2026 Tax Update: What You Need to Know

What’s in this article:

• New eligible expenses in 529 plans
• OBBBA introduction of 530A accounts (or “Trump Accounts”) for children
• Changes to gift tax exclusion and estate tax exemption
• New deduction and catch-up contributions for seniors
• State and Local Tax (SALT) deduction changes
• New exemptions from income tax

You may be surprised to learn that Benjamin Franklin was not the first to note the certainty of death and taxes, but that the original phrase came from a 1716 play by Christopher Bullock, “The Cobbler of Preston” in which the character Toby Guzzle remarks “’tis impossible to be sure of anything but death and taxes.” As many of us are surely turning our attention to this annual task, here are a few important changes to be aware of, both as you undertake this year’s return but also as you plan for future years.

New Eligible Expenses For 529 Plans

529 plans are a powerful tax-advantaged tool to help families save for children’s education, as contributions grow tax-free and withdrawals for qualified educational expenses are also tax-free. On July 4, 2025, the “One Big Beautiful Bill Act of 2025” (OBBBA) broadened the range of qualified tax-free 529 plan expenses beyond college costs. Previously, families could use up to $10,000 per year for qualified elementary or secondary education expenses; that has now increased to $20,000 per year. Furthermore, the definition of qualified expenses has now expanded beyond tuition: it includes materials, testing fees, tutoring, and educational therapies.

Additionally, 529 funds can now also cover post-secondary credentials such as industry-recognized certifications, apprenticeships, technical training, and required licenses. This includes continuing education fees required for credentials.

Financial planning note: For families that have unused 529 funds, there are other ways to make use of them without losing their tax-advantaged status, such as: changing the beneficiary, rolling the funds into a Roth IRA (you must maintain the account for at least 15 years prior and can only transfer up to the contribution limit), or transferring the funds into a 529A ABLE account (tax-advantaged savings created by the Achieving a Better Life Experience Act for people with disabilities) for a qualifying beneficiary.

530A or Trump Accounts 

The OBBBA introduced a new type of retirement account for children called a Trump Account or 530A account. Designed to help kids start saving early, Trump Accounts will be available beginning July 4, 2026. A Trump Account can be opened for any child with a Social Security number and who is a U.S. citizen under the age of 18 on December 31 of the year the account is opened. Through a pilot program, the government will contribute $1,000 to seed the Trump Accounts of eligible children born between January 1, 2025 and December 31, 2028. To participate, parents must opt in to receiving this benefit by registering at https://trumpaccounts.gov/.

Contributions to a child’s 530A account can come from many sources, such as parents, relatives, employers, or certain government and charitable organizations. Individual contributions are made on an after-tax basis, whereas contributions from other sources are pre-tax. Individuals and employers can contribute up to $5,000 per child per year, unrestricted by earned income. Contributions from other entities do not count toward this $5,000 limit, and contributions to a Trump Account do not affect how much a child can contribute to other Individual Retirement Accounts (IRAs). Investments are limited to low-cost U.S. stock index mutual funds or ETFs.

Withdrawals from Trump Accounts are generally restricted until retirement age. For a child after age 18, the account generally follows traditional IRA rules: contributions require earned income, standard limits apply, some investment restrictions before age 18 are lifted, and penalty-free withdrawals typically start at age 59½.

Financial planning note: While Trump Accounts can give kids a headstart on retirement savings, particularly with the $1,000 government contribution, the decision of how much to contribute beyond that requires consideration. The 530A account isn’t the most flexible option for saving, depending on your family’s needs and goals. Other accounts like UTMA/UGMA custodial accounts and 529 plans may better fit certain goals. Often, a combination of accounts tailored to the child’s needs and the parents’ intent works best. Consulting with a wealth advisor can help determine the most effective strategy.

Annual Gift Tax Exclusion

For 2026, the annual gift tax exclusion remains at $19,000 per recipient. When gifting to a spouse who is not a U.S. citizen, the exclusion rises to $194,000 (up from $4,000 in 2025).

