You could be in for surprise taxes if you’re planning for retirement in 2026. And we’re not talking about common tax pitfalls, like taking required minimum distributions (RMDs) that force withdrawals from your individual retirement accounts (IRAs). (Though those certainly are important).
Several new federal policy changes could hike your retiree tax bill this year. For instance, under the 2025 Trump/GOP tax and spending bill, your “senior bonus” deduction may be lower than expected due to income phase-outs, indirectly resulting in an overall increase in Social Security benefit taxes.
For high-earning retirees still in the workforce, 2026 is the year the mandatory “Roth catch-up” mandate could arrive. Employers can start requiring you to contribute your catch-up contributions to a Roth account in this final year of implementation.
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These three new retirement tax traps for retirees go beyond the basics, so let’s look at how you might avoid them in 2026.
Pro-tip
Don’t treat tax traps as isolated issues. Consult with a tax professional who can look at your overall tax picture and design a strategy to meet your financial needs.
1. The SECURE 2.0 Roth catch-up contributions for 2026
About one-fifth of Americans 65 and older work, according to Pew Research, and if that’s you, you’ll want to watch out for the new high-earner Roth catch-up rules in 2026.
What’s changed? Under federal tax law, if you’re 50 or older, you can make catch-up contributions to your employer-sponsored retirement savings account (like a 401(k), IRA, etc.). However, starting this year, high earners may be subject to a “Roth mandate,” which requires their catch-up contributions to be made to a Roth account, using after-tax funds.
The SECURE 2.0 “Roth mandate rule” won’t be fully implemented until 2027, but employers must start complying as of January 1, 2026.
Here’s who’s affected by the new Roth rule on catch-up contributions:
- Workers (including retirees) who are 50 and older with a 401(k), 403(b), or governmental 457(b) plans, with
- Income of $150,000 or more from their current employer in the prior year.
Here’s how to avoid the Roth mandate tax trap:
- Prepare for a smaller paycheck. With the shift to after-tax Roth catch-ups, that familiar pre-tax deduction may be gone on your year-end return. Plan now to adjust your 2026 household savings strategy.
- Watch for future Medicare premium spikes. Your adjusted gross income (AGI) might tick higher with after-tax Roth catch-ups compared to pre-tax contributions. Consider stopping catch-up contributions if the new rule applies to you, and look for investment options that don’t affect AGI, like municipal bonds (though municipal bonds may impact your modified AGI calculation on Social Security benefits).
- Review your return for potential loss of tax benefits. Key 2026 benefits — like the new “senior bonus deduction” (more on that later) — have income phase-outs. Without the benefit of a pre-tax contribution, you might not get the highest tax benefit possible.
But while there are certainly some drawbacks, Roth contributions mean you can withdraw that money tax-free in retirement. That’s why there are six reasons why you might convert your IRA to a Roth this year.
Retirement tax changes this year could influence how you retire in 2026.
(Image credit: Getty Images)
2. Social Security ‘senior’ tax deduction phase-outs in 2026
When the 2025 Trump tax bill was signed, there was initial confusion about whether federal taxes on Social Security benefits would be eliminated. While the Trump law didn’t end the tax on Social Security benefits, a temporary new federal deduction was created, called the “senior bonus deduction.”
What’s changed? The idea was that the deduction would lower the amount of income subject to Social Security benefits tax by up to $6,000 per qualifying individual. The problem with this strategy is that not all retirees are eligible for the new bonus deduction.
For instance, single filers must make under $75,000 in modified adjusted gross income (MAGI) per year ($150,000 MAGI if married filing jointly). After that, the deduction begins to phase out.
Consequently, retirees who anticipated the senior bonus deduction lowering (or even “eliminating”) their Social Security benefit taxes might end up with a higher tax bill if they aren’t aware of the income phaseouts (and other eligibility requirements).
Here’s what you can do to avoid this Social Security “senior bonus” tax trap:
- Avoid any extra withdrawals from an individual retirement account (IRA). If your household income is hovering just below the phase-out lines of the “senior bonus” deduction, hold off on withdrawing from an IRA that could wipe out the new tax break.
- Use a qualified charitable distribution (QCD). If you’re at least 70 ½, you might use a QCD from an IRA to not only satisfy your RMD rules, but also to lower your AGI and keep yourself below the taxable thresholds for Social Security benefits and the bonus deduction.
- Review your investment strategy. Large taxable events, like Roth conversions or significant capital gains, should be strategically sequenced over time. Alternatively, if you can harvest capital losses to offset those gains, you can keep your income below the $6,000 bonus deduction phase-out limits (and maybe reduce taxation on Social Security benefits, too).
Despite the confusing Social Security Administration (SSA) email sent early last year, Social Security benefits remain federally taxable, up to 85%. Knowing the tax rules can help you avoid a surprise Social Security tax bill in retirement.
3. State tax conformity in 2026: Does your state follow the ‘senior bonus’ deduction?
States have the option to follow all, part, or none of the tax policy changes enacted in the 2025 Trump/GOP tax and spending bill. This is another opportunity for a potential “tax trap” on your state income tax bill at the end of the year (if you have one).
For instance, Virginia has temporarily halted automatic conformity with federal tax law, meaning residents will need to add back any 2025 Trump tax law changes to their state income returns during the 2026 filing season.
So if, say, a 70-year-old single filer who lives in Virginia has $55,000 in taxable income and qualifies for the “senior bonus” deduction:
- Federal taxes could allow a $6,000 “senior bonus” deduction, resulting in $49,000 federal taxable income.
- However, Virginia state income tax would add back that $6,000 deduction, resulting in $55,000 state taxable income.
*Note: This is a simplified example to demonstrate the difference between conformity vs. nonconformity tax rules. Actual federal and state tax positions may differ.
What’s changed? While nonconformity with federal tax policy isn’t a new development, more states are choosing not to adopt all the 2025 Trump tax law changes due to state budgetary concerns. Consequently, managing two different financial identities — one for federal, one for state — may be a more prevalent concept for many retirees in 2026.
Here are a few steps you can take to mitigate the state conformity tax trap:
- Working retirees should verify their state withholding. Don’t let your employer’s payroll system only account for federal withholding. Manually increase your state-level withholding (if necessary) or increase your quarterly estimated withholding (if you pay income taxes via that method).
- Use the health savings account (HSA) “Bronze Switch.” The Trump/GOP tax bill expanded HSA eligibility to include Bronze health plans beginning this year. That means if your state has high income taxes but follows federal HSA rules (most states do), consider maximizing your HSA contributions to help lower your AGI for both federal and state purposes.
- Review if your state is adopting the federal “senior bonus” deduction. If your state doesn’t allow the senior bonus, scale back any large taxable events. For instance, if you plan on converting an IRA to a Roth this year, convert up to the amount where your state tax bill remains manageable.
There may be other tax pitfalls as states continue to weigh in on whether to conform to federal tax law changes. Consult with a qualified tax professional if you have questions about your financial position.