Navigating the 2026 tax landscape

For many taxpayers, 2026 marks a turning point in U.S. tax law as sunsetting provisions of prior legislation converge with the rollout of new Internal Revenue Code (IRC) mandates. Beginning this year, taxpayers will begin to see the impact of several new provisions under the “One Big Beautiful Bill Act” (OBBBA) of July 2025¹ as well as the ongoing implementation of certain mandates under the SECURE 2.0 Act² of 2022.

Below, we highlight four key changes that went into effect in 2026 affecting the deductibility of charitable donations, the value of itemized deductions for taxpayers in the top tax bracket, retirement account contributions for taxpayers age 50+, and education planning.

Deductibility of charitable donations

Under OBBBA, charitable contributions are now subject to a 0.5% adjusted gross income (AGI) floor for itemizers³. This new legislation carries particular significance for high earners because it effectively increases the dollar threshold that must be exceeded before gifts are considered deductible.

For example, under the new legislation, a taxpayer with $2 million in AGI who reports $15,000 in gifts would only be able to deduct $5,000 (0.5% of $2 million = $10,000; only the remainder above the floor, $5,000, would be considered deductible). OBBBA also makes permanent a new $1,000 above-the-line charitable deduction for taxpayers who take the standard deduction ($2,000 for those married filing jointly).³

How does OBBBA impact itemized tax deduction rules in 2026?

The OBBBA rules limit tax benefits for high-income taxpayers who have an adjusted gross income (AGI) in the 37% tax bracket by capping the tax savings derived from certain itemized deductions such as state and local taxes, mortgage interest, and charitable donations.⁴

Those in the 37% bracket are now limited to $0.35 in tax savings for every $1 deducted, compared to $0.37 under prior legislation. For impacted taxpayers, this new mandate effectively reduces actual tax benefits by around 2% at the highest marginal tax bracket.

How will retirement catch-up contributions be affected by the SECURE 2.0 Act?

High earners age 50+ are now subject to limitations on retirement “catch-up” contributions made beyond the standard IRS contribution limits.⁵

Starting this year, SECURE 2.0 Act makes effective a provision aimed at increasing immediate tax revenue by mandating that “high-earning” taxpayers make catch-up contributions on a Roth (after-tax) basis⁶. This new rule applies to taxpayers who reported at least $150,000 in prior year FICA wages (inflation-adjusted).

For example, suppose a 50-year-old taxpayer reporting $200,000 in FICA earnings for the 2025 tax year makes an $8,000 401(k) catch-up contribution on top of the standard elective deferral limit ($24,500). Because their 2025 FICA earnings exceed the $150,000 threshold, the $8,000 catch-up contribution would need to be made on an after-tax (Roth) basis.⁷ Those with prior-year FICA earnings below $150,000 can still make catch-up contributions on a pretax basis.

While the “Rothification”⁶ of catch-up contributions means certain taxpayers may no longer defer taxes on the additional contribution allowance, any funds contributed on a Roth basis may later be withdrawn tax-free if they are considered qualified under IRC Section 408(a) requirements⁸.

How does the new legislation affect education savings?

While the aforementioned provisions impose limits on certain benefits enjoyed under prior IRC code, other provisions have expanded available tax benefits. For example, prior tax law allowed up to $10,000 in annual tax-free withdrawals from 529 education savings plans for K-12 tuition expenses per beneficiary. The new provisions increase this annual limit to $20,000 starting in 2026, offering greater flexibility for families seeking to leverage qualified education savings. Additionally, the definition of qualified K-12 expenses has expanded beyond solely tuition.

Taxpayers who consider leveraging this benefit should, however, be mindful of state-specific rulings. While federal law considers 529 plan withdrawals for K-12 tuition as “qualified,” states are not required to follow the same rules. California, for example, considers withdrawals from 529 plans to cover K-12 education expenses as non-qualified. While federal taxes may be avoided if other withdrawal requirements are met, California residents covering K-12 expenses with 529 funds remain subject to a 2.5% penalty and California State income taxes due on the earnings portion of the withdrawal.

For many Americans, navigating taxes in 2026 may feel more daunting than ever as IRC changes taking effect this year highlight a broad-reaching and meaningful shift in US tax law as we know it. Ultimately, these changes underscore the importance of proactive tax planning in an increasingly complex and evolving tax environment. Understanding how new rules affect charitable giving, itemized deductions, retirement contributions, and education savings can help taxpayers make more informed decisions and remain well-positioned for this new era of US tax law.

Now is the time to review your current strategy with your Westmount team. We can help you identify possible avenues to minimize potential tax implications from the new limits as well as maximize the potential benefits made available under the expanded legislation. As always, it is important to consult with a CPA or tax professional for any specific tax advice or guidance related to one’s personal financial situation.