Estate Tax Exemption

The lifetime estate and gift tax exemption rises to $15 million per person in 2026, up from $13.99 million in 2025. Couples can now shield a total of $30 million from federal estate and gift taxes.

Enhanced Senior Deductions

A new temporary enhanced deduction for taxpayers age 65 and above is effective for tax years 2025 – 2028. The new deduction amount is $6,000 per eligible individual ($12,000 for married couples) and is in addition to the standard deduction or itemized deductions.

The benefit of this enhanced deduction is limited for higher-income taxpayers. The deduction starts to phase out at a modified adjusted gross income over $75,000 (filing single) or $150,000 (joint filing). The deduction is fully phased out once income exceeds $175,000 (single) or $250,000 (joint).

Enhanced Catch-Up Retirement Contributions for Seniors

For 2026, employees aged 50 and over can contribute an additional $8,000 into their 401(k) plan (up from $7,500 in 2025). For those aged 60 – 63, the catch-up contribution is enhanced; instead of $8,000, they can contribute an additional $11,250.

This applies to both standard and enhanced catch-up contributions for participants ages 50 and above.

SALT Deduction

Under the OBBBA, the State and Local Tax (SALT) deduction limit increased from $10,000 to $40,000, effective for tax year 2025. This provision is temporary and effective only through 2029; to qualify for the SALT deduction, a taxpayer must itemize deductions. The increased deduction begins to phase down for those with modified adjusted gross income over $500,000 but is not reduced below the $10,000 minimum deduction.

Financial planning note: For those taxpayers who have been claiming a standard deduction since the 2017 Tax Cuts and Jobs Act, this may be a good time to re-evaluate. Carefully review your SALT deductions to determine whether you can claim a higher deduction by itemizing.

Other New Tax Changes: No Tax on Tips, Overtime, or Car Loan Interest

Other new tax provisions as a result of the OBBBA include new provisions on deducting tips, overtime, and car loan interest. These new tax changes are also temporary, only effective for 2025 – 2028:

• Individuals can deduct interest on car loans (provided the vehicle is qualified), up to a maximum deduction of $10,000, and phasing out for taxpayers with a modified adjusted gross income over $100,000.
• Taxpayers may deduct qualified tips, up to a maximum $25,000 annual deduction, which phases out beginning at a modified adjusted gross income over $150,000.
• Overtime income is eligible for a maximum annual deduction of $12,500, which phases out beginning at a modified adjusted gross income over $150,000.

Helpful resources

• Download Coldstream’s Key Financial Data Factsheet 2026, with the tax rate schedule; standard deductions; tax exclusions, credits, and deductions; and deadlines.
• Download Coldstream’s Personal Financial Calendar (2026), with seasonal reminders of tax deadlines and important financial planning items.

If you have any questions or would like to discuss your individual tax situation, please reach out to your Coldstream Wealth Manager.

*Certified Financial Planner Board of Standards Inc. owns the certification marks CFP^® and Certified Financial Planner™ in the U.S.

DISCLAIMER: THIS MATERIAL PROVIDES GENERAL INFORMATION ONLY. COLDSTREAM DOES NOT OFFER LEGAL OR TAX ADVICE. ONLY PRIVATE LEGAL COUNSEL OR YOUR TAX ADVISOR MAY RECOMMEND THE APPLICATION OF THIS GENERAL INFORMATION TO ANY PARTICULAR SITUATION OR PREPARE AN INSTRUMENT CHOSEN TO IMPLEMENT THE DESIGN DISCUSSED HEREIN.

CIRCULAR 230 NOTICE: TO ENSURE COMPLIANCE WITH REQUIREMENTS IMPOSED BY THE IRS, THIS NOTICE IS TO INFORM YOU THAT ANY TAX ADVICE INCLUDED IN THIS COMMUNICATION, INCLUDING ANY ATTACHMENTS, IS NOT INTENDED OR WRITTEN TO BE USED, AND CANNOT BE USED, FOR THE PURPOSE OF AVOIDING ANY FEDERAL TAX PENALTY OR PROMOTING, MARKETING, OR RECOMMENDING TO ANOTHER PARTY ANY TRANSACTION OR MATTER.