Retirement & taxes

US federal taxes and retirement saving for tax year 2026: how income tax brackets, payroll taxes and capital gains tax work, every tax-advantaged account with its 2026 limits, traditional vs Roth, withdrawal-rate math, Social Security, required minimum distributions and getting at the money early. Written for a US-based reader; state income taxes vary and aren't covered. The order in which to fund accounts is in money basics, what to hold inside them is in investing, and HSA-eligible health plans and estate rules are in insurance and estate.

What changed for 2026

The One Big Beautiful Bill Act (OBBBA, Public Law 119-21, signed 4 July 2025; the IRS now also calls it the "Working Families Tax Cuts") made the 2017 Tax Cuts and Jobs Act individual rules permanent and added new temporary deductions. The 2026 figures below are the post-OBBBA numbers from IRS Rev. Proc. 2025-32 and Notice 2025-67.

The new deductions for seniors, tips, overtime and car-loan interest are available whether or not you itemize.

Federal income tax mechanics

Gross income − adjustments (pre-tax 401(k), HSA, deductible IRA, etc.) = adjusted gross income (AGI). AGI − the larger of the standard deduction or itemized deductions (and the new deductions above) = taxable income. Tax on that from the brackets, minus credits (dollar-for-dollar), = tax owed.

2026 brackets (taxable income)

Marginal vs effective rate

The marginal rate is the rate on your next dollar; the effective rate is total tax ÷ income. Moving into a higher bracket taxes only the dollars inside it at the higher rate: a raise never lowers take-home pay through brackets alone (benefit phase-outs and cliffs are a separate problem).

Worked example, single, $100,000 salary, no other income:

Marginal rate 22%; effective rate $13{,}170 / 100{,}000 = 13.2\%$ of salary (15.7% of taxable income). Contributing $10,000 to a traditional 401(k) cuts taxable income to $73,900 and tax to $10,970: it saves $2,200, exactly 22% of $10,000, because every dollar came out of the 22% bracket.

Worked example, married filing jointly, $180,000 combined wages:

($11,600 is the IRS table's tax on the first $100,800.) Marginal 22%, effective 12.2% of wages.

Payroll taxes (FICA)

A $100,000 salary pays 7.65% × $100,000 = $7,650 of FICA, so the example single filer's total federal tax is $20,820, about 21% of salary. Pre-tax 401(k) contributions do not reduce FICA; HSA contributions made through a cafeteria plan (payroll deduction) do.

Capital gains and dividends

2026 long-term capital gains thresholds (taxable income, gains stacked on top of ordinary income)

Net investment income tax (NIIT): an extra 3.8% on investment income above modified AGI of $200,000 single or $250,000 MFJ (not inflation-indexed, so it catches more people every year).

Worked example: single, $40,000 of ordinary taxable income plus a $20,000 long-term gain. The 0% band runs to $49,450, so $9,450 of the gain is taxed at 0% and $10,550 at 15%: $1,582.50.

Tax-loss harvesting and the wash-sale rule

Tax-loss harvesting: sell an investment in a taxable account that is below its cost basis, realize the loss, and immediately buy a similar (not "substantially identical") fund to stay invested. Losses offset gains, then up to $3,000 a year ($1,500 married filing separately) of ordinary income; the rest carries forward indefinitely.

Wash-sale rule: the loss is disallowed if you buy a substantially identical security within 30 days before or after the sale (a 61-day window), including in your IRA or your spouse's account or through automatic dividend reinvestment. A disallowed loss is normally added to the basis of the new shares; if the repurchase is in an IRA, the loss is lost for good (IRS Rev. Rul. 2008-5).

Harvesting defers tax rather than eliminating it (the new shares have a lower basis), unless you later donate the shares, hold them until death (basis steps up), or realize gains in the 0% bracket.

Tax-advantaged accounts: 2026 limits

A governmental 457(b) has its own limit, so a public employee with both a 403(b) and a 457(b) can defer $24,500 into each.

