Planning Strategies to Optimize Tax Savings in 2026

by Bill Cass of Franklin Templeton Investments, 3/28/26

While key tax law changes impact 2025 returns, there are some tax law changes from the One Big Beautiful Bill Act (OBBBA) which take effect in 2026. As taxpayers look at the year ahead, it’s an opportune time to evaluate their current financial planning strategies and seek ways to optimize income tax savings even further.

Here are six strategies to consider to optimize income tax savings this year.

1. Consider Roth conversions

Roth conversions can be an effective way to hedge against the threat of facing higher taxes in the future. Lower tax rates now may translate to a lower cost for converting Traditional IRA assets to a Roth IRA. It is virtually impossible to predict tax rates in the future or have a good idea of what your personal tax circumstances will look like years from now. That’s why diversifying your tax liabilities may make sense. Also, tax-free Roth income will not negatively impact the taxation of Social Security benefits or be considered when determining the amount of Medicare premiums.

2. Consider other ways to fund Roth accounts

Taxpayers at higher income levels are prohibited from contributing directly to Roth IRAs. For 2026, income phaseouts begin at $153,000 ($242,000 for married couples filing a joint return). Taxpayers may want to consider funding a non-deductible (i.e., after-tax) IRA and then subsequently converting to a Roth IRA. There are no income restrictions on Roth IRA conversions. However, adverse tax consequences, referred to as the “pro rata” rule, may apply if the individual owns other pretax IRAs (including SEP-IRA or SIMPLE IRA). Before considering this strategy, taxpayers should consult with their tax professional. Also, participants in 401(k) plans may be able to make voluntary after-tax contributions into their plan in excess of their salary deferral limit ($24,500 for 2026). When allowed by the plan, after-tax contributions and earnings may be moved into a Roth 401(k) through an in-plan conversion. Any earnings would be subject to income taxes upon conversion. After-tax contributions may also be directly transferred to a Roth IRA without any income tax consequences upon a plan triggering event, while earnings from after-tax contributions can be converted to a Roth IRA or rolled separately into a Traditional IRA upon such triggering event. This may be a strategy for higher-income taxpayers to diversify their tax liability in retirement.

3. Maximize deductions in years when itemize

With the now-permanent increased standard deduction under recent tax law changes, and the scale back of many popular deductions, few taxpayers choose to itemize on their tax return. Some taxpayers may benefit by alternating between claiming the standard deduction some years and itemizing deductions other years. If possible, it may make sense to “lump” as many deductions into those years when itemizing. Beginning in 2026 taxpayers should be aware that new limitations on charitable deductions are taking effect.

4. Expand use of 529 accounts for education savings

529 college savings plans have several tax advantages. Account earnings are free of federal income tax, and a special gift tax exclusion allows individuals to elect to treat up to $95,000 of contributions ($190,000 for married couples) as though those contributions had been made ratably over a five-year period. Over the years, Congress has expanded the list of “qualified educational expenses” for 529 purposes from just tuition, room and board to include items such as laptops, student loan interest, qualified apprenticeship programs, and other expenses. Most recently, the new tax law doubles the annual limit for K-12 expenses from $10,000 to $20,000.