From the SALT cap deduction increase to extended TCJA brackets, here’s what really matters for 2026
By Connor Hughes, CFP®, Diversified Portfolios
Key Takeaways
• How should I position my investments for better tax efficiency? Strategic placement matters (bonds in pre-tax retirement accounts, municipal bonds in taxable accounts). This positioning can create compounding advantages over time.
• What’s the Roth vs. pre-tax decision for 2026? With catch-up contribution adjustments and the extended tax environment, it’s worth reassessing whether Roth conversions, backdoor Roths, or traditional pre-tax contributions serve your goals best.
If you’ve been trying to sort through what 2026’s tax changes actually mean for your family, you’re not alone. Between SALT cap headlines and contribution limit updates, it’s genuinely hard to know what deserves your attention and what’s just noise.
Some of these changes are simply maintaining what you’re already used to, while others create real opportunities to strengthen your financial position. The challenge is knowing which matter for your specific situation.
Let’s walk through what’s actually changing in 2026, what it means for your situation, and how we think about positioning you proactively as we plan for the new year.
The High Earner’s Financial Forecast: What’s Actually Changing in 2026?
The SALT Cap Deduction
SALT stands for state and local tax deductions. Essentially, it’s how much of the taxes you already pay to your city and state that you’re allowed to deduct from your federal return. For years, that deduction has been capped at a low level, which hit high earners in high-tax metro areas or those with significant property taxes the hardest.
Under current law, the TCJA brackets are expected to continue through 2026. And for many high earners, that change won’t just be a footnote; it meaningfully shifts your tax picture.
Why this matters for high earners: If you’re earning at a high level and living in a city where taxes are simply part of the cost of career opportunity or recently bought your dream home which came with large annual property taxes, a SALT cap deduction change directly affects how much of your income you actually keep. You’re paying these state and local taxes no matter what—the higher SALT cap simply means you don’t have to pay federal income taxes on the funds used to pay your state and local taxes.
For households that are charitably inclined, the expanded SALT cap can also enhance tax planning opportunities. When a larger portion of your state and local taxes are deductible, coordinating multi-year charitable gifts or using a donor-advised fund in a single year can help push total deductions above the standard deduction, increasing the overall value of contributions you were planning to make anyway.
TCJA Tax Brackets Being Extended
The Tax Cuts and Jobs Act (TCJA) brackets are not expiring in 2026 as they were set to previously. That means your federal tax brackets are essentially staying where they are now.
This isn’t a new opportunity to capture; it’s simply the continuation of the existing tax environment.
Why this matters for high earners: Your tax brackets aren’t suddenly jumping; you’re staying in familiar territory. This is good news in the sense that instead of reacting to shifting tax laws, you get to operate from stability.
Catch-Up Contributions
For individuals age 50 and older, the IRS allows “catch-up contributions,” extra amounts you can add to retirement accounts beyond the standard limits. In 2026, these catch-up thresholds are seeing modest, incremental increases.
These aren’t dramatic shifts, and they’re not meant to overhaul anyone’s planning. But for high earners in their peak earning years, they can still matter.
Why this matters for high earners: Every additional dollar you’re able to shelter in a tax-advantaged account compounds over time, helping convert high income today into meaningful long-term wealth.
These adjustments also create a small but valuable opportunity to reduce taxable income at a stage in your career when your earnings (and therefore your tax exposure) are highest. It’s not a dramatic change, but it’s a lever worth pulling for anyone intent on maximizing their retirement strategy.
Related: Beyond the Basics: Strategic 401(k) Maximization for Dual-Career Professionals
Backdoor Roth Conversions
A backdoor Roth conversion allows high earners who typically earn too much to contribute directly to a Roth IRA to access Roth benefits. With TCJA tax brackets being extended, planning around conversions becomes more predictable, making it easier to decide when and how to leverage this strategy.
The process is simple: You make a non-deductible contribution to a traditional IRA and then convert those funds to a Roth IRA. Once the money is in the Roth, it grows tax-free and can be withdrawn tax-free in retirement. Keep in mind that this strategy is not advantageous if you already have a balance in a pre-tax traditional IRA.