Workplace plans

High earners: catch-ups must be Roth from 2026

Under SECURE 2.0, if your FICA wages from the plan's employer in the prior year exceeded the threshold ($150,000 of 2025 wages, for 2026 catch-ups), your catch-up contributions must be Roth (after-tax). If the plan has no Roth option, those employees can't make catch-ups at all. Final IRS regulations generally apply from 2027; for 2026 plans must follow a reasonable good-faith interpretation. Regular deferrals up to $24,500 can still be pre-tax.

Employer match math

A typical formula: 50% match on the first 6% of pay. On an $80,000 salary, contributing 6% ($4,800) brings $2,400 of employer money: an instant 50% return before any investment growth. Not contributing enough to get the full match is the most common expensive mistake in personal finance.

Vesting

Your own contributions are always 100% yours. Employer contributions may vest over time:

Check the vesting date before resigning: leaving one month early can forfeit thousands.

Mega backdoor Roth

Some plans allow after-tax (non-Roth) contributions above the $24,500 deferral limit, up to the $72,000 total limit, plus in-plan Roth conversion or in-service withdrawal to a Roth IRA. Convert promptly so the earnings aren't taxable. With a $24,500 deferral and $10,000 of employer match, up to $37,500 more can go in after-tax. It requires both plan features; many plans have neither.

Leaving a job

Always use a direct (trustee-to-trustee) rollover; an indirect rollover withholds 20% and must be completed within 60 days.

IRAs

2026 income phase-outs (modified AGI)

If neither spouse has a workplace plan, traditional IRA contributions are fully deductible at any income. Anyone with earned income can contribute to a traditional IRA (no age limit since 2020); a non-working spouse can contribute on the working spouse's income (spousal IRA). The deadline for 2026 contributions is the 2027 filing deadline (normally 15 April).

Backdoor Roth and the pro-rata rule

Backdoor Roth: above the Roth income limit, contribute to a non-deductible traditional IRA, then convert it to a Roth. Report both on Form 8606.

The pro-rata rule: a conversion is taxed in proportion to all your pre-tax IRA money (traditional, SEP and SIMPLE IRAs, measured on 31 December of the conversion year), not just the account you convert from.

Example: $7,500 non-deductible contribution, plus a $92,500 rollover IRA from an old 401(k). Converting $7,500 is $92{,}500 / 100{,}000 = 92.5\%$ taxable: $6,938 of income. Fix: roll the pre-tax IRA into your current employer's 401(k) (if it accepts roll-ins) before 31 December. 401(k) balances don't count.

HSAs, 529s and Trump accounts

Health savings account (HSA)

The only account with a triple tax advantage: deductible in (and FICA-free via payroll), tax-free growth, tax-free out for qualified medical expenses at any time, with no deadline for reimbursement if you keep receipts. After 65, non-medical withdrawals are taxed like a traditional IRA without penalty (under 65: tax + 20%).

Eligibility: covered by an HSA-qualified high-deductible health plan (HDHP; from 2026 also bronze and catastrophic marketplace plans), no other disqualifying coverage (a spouse's general-purpose FSA counts), not enrolled in Medicare, not claimed as a dependent. Stop contributing 6 months before starting Medicare if you delay enrollment past 65 (Part A coverage is backdated up to 6 months). The best use: invest it, pay current medical costs from cash, keep the receipts, reimburse yourself years later.

529 plans

Tax-free growth and withdrawals for qualified education: college costs, up to $10,000 lifetime of student-loan repayment per beneficiary, apprenticeships, and K-12 tuition (the K-12 limit rises from $10,000 to $20,000 a year from 2026 under OBBBA, which also widened qualifying K-12 and credential expenses). Many states give a deduction for contributing to their own plan. Non-qualified withdrawals: earnings taxed plus 10%.

529 to Roth IRA rollover (SECURE 2.0, from 2024): up to $35,000 lifetime per beneficiary, if the 529 has been open at least 15 years; contributions from the last 5 years (and their earnings) can't be moved; each year's rollover counts against the beneficiary's IRA limit ($7,500 in 2026) and needs that much earned income, but the Roth income limit doesn't apply.

