THE IRS WANTS MORE: UNDERSTANDING THE 2026 CHANGES

Tim:[00:01:20]Well, welcome to this episode of Pilot’s Portfolio. My name is Timothy P.
Pope. I’m a Certified Financial Planner principal at 360 Aviation Advisor, GA Pilot and your
host. Guys, I’m glad you’re here. In today’s episode, we’re gonna talk about several things,
but one thing that I’m thinking about and it’s frustrating me, is this upcoming tax grab that is
coming to you in 2026. I think you should be aware of it. It’s super obvious. Like they, I
mean, it’s, we’re gonna talk about that, but we’re gonna talk about some other things as well.
Let’s talk about some of those things and we’ll save that for a little bit later. But guys, I don’t
know about you, but as we approach the end of the year, every year, like I always get a little
bit reflective, you know, just thinking about what went well and next year, what I’d like to do
differently.

[00:02:12]You know, this goes to a lot of aspects in life, but, financially definitely is one of
those areas. So, I want you to think like, what is one of the things that you knocked out this
year? Maybe you set out to do it, maybe you didn’t set out to do it and you just ended up
doing it. But what is one financial achievement that you accomplished this year that you feel
really good about? Like, was it, hey, you bought a new home, maybe you upgraded. Maybe
it was the first time, celebrate that. Was it that you hit a savings target, whether that’s in the
401k or the brokerage account. Maybe you just started saving and you just started
automating something and you feel good about that, celebrate that. Maybe that you pay
down debt. You feel really good about that, maybe you took a big trip, you know, that you
planned for, and boom, you spent a long time planning, spent a long time thinking about it,
saving for it.

[00:03:08]You spent some time paying for it, and then you executed, whatever your success
was. I want you to just take a moment. Bask in that success. Be happy about it. Right.
Appreciate the fact that you accomplished it. Matter of fact, as I’m talking about this, it’s
making me think about goodness. It feels like forever ago. It was just earlier this year, a year
ago I was planning it, but earlier this year, my wife and I celebrated a milestone anniversary.
And so I flew us to a place that she’s wanted to go for a while. It was all, planned and all like,
surprised, right? So like, you know, flew us out there. I don’t fly private aviation, right? He’s
like, I’m not your net jets or your Flex Jet client. So it was super cool for me to fly us there.
We get there for airports, you know, closed, but we had the rental car arranged and
everything, so just boom, you know, picked it up and, and kept going. And then I think it was
the next day. I had like a photographer meet us out on the beach. My wife got a new ring out
of the deal, which was, super awesome. And she said yes. So she agreed to stay married to
me. So that was a nice win for me. I could say, so yeah, that happened. Man, it seems like
forever ago, but, that happened earlier this year, and I feel really good about that. So I’m
sure that you guys have similar stories and accomplishments whether they were strictly
financial or maybe it was a life event like I just shared. But we know that these memories
that we work hard to create and share with those that we love.

[00:04:45]Most of the time are not free. Most of the time they involve some financial
resources. So, bask in that success, pat yourself on the back, be happy about that. Also,
with this reflection, typically there’s two sides to every coin, right? And so I also think about
like, hey, like what?Didn’t go as planned. And what do I want to do differently or do better
next year? And I want you to ask yourself that as well, right? Did you plan to save more, but
somehow you ended up not saving more or did you plan to finally get that estate plan done?
But it’s still sitting on the to-do list. Maybe you plan to, really tackle that debt reduction, but
somehow that balance is a little bit higher than what you want it to be like. Right? So
typically, you know, there’s the plan. Something that would go well, and maybe there’s a
reason. My question is just, hey, like, what are you going to do differently? Or what are you
gonna do next year to make sure that you have the outcome that you want? And sometimes
it’s, you know, there’s so many people I talk to and they say, man, you know, I’ve been
thinking about working with a financial planner for years, and I’m finally getting around to do
it, It’s like, maybe that’s you, maybe next year, 2026 is your year to just really lean in and,
and organize your finances and, and optimize them.

[00:06:09]And as I was saying, like, hey, there’s, two sides to every coin. Maybe one of the
things that you had wanted to accomplish or plan to accomplish this year was moving. To a
different property and for whatever reason, interest rates were stubbornly high, prices, you
know, although they’re starting to slide, they haven’t come down to where you, you feel
comfortable pulling the trigger on that. So maybe that’s one thing didn’t go as planned. And
speaking of moving, if you, listened to the show you, you know, about beacon relocation.
Speaking of moving, if you expect to move by the end of 2025 or the end of 2026 and you
haven’t heard the October 13th episodes that season two episode 17, go give that a listen.
Cause Beacon shares how they’re gonna help you save more money on your next real
estate transaction between now and the end of 2026. And all you gotta do is go. Give them,
well first get the promo code and then give them a shout and say, hey, I’m thinking about
moving. Right? That’s it between now and 2026.

[00:07:12]So go give that a listen and then if that applies, follow the appropriate steps.
So,You know, there’s so many possible stories that you guys may have on what went well
and, and what you plan to do differently.So, reflect on that. I’d love to hear the success
stories like, shoot me a note info@pilotsportfolio.com. Like, tell me what you accomplished
and let’s celebrate that together. Alright, down to. Some changing numbers that I think you
should be aware of.And let’s talk about contribution limits. ’cause 2026 is going to see some
changes in contribution limits. Let’s start with the 401k first. So this is probably your largest
retirement account. The amount of money that you can put in from salary deferral and
choose to be either pre-tax or Roth, that amount is gonna go up to 24,500 In 2026. And that
is up slightly from 23,500. So it’s up a thousand dollars. From the 2025 number. The total of
what you can put in and what your employer, puts in. So now we’re thinking about that,
NEC, that number is going up. So in 2025 it’s 70,000. Next year in 2026, it’s going to be
72,000.So that number’s gonna go up a little bit.