Why this matters for high earners: Executed properly and in coordination with your tax professional, a backdoor Roth allows us to diversify your future tax exposure and build long-term flexibility into your retirement plan.
Preparing for the New Year: Our Framework for the Future
As we help position your portfolio for 2026, our focus isn’t on reacting to every headline. It’s on building a plan that works regardless of what’s happening in the markets or the broader political environment.
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- Focusing on What We Can Control. Rather than stressing over market or political uncertainty, we help you concentrate on the levers that reliably create better outcomes: the investment solutions you choose, the amount of risk you take, the costs you pay, and the tax and retirement planning opportunities available to you.
- Creating Flexible, Adaptable Plans. Life doesn’t follow a straight line, and neither should your financial strategy. We adjust your plan as your income grows, your family changes, or new opportunities and challenges arise, without having to rebuild everything from scratch.
- Coordinating Directly with Your Tax Professional. When we collaborate with your tax professional—sharing context, clarifying timing, and aligning strategies—we help ensure opportunities like Roth conversions and deductions are executed cleanly and efficiently.
Before the New Year: Understanding Your Risk and Exposure
I talk about “exposure” often because it’s something I see with almost every high-earning client we meet, even those who are doing incredibly well on paper. You’re earning a lot, saving a lot, and making smart decisions, but you may still be unsure whether everything is positioned as effectively as it could be.
Before we start layering in strategies or taking advantage of new opportunities in 2026, this clarity is essential.
Investment Exposure: Making Sure You’re Taking the Right Risks
On the investment side, exposure usually shows up as over-concentration or risk mismatches. Maybe your portfolio mirrors the sector you work in a little too closely, or the level of risk you’re taking doesn’t actually line up with your goals or comfort level.
As we head into 2026, I want you to feel confident that the risk you’re taking is deliberate, not accidental. When we understand where vulnerabilities may exist, we can make thoughtful adjustments that give you more stability and long-term confidence.
Planning Exposure: Filling the Gaps Before They Matter
Exposure can also be more subtle: an outdated estate plan, an unclear retirement path, or simply not having a fully defined framework for the future. These planning gaps are incredibly common for high earners, because your career is demanding, your income is growing quickly, and life doesn’t slow down long enough to check every financial box.
My role is to help you identify these areas early, so you’re not left wondering whether something important slipped through the cracks.
Revisiting Your Asset Location: Why “Where” You Hold Investments Matters
When tax laws aren’t changing dramatically (as is the case with the extended TCJA brackets), the biggest advantages often come from structure rather than new rules. Asset location is exactly that: a structural improvement that quietly boosts your long-term after-tax returns without requiring you to save more or take additional risk.
How We Think About Positioning Your Investments
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- Using pre-tax retirement accounts for bond interest. Traditional 401(k)s and IRAs are often ideal places to hold bond investments because they shelter interest income from annual taxation. Since that interest is taxed at your highest marginal rate, keeping bonds in tax-advantaged accounts helps protect more of what you earn.
- Keeping municipal bonds in taxable accounts. Municipal bonds already offer tax-free interest income. That benefit is most valuable in a taxable (non-retirement) account, where you can actually use it. Placing munis inside a retirement account essentially wastes their built-in tax advantage and translates to lower return from your bonds. The types of bonds you invest in, and which accounts they are in should be optimized for your particular situation.
For high earners, this kind of strategic asset location is a practical way to reduce unnecessary tax drag and ensure more of your money keeps working for you over time. It’s a small adjustment with compounding impact, and one we proactively evaluate for every client.
Stepping into 2026 With Clarity
You’re already doing the hard work: earning at a high level, saving consistently, and building a meaningful future. Our role is to help you turn that effort into long-lasting stability, tax efficiency, and financial momentum.
If you’d like to review how these 2026 changes apply to your specific situation, reach out to your advisory team at Diversified Portfolios. We’re already building these considerations into our year-end and early 2026 planning conversations.
If we haven’t worked together yet and you want a clearer, calmer way to make financial decisions, we’d love to talk.
