As we continue working with our DWM clients on their 2026 income tax planning, some tax changes for 2026 have produced some really good opportunities for individuals and families to consider.
Below are some of the most important developments—and the strategies you should be thinking about right now.
1. “Trump Accounts”: A New Long-Term Savings Vehicle for Children
One of the most talked-about additions for 2026 is the introduction of so-called “Trump Accounts,” a new tax-advantaged savings option for children. These accounts function somewhat like retirement accounts for minors—but importantly, they do not require earned income, making them far more flexible than traditional IRAs. They will be available July 4, 2026, with banks and custodians like Schwab offering them.
Key Features:
– $1,000 government seed contribution for eligible children born between 2025–2028
– Maximum annual contribution: $5,000 per child (under age 18)
– Contributions can come from parents, grandparents, employers, or others
– Funds grow tax-deferred during childhood
– At age 18, the account converts into a traditional IRA
-If $5,000 is contributed annually for 17 years, using a hypothetical 7% return, the account could grow to approximately $154,000 by age 18.
Planning Takeaway:
You should strongly consider these accounts as a foundational wealth-building strategy for your children or grandchildren. This is not just savings—it is long-term financial capital formation.
Once the child is 18, start converting the IRA to a Roth IRA, probably over three years to get a 12% federal tax rate. So, at 21, the child could have a $180,000 Roth account. This could be used for a downpayment on a house, starting a business or kept long-term. This $180,000 Roth earning a hypothetical 7% return over the 44 years between age 21 and 65 could be worth over $3.5 million at age 65. BTW, even a $1,000 annual contribution for 17 years can hypothetically grow to $500,000 when the child is 65. What a fantastic legacy!!
2. 529 Plans: Now a Broader “Human Capital” Tool
529 plans continue to evolve, and 2026 brings meaningful enhancements that increase both flexibility and usefulness.
Key Updates:
– K–12 withdrawal limit increased from $10,000 → $20,000 per student annually
– Expanded qualified expenses including tutoring, test fees, and homeschooling
– Broader coverage for career-oriented education such as trade programs and credentials
Planning Takeaway:
529s continue to offer powerful tax advantages that have expanded. You should begin thinking of your 529 plan as more than just a college fund. It is now a multi-purpose “human capital investment” account that can be used by more beneficiaries in many more ways.
3. Charitable Giving: New Rules Create New Strategies
Key Changes:
– $1,000 (single) / $2,000 (married) deduction for non-itemizers
– 0.5% AGI threshold for itemizers- like medical expenses but much smaller percentage
Planning Takeaway:
You should revisit how and when you give. Consider bunching contributions or using donor-advised funds. If age 70½+, consider Qualified Charitable Distributions.
4. Higher Retirement Contribution Limits
Key Limits:
– 401(k): $24,500
– Catch-up (50+): $8,000 (If wages exceed $150,000, catch-up must be Roth contributions)
– Super catch-up (60–63): $11,250
– Total (with employer): $72,000
– IRA: $7,500 (+$1,100 catch-up)
Planning Takeaway:
You should aim to maximize retirement contributions when cash flow allows it. Consider balancing pre-tax and Roth contributions.
5. Estate and Gift Tax Considerations
Key Limits:
– Annual gift tax exclusion: $19,000
– Lifetime exemption: $15M per individual, $30M per couple
Planning Takeaway:
Make sure to review the lifetime exemption in your residence state. IL has a $4M exemption, SC has no estate tax. You should evaluate both current and potential future estate values and consider strategies to eliminate or reduce tax. Consider loans to children to buy a home or start a business and forgive the note over time using annual gift tax exclusions to keep your full life-time exemption.
6. Roth Conversions: A Strategic Opportunity
Key Changes: U.S. Debt. It keeps growing and it seems likely that tax rates will need to be higher in the future. When I started preparing income tax returns in 1968, the top marginal federal tax bracket was 70%. Today it is 37%. Rates of 22%, 24%, 32%, 35% and 37% may not be available ten years from now.
Planning Takeaway:
You should consider that tax planning is not just about minimizing taxes this year—you should focus on optimizing taxes over your lifetime. Roth conversions are one of the most powerful tools available to help you do that. Roth conversions before your RMDs start and even before social security starts at rates of 24% or even 32% tax may be super “bargains.” An installment program of conversions up to a certain tax rate can turn pre-tax money into Roth IRAs, growing tax-free forever and converted at rates equal to or lower than what future rates might be.
Final Thoughts
The 2026 tax landscape introduces a mix of new opportunities and complexities. The most effective approach is to be proactive—making thoughtful decisions today that improve your long-term tax and financial outcome. At DWM, we love solving problems proactively. Long-term tax efficiency is our goal for our clients. Please give us a call.