercharge your investment portfolio.

What is QSBS?

Think of QSBS as a special designation for stock issued by qualified small businesses. By investing in these companies, you unlock the potential to dramatically reduce or even eliminate capital gains taxes when you sell the stock. That’s right, you can keep more of your hard-earned profits!

How Does It Work?

Here’s the exciting part: QSBS offers tax exclusion benefits for investors who meet certain criteria.

Holding Period: Hold the QSBS stock for at least five years to qualify.
Investment Type: You typically need to acquire the stock directly from the company or through a qualified stock option grant.
If you meet these requirements and the company qualifies as a QSBS, you can potentially exclude up to 100% of your capital gains on the sale, capped at either $10 million or 10 times your original investment, whichever is greater. Let’s put this into action:

Imagine you invest $1 million in a QSBS company.
The company thrives, and your stock soars to a whopping $100 million!
When you sell, the first $10 million of your capital gains could be tax-free thanks to QSBS.
That’s a potential tax saving of $2 million (assuming a 20% capital gains tax rate). Now that’s a return on investment worth celebrating!

Why Invest in QSBS Companies?

Beyond the tax benefits, QSBS allows you to support the backbone of the American economy: small businesses. These companies are brimming with potential, driving innovation and job creation. By investing in QSBS, you’re not just putting money towards your financial future, you’re helping shape a brighter future for the country.

Is QSBS Right for You?

While QSBS offers incredible tax advantages, it’s important to consider your investment goals and risk tolerance. These companies are typically young and unproven, so there’s a higher chance of volatility compared to established corporations. Consulting with a financial advisor is recommended to determine if QSBS aligns with your overall investment strategy.

Ready to Dive In?

At [Your Website], we’re passionate about connecting investors with exciting opportunities. We can provide you with valuable resources and insights into the world of QSBS. Explore our website to learn more about innovative small businesses seeking investment, and don’t hesitate to contact us with any questions.

Together, let’s unlock the power of QSBS and fuel the growth of groundbreaking companies!

June 5, 2024 0

Qualified Charitable Distributions

IRS NEWS 12/21/2023

Individuals age 70 ½ or older may be able to exclude a qualified charitable distribution (QCD) of up to $100,000 from their income each year. A QCD is a taxable distribution paid directly from an IRA (other than an ongoing SEP or SIMPLE IRA) to a qualified charity. It cannot be paid to you as the IRA owner.

You must be at least age 70½ when the QCD distribution to the charity is made. The SECURE 2.0 Act of 2022 did not change the 70½ age to be eligible to make a QCD.

A QCD may also count toward your required minimum distribution for the year.

A QCD does not affect your income and is tax-free if paid directly from the IRA to an eligible charitable organization, and is available regardless of whether you itemize deductions on Schedule A. If you took a distribution from your IRA and then made a charitable donation, the distribution would be taxable as ordinary income and the donation would only be deductible as an itemized deduction on Schedule A. Itemized deductions for most taxpayers don’t exceed the available standard deduction. And the increased income could affect eligibility for certain available tax credits.

The financial institution reports the QCD to you on Form 1099-R. You report the QCD on Line 4a of the Form 1040 along with any other IRA distributions. Show the amount of the QCD as zero taxable on Line 4b and write “QCD” next to the Line 4b entry. Review Publication 590-B, Distributions from Individual Retirement Arrangements for more information.

December 21, 2023 0