2026 Tax Window: Strategic Planning for Retirees under the New Tax Law

For people approaching retirement or over the age of 65, the tax landscape has shifted significantly for 2026. Following the recent passage of federal legislation known as H.R.1 (aka - One Big Beautiful Bill), taxpayers across the country have a window of opportunity right now to restructure their retirement income and lower their tax burdens. Because this new bill introduced several temporary tax breaks that will expire after 2028, acting early in the year is important to maximize your family's savings.

The $47,500 Threshold: Maximizing Favorable Rates for Retirees

If you are preparing to retire or are already enjoying your post-career years, you will find that current tax rates are very favorable. The recent legislation made higher standard deductions permanent while also introducing a temporary senior deduction. Taxpayers aged 65 and older can now claim an additional deduction of up to $6,000 per person, or $12,000 for a married couple, valid through the year 2028. When combined with standard deductions, a qualifying married couple over 65 will not pay federal income tax until their gross income surpasses $47,500.

Mind the Phase-Out: Staying Within the Deduction Limits

However, there are specific limits on who can claim these benefits. This temporary senior deduction begins to phase out when your modified adjusted gross income reaches $75,000 for single filers and $150,000 for married couples filing jointly. It phases out completely at $175,000 for singles and $250,000 for joint filers. Managing your ordinary income carefully throughout the year, particularly distributions from tax-deferred accounts, is the key to staying below these thresholds and keeping the full deduction intact.

⭐5-Star Tip: Be careful when planning distributions from tax-deferred accounts, as pulling too much ordinary income could cause you to lose your temporary senior deduction. Calculate your projected income before making large withdrawals or Roth conversions so you do not accidentally phase out of these valuable tax benefits.

Tax Trap for Cash

Beyond managing deductions, this year offers a great chance to rethink how your cash is growing. Many people are earning higher interest on cash parked in money market funds or certificates of deposit. Because this interest is taxed as ordinary income, it can quickly inflate your current tax liability.

Optimizing Asset Location

For funds not needed for immediate liquidity, it is a good idea to evaluate tax-favored alternatives. Strategies such as prioritizing tax-free municipal bonds or maximizing contributions to tax-deferred retirement accounts can allow your wealth to grow more effectively. By strategically locating tax-heavy assets within tax-advantaged wrappers, you can help delay the taxation of that income until retirement, when your marginal tax rate may be lower.

Legacy Planning and the 10 Year Rule

Finally, consider your heirs. Non-spouse beneficiaries (like your children) typically have just ten years to empty inherited retirement accounts, which can trigger hefty tax bills if they are still in their peak working years. By taking advantage of today's low rates, married retirees can strategically withdraw funds to fill up the 12 percent tax bracket, which caps at roughly $148,300 in 2026. These excess funds can be used for Roth conversions, securing tax-free wealth for the next generation.

Now is the time to evaluate your financial plan. Sitting down with your advisory team today can ensure a much less taxing tomorrow.

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John Piershale, CFP®, AEP®

Fee-Only and Fiduciary Advisor

NAPFA-Registered Financial Advisor

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This article is for educational purposes only and is not legal or tax advice. Please consult an attorney or tax advisor regarding your personal situation. Piershale Wealth Management, LLC is an Investment Adviser registered with the State of IL and in other jurisdictions where exempt from registration. All views, expressions, and opinions included in this communication are subject to change. This communication is not intended as an offer or solicitation to buy, hold or sell any financial instrument or investment advisory services. Any information provided has been obtained from sources considered reliable, but we do not guarantee the accuracy or the completeness of any description of securities, markets or developments mentioned. The information contained herein is intended to be used for educational purposes only and is not exhaustive. Diversification and/or any strategy that may be discussed does not guarantee against investment losses but are intended to help manage risk and return. If applicable, historical discussions and/or opinions are not predictive of future events. The content is presented in good faith and has been drawn from sources believed to be reliable. The content is not intended to be legal, tax or financial advice. Please consult a legal, tax or financial professional for information specific to your individual situation.