Tax-Smart Retirement Strategies for 2026

Linda always took the standard deduction on her taxes. It was simple and required minimal record-keeping. At 68, with modest income from Social Security and her pension, she couldn’t imagine itemizing would ever be worth the hassle.

Then, she mentioned to a financial professional that her property taxes in New Jersey were $12,000 annually. “Based on new SALT caps and your circumstances, you should consider itemizing.”

After running the numbers, Linda discovered she could deduct $12,000 in property taxes, $3,200 in mortgage interest, and $2,500 in charitable contributions. Combined with the $6,000 senior deduction, her total deductions would exceed $23,700. In total, her deductions exceeded her standard deduction, reducing her taxable income. Linda realized she may not have been utilizing her deduction capacity.

New tax provisions for 2026 create opportunities for retirees to significantly reduce their tax burden, but only if they know what’s available and how to use it.

The New Senior Deduction

One of the most significant changes for retirees is the new senior deduction starting effect in the 2025 tax year. Individuals age 65 or older can claim an additional deduction of up to $6,000 ($12,000 for married couples if both spouses qualify).

This is separate from other deductions and available for both taxpayers who itemize or file with the standard deduction.

For someone with a 22% marginal rate, a $6,000 additional deduction could potentially save $1,320 in federal taxes annually. For older Americans facing increased healthcare and living costs, this may help offset rising expenses.

“These are real advantages that many retirees may not know exist,” says Darren Nomberg, Senior Vice President at David Lerner Associates.

“Some people could save thousands if they use deductions as a tool for their particular circumstances. For those nearing retirement, the senior deduction can be worth considering not only for tax planning, but for IRA withdrawal strategies as well.”

Exploring Tax Deduction Strategies

To itemize or not to itemize, that is the question. While new increases can lead to new opportunities for tax planning, it’s important to run the numbers of what will actually decrease your tax liability.

The Case for Itemization

Under the recent One Big Beautiful Bill Act (OBBBA), the State and Local Tax (SALT) deduction cap had a significant increase from $10,000 to $40,000 annually. This can dramatically change itemization strategy, especially for retirees in high-tax states.

SALT includes state income taxes or sales taxes plus property taxes. With a higher cap ceiling, some taxpayers might find they have high deduction potential by itemizing with other deductions like charitable contributions, mortgages, and medical expenses.

This may be particularly valuable in states where property taxes and state income taxes run high.

The Case for Standard Deductions

Standard deduction caps have also increased for the 2025 tax year ($16,100 for single filers and $32,200 for married couples filing jointly). If your itemized deductions don’t reach that threshold, sticking to standard deductions could be more worthwhile.

Bundling Deduction Strategies

Some taxpayers may want to hold off on itemizing certain deductions this year so they can bundle them in the near future. For example, you may take the standard deduction this year.  Then next year, you may put a higher amount into your charitable contributions, property tax payments and medical expenditures and itemize those deductions. This would allow for a higher deduction that may exceed the standard deduction limit.

Roth Conversion Opportunities

Roth conversions involve moving money from traditional IRAs to Roth IRAs, paying taxes on the converted amount now to avoid taxes on withdrawals later.

The case for Roth conversions in retirement is strongest when:

• You’re in a lower tax bracket now than you expect to be later.
• You have years before retirement.
• You want to reduce future RMDs and leave tax-free money to heirs.
• You expect your tax rates to increase in the future.

With the senior deduction and potentially lower income in early retirement, the years between retirement and age 73 can be ideal for conversions.

The senior deduction helps by reducing your taxable income, giving you more room for conversions while staying in lower brackets.

Managing RMDs Strategically

Required minimum distributions begin the year you turn 73 (for those born in 1960 or later, that will change to age 75). The amount you must withdraw is calculated by dividing your account balance by your life expectancy factor.

RMDs can push you into higher tax brackets, trigger IRMAA surcharges on Medicare, and cause taxation of Social Security benefits. Some strategies that could help manage this:

Roth conversions before age 73: Every dollar converted is a dollar not subject to RMDs later.

Bunching RMDs (if timing allows): You may be able to bunch RMDs depending on timing. For example, if you turn 73 mid-year, the first RMD can be taken by April 1 of the following year.

Consider Roth conversions in down markets: If your IRA drops in value, converting while it’s down can mean less tax paid now and allow for more tax-free growth later.

Medical Expense Deductions

Medical expenses exceeding 7.5% of adjusted gross income are often deductible if you itemize.

Deductible medical expenses can include:

• Insurance premiums (excluding premiums already tax-deducted)
• Doctor and dentist visits
• Prescription drugs
• Inpatient hospital care or residential nursing home care (for medical reasons)
• Long-term care premiums (limited by age)
• Transportation for medical care

A common strategy is to bunch non-urgent medical expenses in years you’ll itemize. Schedule elective procedures, buy hearing aids, get new glasses, and pay for dental work all in one year to exceed the 7.5% threshold.

Making the Most of Opportunities

While these tax provisions are active for 2026, they currently expire in 2029. That means that these opportunities are time-sensitive and not guaranteed in the future.

Review your situation now and run different scenarios of how different deductions may affect your planning. Remember that strong tax planning isn’t just about this year; it also takes into account multi-year deduction strategies and long-term considerations, including retirement planning.

Run projections for itemizing versus standard deduction. Model Roth conversion scenarios. Consider accelerating strategies that benefit from current rules before they potentially change.

Want more help in exploring what retirement savings strategies are right for your needs? Talk with an Investment Counselor at David Lerner Associates for a one-on-one appointment. Together, we can look at customized investment solutions that work with your tax strategy.

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Material contained in this article is provided for information purposes only. It is not intended to be used in connection with the evaluation of any investments offered by David Lerner Associates, Inc. This material does not constitute an offer or recommendation to buy or sell securities and should not be considered in connection with the purchase or sale of securities. These materials are provided for general information and educational purposes, based on publicly available information from sources believed to be reliable. We cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice. David Lerner Associates does not provide tax or legal advice. The information presented here is not specific to any individual’s circumstances. Each taxpayer should seek independent advice from a tax professional based on his or her circumstances. The subject of this article is fictitious and created for illustrative purposes only. It is based on events of a similar nature and should not be interpreted as a direct depiction of any specific