Trump accounts

Created by OBBBA (Internal Revenue Code §530A) for children under 18:

Verdict: take the free $1,000 and any employer money. For your own dollars, a 529 (for education) or a custodial Roth IRA (if the child has earned income) is usually better, because both allow tax-free growth; the Trump account taxes gains as ordinary income on withdrawal, like a traditional IRA without the deduction.

Self-employed plans

At low incomes the Solo 401(k) wins because the $24,500 employee deferral doesn't depend on a percentage of profit. A SEP IRA balance also counts in the backdoor-Roth pro-rata calculation; a Solo 401(k) doesn't.

Traditional vs Roth

Traditional: deduct now, pay tax on withdrawal. Roth: pay tax now, withdraw tax-free. If your tax rate is the same at both ends, they come out identical:

So the choice is a bet on marginal rate now vs marginal rate when the money comes out.

Hidden Roth advantage: the $24,500 limit buys more after-tax money in a Roth 401(k) than in a traditional one. Hidden traditional advantage: withdrawals in retirement fill the 0%, 10% and 12% brackets first, so the average rate on withdrawals is often below today's marginal rate. Many people should split, or use traditional in peak earning years and Roth in low years.

Withdrawal rates and the 4% rule

The FIRE number: invert 4% to get a savings target of 25× annual spending (33× for 3%).

Example: $60,000 a year of spending, $30,000 from Social Security: a target of $(60{,}000 - 30{,}000)/0.04 = 750{,}000$ dollars. At 3.5%, $857,000.

Social Security

How the benefit is computed: your earnings are indexed to national wage growth, the highest 35 years are averaged into average indexed monthly earnings (AIME) (zeros fill missing years), and the formula converts AIME into the primary insurance amount (PIA), your monthly benefit at FRA. The bend points make it progressive: low earners replace a larger share of income.

Worked example: AIME $6,000.

(rounded down to the dime). Claiming at 62 pays about $1,866 a month; at 70 about $3,306, plus cost-of-living adjustments in both cases.

Trust fund outlook: the 2026 Trustees Report (June 2026) projects the retirement (OASI) trust fund will be depleted in 2032, after which incoming taxes would pay about 78% of scheduled benefits; the combined OASI and disability funds would last to 2034 (about 83% payable). Congress has always acted before past depletion dates, but plan for a possible cut of roughly 20% if you are under ~55. The Social Security Fairness Act (January 2025) repealed the Windfall Elimination Provision and Government Pension Offset for people with non-covered public pensions.

Required minimum distributions

Required minimum distributions (RMDs) force withdrawals (and income tax) from pre-tax accounts.

Example: $500,000 IRA at 73: first RMD $500{,}000 / 26.5 \approx 18{,}868$ dollars.

Roth conversions, the tax torpedo and IRMAA

A Roth conversion moves pre-tax money to a Roth, paying ordinary income tax now. Best in low-income years: between retirement and the start of Social Security and RMDs, a sabbatical, a business loss year. "Fill the bracket": convert up to the top of the 12% or 22% bracket each year. Pay the tax from outside money if you can. Each conversion has its own 5-year clock for the 10% penalty if you're under 59½.

Early access to retirement money

The 10% early-withdrawal penalty applies before 59½ (on top of income tax), with exceptions:

Early-retirement ladder: taxable account first, then Roth contributions, while converting pre-tax money each year (each conversion is accessible penalty-free after 5 years), 72(t) or Rule of 55 for the rest.

