Key TakeawaysIn 2026, the contribution limit is going up for IRAs and company retirement plans.There is a new rule for catch-up contributions, where if your income is above certain thresholds, your contributions have to go into Roth accounts.In many scenarios, sticking to 4% will lead to significant underspending for retirees. Flexible spending strategies can help retirees adjust their spending to match their time horizons.With OBBBA tax-related legislation that raised the SALT cap from $10,000 to $40,000, it will be more attractive for many taxpayers to itemize rather than take the standard deduction. That’s especially true if you live in a highly taxed state and/or a high property tax state.Tax season is also a great time to check up on your portfolio’s tax efficiency.

Margaret Giles: Hi, I’m Margaret Giles for Morningstar. Every year, Morningstar director of personal finance and retirement planning Christine Benz puts together a financial to-do list for the new year. She’s joining me to discuss some of the financial jobs you should consider ticking off early in 2026.

Christine Benz: Margaret, it’s great to see you. Happy New Year.

What Investors Need to Know About Higher Contribution Limits in 2026

Giles: Happy New Year. All right, so first on your list is to revisit how much you’re saving, because the contribution limits get adjusted year to year. So what should people know?

Benz: Right. So for 2026, if you’re contributing to an IRA, the contribution limit is going up to $7,500. If you’re under age 50, $8,600. If you are over 50, so you get a nice catch-up contribution that is also inflation-adjusted. The backdoor Roth is also alive and well. So, this opportunity for high-income earners to make a contribution to a traditional nondeductible IRA and then convert it to a Roth. So, high-income savers should consider that they shouldn’t assume that they are shut out of Roth contributions. Then, if you’re contributing to a company retirement plan, you can also make higher contributions in 2026. So these figures don’t exactly trip off the tongue. But if you are under age 50, you get to contribute $24,500 in 2026. If you’re over 50, it’s 32,500. And then there’s this special zone for people who are between the ages of 60 and 63. They can contribute $35,750 in 2026. So there’s a special super catch-up contribution for people at that lifestage. So high-income people should definitely target these maximum allowable contributions to these tax-sheltered accounts.

I also want to note, Margaret, there are some new rules related to catch-up contributions within 401(k) plans for higher-income people. So the new rule is that if your income is above certain thresholds, your contributions, your catch-up contributions, have to go into Roth accounts. So people should have that on their radars. Most plans have added the ability to contribute to Roths, but check with your employer and see what they’re doing to make sure that you’re in compliance with those new rules about those catch-up contributions.

How Flexible Spending Strategies Can Help Retirees Avoid Underspending

Giles: Right. That’s helpful to keep in mind. So for people who are already retired, you think a worthwhile practice is to check up on spending from the year that just ended. So what should retirees be looking for?

Benz: Right, It’s a good opportunity to check up on your budget in the year past to see where you spent your money and how much you spent of your portfolio. Every year, our team has been putting out this research around safe portfolio spending rates. So if the idea is that you want your portfolio to last over your whole retirement time horizon, how much you can reasonably spend. When we revisited the research in 2025, incorporating some forward-looking forecasts from a team within Morningstar Investment Management, we came out with 3.9% as a safe starting withdrawal for people who have an approximately 30-year time horizon. But my hope is that people don’t just take that 3.9% or 4% and run with it. Because, in many scenarios, that will lead to significant underspending. And really depriving themselves of a better quality of life that they could otherwise have if they were willing to investigate some of the other spending systems that we look at in the paper.

So, Amy Arnott, one of the co-authors of the paper, explores a variety of dynamic spending systems that more or less tether spending to what has gone on in the portfolio over the past year. And she found that people with a 30-year horizon can spend closer to like 6% if they’re willing to make significant adjustments in their spending based on how their portfolios have behaved. So I would urge people to check out some of those flexible spending strategies. I think they’re better than that very sort of flatline base-case scenario that we use. And then I would also say that for people who are older and further into their retirement, so maybe you’re 75 or 80, and you’re well into your retirement, well, guess what? You can spend more. By all means, you shouldn’t anchor on the 4% guideline because your time horizon has reduced accordingly. So in our research, we found that people with, say, 15-year time horizons could spend closer to 7% per year. So check that out and bear in mind the implications of time horizon, because I think that’s an important consideration here. You get to spend more if you’re a bit older.

Why More Investors Should Itemize With the New Higher SALT Cap

Giles: Absolutely. So we’re moving into tax season, and you think another job to tackle is revisiting your approach to itemized deduction. Can you explain what you mean by that?

Benz: Yeah, I think many of us had gotten complacent because the standard deduction was better for us than itemizing our deductions. But one new wrinkle that came into effect with this OBBBA tax-related legislation that was passed in mid-year 2025 was that the cap that had previously prevailed related to the state and local tax that we could deduct, it had been $10,000 for several years, it was increased to $40,000, and that’s going to make it more attractive for many taxpayers to itemize rather than take the standard deduction. And that’s especially true if you live in a highly taxed state, especially if you’re in a high property tax state. You may want to see whether itemizing your deductions makes more sense for you. And, of course, that brings on a whole new ballgame of paperwork that maybe you had sort of let lay fallow. But if you’ve been making charitable contributions, for example, and taking the standard deduction, you hadn’t really gotten any tax credit—well, if you’re itemizing, you may be able to. So check that out. Consider saving your receipts and doing a little bit more documentation on charitable giving, especially than perhaps you had done in the past.

Giles: Yeah, that’s helpful to keep in mind, especially Chicago and Illinois.

Benz: Exactly. New York, New Jersey, California, as well.

How to Check On Your Portfolio’s Tax-Efficiency

Giles: Yes, absolutely. So to wrap up here, you think that tax season is also a great time to check up on your portfolio’s tax efficiency. So what should people be looking out for?

Benz: Right. In the coming months, people will be getting their 1099s if they have taxable holdings and they’ve made income or capital gains distributions. Pay attention to the numbers on those forms that are coming in and see whether you are taking advantage of tax-efficient asset location. So do you have the right investment types siloed in the right account types? With income distributions higher, with interest rates generally higher than they were several years ago, many people have more meaningful income distributions, especially from fixed income and cash holdings, that are taxed at their ordinary income tax rate. Ideally, you would have those holdings siloed within your tax-sheltered account types. If you’re a high-income person, perhaps municipal securities, both a municipal money market and municipal-bond funds might make more sense if you want to hold fixed income or cash within those accounts. And then, if you have holdings in your portfolio that have been generating significant capital gains from year to year, think about siloing them to the extent that you want to hold them within your tax-sheltered accounts. With your taxable accounts, the focus should be, if you’re making new contributions, focus on those tax-efficient broad market index funds and exchange-traded funds, which will tend to do a really good job of limiting those capital gains distributions from year to year.

Giles: All right. Well, these are helpful to do’s to kick off the start of the year. Thanks, Christine.

Benz: Thanks so much, Margaret.

Giles: I’m Margaret Giles with Morningstar. Thanks for watching.

Watch What’s on Deck for Taxes in 2026? for more from Christine Benz.