If You're in or Near Retirement, You Need to Know These 4 Recent Tax Changes

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Software stocks are getting annihilated so far this year. That is my highly technical description of companies, like Salesforce and others, many of which are down more than 50% from their highs.

The opinion or theory of some: AI is going to make these exorbitant subscriptions unnecessary. I am not naïve enough to think I will be the last man standing as robots power the global economy and my friends have all involuntarily "retired."

But there is one thing that gives me hope about my job security — the never-ending, mind-boggling changes to the Internal Revenue Code.

In this article, I will cover four recent developments that have come about as a result of the OBBBA and SECURE 2.0. Most of the One Big Beautiful Bill went into effect in 2025. SECURE 2.0 was written to roll out in stages, and some provisions will begin in 2026.

1. Enhanced deduction for older people

What is it? This essentially adds a $6,000 deduction for every taxpayer 65 or older. It can add to your itemized deductions or to your standard deduction.

The major catches? It has an income phaseout that starts at $75,000 for individual filers and $150,000 for joint filers.

The deduction is temporary. It will "sunset" (Washington's fancy term for "expire," meaning that it may go away but just as likely change or stay the same and hopefully keep me employed) on December 31, 2028.

What does it mean for planning? Think of this as a small three-year tax sale for those 65 and wiser. It is especially advantageous for those who are either in their peak earnings years or in their lowest tax years. I know, those two things sound at odds. Hear me out.

In your peak earnings years, this deduction will lessen the blow and, all else being equal, should result in less tax due from 2025 through 2029.

If you are between retirement and claiming Social Security and taking required minimum distributions (RMDs), your taxes have likely dropped.

This will drive your taxes even lower, which provides more opportunity to reduce or even eliminate capital gains taxes as well as increase the opportunity for Roth conversions.

In the tax module of the financial planning software that we use, there are calibrations that will show the amount of room available each year to recognize capital gains or income before you jump into the next tax bracket.

We rely on this and our tax planning software heavily to recognize the long-term tax trends and do the associated calculations. You can access a free version of the financial planning software we use.

2. SALT cap expansion up to $40,400

What is it? SALT stands for "state income and local property taxes." These are deducted for those who itemize on a Schedule A. Starting in 2018, the deduction was capped. I live in an expensive city where I exceed that cap just with my property taxes.

People like me, often living on the coasts, hate the SALT cap. This change expands the cap for those making $500,000 or less from $10,000 to $40,000.

This expires one year later than the enhanced deduction for older people, on December 31, 2029.

What does it mean for planning? The benefits are similar to those of the enhanced deduction, but without the obvious age requirement. This will make the biggest difference for those in high-tax states.

Here's a complicated twist: Many states have yet to conform to the OBBBA, which means you may want professional help to figure out whether you should itemize or take the standard deduction. We will look for opportunities to convert to Roth IRAs and to recognize capital gains at low or no tax.

These next two are specifically for those who are near retirement.

3. Roth catch-up contributions

What are these? These had a delayed start date from SECURE 2.0. It starts this year, but is based on 2025 W-2 wages.

If your 2025 W-2 wages were more than $150,000 and you're age 50-plus, catch-up contributions must be made into the Roth component of your employer-based retirement plan.

What does this mean for planning? I don't like this one, because we are often seeking to maximize deductions for our clients near retirement.

In other words, I'd rather have my clients who are in their peak earnings years and, thus, peak tax years, delay recognizing income. When they retire, we recognize income via capital gains or Roth conversions.

This new rule means that we will be advising some of our clients to stop catching up and, instead, direct those savings into non-retirement accounts.

This will allow them to live off these funds when they retire and hopefully be able to get the money into a Roth via conversion at a lower rate than they would pay while working.

4. Extra catch-up contributions

What are these? If you are between 60 and 63, your catch-up contribution goes from $8,000 to $11,250. Therefore, folks who are in this bracket can contribute $35,750 each year to their employer plan.

If their previous year's wages were over $150,000, the $11,250 will have to go into the Roth component.

What does this mean for planning? This one is complicated because you must figure out how current tax rates compare to future tax rates.

Let's say you are in your peak earnings years, per my point on the Roth catch-up in number three. If so, you might not want to take advantage of this.

Let's say the flip side is true: You are scaling into retirement, and your earnings are low this year. In that case, you may want to put the entire $35,750 into the Roth.

The financial planning software mentioned earlier and/or tax planning software can help figure out what makes sense for you.

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.