What the 2026 Federal Tax Changes Mean for Tennessee Households
By Allen Buckley, CFP®, Founder & Managing Partner, Paragon Private Wealth Management
Three federal changes matter most for Tennessee families this year. If you are 50 or older and earned more than $150,000 in Social Security wages from your employer in 2025, your 401(k) catch-up contributions must now go in as Roth. If you are 65 or older, you may get a new deduction of up to $6,000 per person, and if you itemize, you can now deduct up to $40,400 in state and local taxes, which matters here mostly for property tax and for families still paying a final California or New York bill.
Key takeaways
- Roth catch-ups: If your 2025 W-2 Box 3 wages from the employer sponsoring your plan were over $150,000, your 2026 catch-up contributions must be Roth.
- 2026 limits: $24,500 regular deferral, $8,000 catch-up at 50 and older, and $11,250 if you turn 60, 61, 62, or 63 this year.
- Senior deduction: Up to $6,000 per person age 65 and older for 2025 through 2028. It shrinks once income passes $75,000 ($150,000 for joint filers).
- SALT cap: $40,400 for 2026, reduced for incomes over $505,000. In Tennessee it mainly helps with property tax and prior-year state tax from another state.
Why Tennessee households read these changes differently
Tennessee does not tax wages, and its Hall tax on interest and dividends was fully repealed starting in 2021. So for most families here, the federal return is the whole income tax picture. Much of the national coverage, written for high-tax states, does not fit you. If you are new here, our post on why families are relocating to Franklin covers the bigger picture.
Change 1: Roth catch-up contributions for higher earners 50 and older
Who has to make catch-ups as Roth
This SECURE 2.0 rule takes full effect in 2026, after an IRS transition period ended December 31, 2025. It applies if all of these are true:
- You are 50 or older by the end of 2026.
- You make catch-up contributions to a 401(k), 403(b), or governmental 457(b) plan.
- Your 2025 Social Security wages (Box 3 of your W-2) from the employer that sponsors the plan were over $150,000.
The test is per employer. If you changed jobs and had no 2025 wages from your new employer, the rule generally does not apply to you there this year. If your plan has no Roth option, you may not be able to make catch-ups at all until it adds one.
2026 contribution limits
| Regular limit | Catch-up | Total | |
|---|---|---|---|
| Under 50 | $24,500 | None | $24,500 |
| 50 to 59, or 64 and older | $24,500 | $8,000 | $32,500 |
| Turning 60 to 63 in 2026 | $24,500 | $11,250 | $35,750 |
Only the catch-up portion is affected. See our year-end tax planning moves for 2026 for the rest.
Hypothetical example
Hypothetical, for illustration only. Karen lives in Brentwood and turns 61 in 2026. Her 2025 W-2 shows $165,000 in Box 3. She can contribute $24,500 pre-tax plus an $11,250 catch-up, but the catch-up must be Roth. That adds $11,250 to her 2026 taxable income compared with going all pre-tax. At an assumed 24% federal rate, that is about $2,700 more federal tax this year. Tennessee adds nothing. In return, qualified Roth withdrawals later are federally tax-free.
Change 2: The new senior deduction (2025 through 2028)
How the phase-out works
If you are 65 or older by the end of the year, you may deduct an extra $6,000, on top of the existing additional standard deduction for seniors ($1,650 per married spouse for 2026). A married couple can claim $12,000 if both qualify. You can take it whether you itemize or not. You must include your Social Security number, and married couples must file jointly.
Each $6,000 shrinks by 6% of modified adjusted gross income over $75,000 ($150,000 for joint filers). It is gone at $175,000 for single filers and $250,000 for joint filers.
Hypothetical example
Hypothetical, for illustration only. A Franklin couple, both 67, expect $190,000 of income. That is $40,000 over the joint threshold. Six percent of $40,000 is $2,400, so each spouse gets $3,600, or $7,200 together. If they add a $30,000 Roth conversion, income rises to $220,000 and the deduction drops to $3,600 total. That lost deduction is a real cost of the conversion, as our Roth conversion post explains.
Change 3: The higher SALT deduction cap
Why it matters less in Tennessee, and when it still matters
If you itemize, the cap on state and local taxes is $40,400 for 2026. It rises 1% a year through 2029, then drops back to $10,000 in 2030. Once income passes $505,000, the cap falls by 30 cents for each extra dollar, but never below $10,000.
With no Tennessee tax on wages, most long-time residents deduct mainly property tax. The higher cap still matters for larger property tax bills and for families who moved from another state, because prior-year state income tax paid during 2026 counts toward your 2026 deduction.
Hypothetical example: a 2025 move from California
Hypothetical, for illustration only. A family moved from California to Franklin in 2025. In 2026 they pay a $26,000 final California balance for 2025 and $6,500 in property tax, for $32,500 total. Their income is $420,000, under the $505,000 threshold, so all $32,500 counts if they itemize. Under the old $10,000 cap, only $10,000 would have counted. Without that bill next year, the standard deduction ($32,200 for joint filers in 2026) may win again, so 2026 could be the year to group charitable gifts. Our checklist for moving from California or New York covers the other steps.
What to do before December payroll elections
- Find your 2025 W-2 and check Box 3 for each employer that sponsors your plan.
- Ask HR whether your plan offers Roth and how it is handling catch-ups for 2026.
- Plan for 2027. The IRS has not yet announced the wage threshold for 2027 catch-ups.
- Check your age next year. Turning 60 to 63 means the higher catch-up; turning 64 means the standard one.
- If you are 65 or older, estimate your 2026 income before any Roth conversion, large IRA withdrawal, or capital gain.
- If you moved here recently, total the state and local taxes you paid in 2026 and compare them with the standard deduction.
- Bring your tax preparer in before year-end.
Frequently asked questions
Do I have to make my 401(k) catch-up contributions as Roth in 2026? Only if you are 50 or older and your 2025 Social Security wages from the employer sponsoring your plan were over $150,000.
Which W-2 box decides whether the Roth catch-up rule applies to me? Box 3 (Social Security wages) from the employer that sponsors the plan, under the IRS final regulations.
Can I claim the new senior deduction if I take the standard deduction? Yes. It is available either way, if you are 65 or older by year-end and meet the income and filing rules.
Does the higher SALT cap help if I live in Tennessee? Sometimes. It helps most if you are paying another state's income tax for a prior year or have a large property tax bill.
How long do these changes last? The senior deduction runs from 2025 through 2028. The higher SALT cap runs through 2029, then returns to $10,000. The Roth catch-up rule has no end date in the law.
Talk it through with Allen
These rules touch each other. One Roth conversion can change your senior deduction, your SALT cap, and your Medicare premiums. Paragon Private Wealth Management works alongside Paragon Tax, so we can look at your contributions, withdrawals, and tax payments together. If you would like to talk through your 2026 picture before year-end, we would be glad to sit down with you in Franklin.
Paragon Private Wealth Management is a financial services group offering investment advisory services through Savvy Advisors, Inc. ("Savvy"). Savvy is an investment advisor registered with the Securities and Exchange Commission ("SEC"). Paragon Private Wealth Management is not a separately registered investment advisor.
Tax services are provided through Paragon Tax, a separate and distinct entity from Paragon Private Wealth Management and Savvy Advisors, Inc.
This is general information, not tax or legal advice.