Retirees and individuals actively contributing to retirement savings plans are encountering more than routine inflation adjustments this year. Two substantial legislative changes—the ongoing implementation of Secure 2.0 and provisions within the One Big Beautiful Bill Act (OBBBA)—are reshaping key facets of retirement planning. This analysis explores three major alterations and outlines strategic considerations for affected individuals.
Mandatory Roth Catch-Up Contributions for Higher Earners in 401(k) Plans
The Secure 2.0 act introduces a notable shift starting in 2025 for those over 50 who earn $150,000 or more in FICA wages and participate in employer-sponsored 401(k) or similar retirement plans. These investors are now required to allocate their catch-up contributions exclusively to a Roth account rather than the traditional pre-tax option.
Under the new limits for 2026, individuals under 50 may contribute up to $24,500 to their employer retirement plan. Those aged 50 or older are permitted an additional catch-up allowance of $8,000, summing to a maximum of $32,500. Furthermore, participants aged 60 to 63 qualify for "super-catch-up" contributions, permitting an extra $11,250 beyond the standard limits.
It is important to acknowledge that some 401(k) plans do not provide participants with a Roth contribution option. For those plan participants, contributing the maximum to their 401(k)'s traditional tract remains necessary, while additionally maximizing an Individual Retirement Account (IRA) might be advisable. The 2025 IRA contribution limits have been set at $8,600 for those over 50 and $7,500 for younger investors. Any savings exceeding these amounts should be directed into taxable brokerage accounts to maximize investment potential.
A further planning nuance pertains to those preferring traditional tax-deferred contributions over Roth. Secure 2.0 separates the catch-up contribution from standard limits, requiring the catch-up portion to move into Roth accounts, while the base contribution may remain traditional tax-deferred.
Increased SALT Deduction Threshold
The One Big Beautiful Bill Act enhances the State and Local Tax (SALT) deduction limits, elevating the cap to $40,000 effective in 2025, a substantial increase from the previous $10,000 limit. This boosted cap remains until 2030, when it will revert back. This expansion primarily benefits taxpayers with substantial state and local tax burdens, but only those below certain income thresholds.
The SALT deduction benefit phases out for taxpayers with modified adjusted gross incomes (MAGI) exceeding $500,000. Consequently, those nearing this income bracket might attempt to manage taxable income to preserve eligibility for the more generous deduction. Strategies include prioritizing contributions to traditional tax-deferred retirement accounts or maximizing Health Savings Account contributions to lower MAGI.
Consider that maximizing SALT deductions could influence decisions such as IRA to Roth conversions since these conversions increase adjusted gross income. Despite this, other long-term advantages associated with Roth strategies may outweigh potential short-term tax benefits from higher SALT deductibility, underscoring the need for balanced planning.
New Deduction Opportunities for Seniors
Starting in 2025 and extending through 2028, individuals aged 65 and older gain access to a new $6,000 deduction regardless of whether they itemize deductions. Married couples filing jointly, both over 65, are entitled to a combined $12,000 deduction under this provision. Notably, for taxpayers who do not itemize, this deduction stacks with the standard deduction.
To illustrate, the standard deduction for a single filer in 2025 is $16,100. A single senior filer would add $2,050 for age and an additional $6,000, bringing their total deduction to $24,150. For married couples filing jointly, the baseline standard deduction stands at $32,200, rising to $47,500 with age-related increments for spouses both over 65.
However, income thresholds limit this benefit. For single filers, the deduction phases out beginning at an MAGI of $75,000 and is fully eliminated at $175,000. For married couples filing jointly, the phase-out begins at $150,000 and disappears at $250,000.
Early retirees who exert significant control over their taxable income—possibly due to delayed Social Security benefits or postponed required minimum distributions—might consciously manage incomes to gain full advantage of this deduction. Nonetheless, complex trade-offs exist, for example, between preserving deductions and maneuvers such as Roth conversions that may raise taxable income but offer future tax benefits.
In summary, the evolving regulatory environment demands close attention from retirement savers and retirees alike. The interplay between new contribution rules, increased deductions, and income thresholds complicates strategic decisions. Tailoring retirement plans to address these changes carefully is essential for optimizing tax efficiency, contribution growth, and eventual withdrawal flexibility.