Retirement and tax checklist

ANNUAL
[ ] Contributing enough for the full 401(k) match
[ ] Contribution % raised with every pay rise
[ ] HSA funded (if on an HDHP) and invested; receipts filed
[ ] IRA / backdoor Roth done; Form 8606 filed
[ ] Pre-tax IRA balances at zero on 31 Dec if doing backdoor
[ ] Traditional vs Roth choice reviewed for this year's rate
[ ] Tax-loss harvesting reviewed; no wash sales across accounts
[ ] W-4 withholding checked (IRS Tax Withholding Estimator)
[ ] Beneficiaries current on every 401(k), IRA, HSA
[ ] Social Security earnings record checked at ssa.gov/myaccount
 
AGE MILESTONES
[ ] 50: catch-ups start (Roth if prior-year wages > $150k)
[ ] 55: Rule of 55 available; HSA catch-up
[ ] 59.5: penalty-free withdrawals
[ ] 60-63: super catch-up ($11,250)
[ ] 62-70: Social Security claiming decision
[ ] 63: IRMAA look-back starts to matter for Medicare at 65
[ ] 65: Medicare enrollment; stop HSA contributions; senior
        deduction (2025-2028)
[ ] 70.5: qualified charitable distributions allowed
[ ] 73 or 75: RMDs begin

References

• IRS: Tax inflation adjustments for tax year 2026, including OBBB amendments (opens in a new tab): 2026 brackets, standard deduction, AMT, estate and gift figures
• IRS Rev. Proc. 2025-32 (opens in a new tab): the full 2026 inflation-adjusted tables, including capital-gains thresholds and the OBBBA changes
• IRS: 401(k) limit increases to $24,500 for 2026, IRA limit increases to $7,500 (opens in a new tab): contribution limits and IRA phase-outs
• IRS Notice 2025-67 (opens in a new tab): 2026 retirement plan limits, including the $150,000 Roth catch-up wage threshold and $72,000 §415(c) limit
• IRS Rev. Proc. 2025-19 (opens in a new tab): 2026 HSA contribution limits and HDHP thresholds
• IRS: One Big Beautiful Bill Act tax deductions for working Americans and seniors (opens in a new tab): senior, tips, overtime and car-loan deductions with phase-outs
• 26 U.S. Code §164 (Cornell LII) (opens in a new tab): the SALT limitation amounts and phase-down by year
• IRS: Treasury and IRS guidance on Trump Accounts (Notice 2025-68) (opens in a new tab): contribution limits, investments, age-18 rules
• US Treasury: Launch of the Trump Accounts app (opens in a new tab): activation from May 2026, contributions from 4 July 2026
• IRS Topic 751: Social Security and Medicare withholding rates (opens in a new tab): 2026 wage base $184,500 and Additional Medicare Tax
• IRS Publication 550: Investment Income and Expenses (opens in a new tab): capital gains, qualified dividends, wash sales
• IRS Publication 590-B: Distributions from IRAs (opens in a new tab): RMD tables, early-withdrawal exceptions, inherited IRAs
• IRS: Retirement topics, exceptions to tax on early distributions (opens in a new tab): the full exceptions chart
• SSA: Retirement benefits (opens in a new tab): full retirement age, early and delayed claiming
• SSA Office of the Chief Actuary: Trustees Reports (opens in a new tab): the annual Social Security Trustees Report
• Committee for a Responsible Federal Budget: Analysis of the 2026 Social Security Trustees' Report (opens in a new tab): 2032 OASI and 2034 combined depletion dates
• CMS: 2026 Medicare Parts A and B premiums and deductibles (opens in a new tab): Part B premium and IRMAA thresholds
• Morningstar: How much can you safely withdraw if you retire early? (opens in a new tab): 3.9% for 30 years and longer-horizon rates from The State of Retirement Income
• Bengen (1994), Determining Withdrawal Rates Using Historical Data (opens in a new tab), Journal of Financial Planning, October 1994 (FPA 2004 reprint): the origin of the 4% rule
• Philip L. Cooley, Carl M. Hubbard and Daniel T. Walz, "Retirement Savings: Choosing a Withdrawal Rate That Is Sustainable", AAII Journal 10(3), February 1998: the Trinity study
• Bogleheads wiki: Backdoor Roth (opens in a new tab): step-by-step and Form 8606 examples