[00:08:34]Also sticking with the 401k, those catch up contributions. If you age 50, your
catchup contribution is gonna go up by $500. So right now, in 2025, it’s $7,500, And in 2026,
that catchup contribution is going to go up to 8,000. And then there’s this thing called a super
catchup contribution. I think that a few episodes ago I talked about it and it was in a different
context and a different light. The super catchup contributions, it’s relatively new just was
passed recently with the Secure Act two. And the thing with the Super Catchup contribution
is if you are between the ages of 60 and 63 in 2026, you’re gonna be able to put in not
$8,000, you’re gonna be able to put in $12,000. Okay? And I wanna make a note with these
catchup contributions, the catchup contributions do not count against that $72,000 maximum
between you and the employer.

[00:09:38]Completely different section of the revenue code. So that’s gonna be in section 4 1
5. I’m sure you don’t wanna know that, but these catchup contributions are in a different
section. Your salary deferral, your 24,500 plus, your NEC can cap out to 72. Then if you’re
50, you’re gonna be able to put $8,000 on top of that. If you’re between 60 and 63, you’re
gonna be able to put $12,000 on top of that $72,000 number. So there’s some of you guys
that are gonna be able to tuck away 84 grand before, getting spill cash or before that spill
cash is tucked away into your cash balance plan for you. As that puff John’s commercial
from, from, I don’t know, 10 years ago.s that guy says, right, he says, that’s a lot of dough,
and it is, that’s not chump change. 84 grand that you can put away, and by the way, with it
being in your 401k and not your cash balance plan, that means that you can actually control
the investments.And I think that’s a big point to note.

[00:10:44]Some other contribution limits that are changing is your IRA and your Roth IRA
contribution limits.Okay. So with your IRA and your Roth, that’s gonna go up by 500 bucks.
This year your IRA, your Roth IRA contribution limits 7,000. Next year it’s gonna be 7,500.
And then of course, if you’re age 50, you can throw in an extra thousand dollars on top of
that, right? So for a total of 8,500 bucks. Your HSA contribution, those contributions are
going up a little bit, right?So if your high deductible health plan covers a family, you’re gonna
be able to put in 8750. And if your high deductible plan covers an individual, then just you,
you’re gonna be able to put in 4,400 bucks in your HSA. If you’re age 55 and older, you can
put in an extra thousand dollars.

[00:11:35]Just note that the HSA has a higher age. For the retirement contributions, it’s 50.
For the HSA, it’s 55. And I’ve seen this done and it’s completely legal. If you and your
spouse both have independent coverage in your HSA, meaning it just covers you.And then
your spouse’s high plan just covers your spouse, and you’re both over the age of 55. You
can both put in that thousand dollars catchup contribution, and together you guys will have
$10,800 in your HSAs contributions for the year instead of the 8750. So, hey, a little bit more
money in the HSA, let’s remember, HSA contributions are tax deductible and then when you
use them, the money for qualified health expenses, they’re also tax free. So you can do that.
Just make sure that. It actually makes sense for you to have two different health insurance
plans, and you’re not gonna be paying more than, more than the, the difference there. That’d
be 2050 bucks. You’re not gonna be paying more than the difference there on premiums or,
you know, other out-of-pocket costs, right?It, it needs to make sense.

[00:13:51]Let’s talk about the new catch up contribution rule that is going in effect in 2026.
Okay, so you guys just heard me say that if you are age 50 and above, you can do $8,000
catch up. And if you’re 60 to 63, you could do $12,000 catch up. And the new rule says that if
you’re age 50 and you’ve earned$145,000 from your airline last year, then your catch up
contribution will be required to be a Roth contribution, starting in 2026. That is nothing but a
tax grab, because just like several years ago when Congress took away the stretch IRA, and
now they’re requiring inherited IRAs in many cases, to be emptied within 10 years.That’s a
huge tax grab, I mean, it just accelerates the taxable revenue, for the IRS. This is the same
exact thing. if you’re 50 and you’ve earned $145,000 from the airline, you know, any
company, but, but this is the pilot’s portfolios that we’re focused on airlines. You are gonna
have to make that catch up contribution in Roth dollars, meaning it’s going to be tax going in
and you’re unable to make it in pre-tax dollars and defer those taxes. And let’s just think
about this, that $145,000 in earnings that’s just yours.

[00:15:18]So let’s say you have a spouse. And your spouse earns 145,000. let’s say your
spouse wanted to make a catch up contribution in their 401k. Well, the IRS says, sure, you
can make that catchup contribution, but it’s going to have to be Roth. Here’s the thing. If you
and your spouse still making that same 145 each wanted to make a Roth IRA contribution.
Then the IRS says, whoa, whoa, whoa, whoa, whoa. No, no, no. You can’t do that, because
your combined modified adjusted gross income is above the $236,000 threshold limit. You
make too much money.You need to consider a backdoor Roth conversion. But on the 401k
side of the house, they’re saying, hey, you make 145. No, you need to make those things
Roth. That’s ridiculous, I think, you know, if the IRS is going to force your catchup
contributions to be Roth, then they should at least remove the income limit for Roth IRA
contributions for that same age group, 50 and older to at least be consistent. And, the
frustrating thing about this is it’s like, and this is not lost on me, $145,000. Come on. That is
anybody at year two at a major airline with very, very few exceptions. Okay? And so, it’s not
lost on me, nor is it lost on the IRS, that hey, at age 50 you are likely getting close.To, your
top earnings. Now in the airlines, I think it’s a little different because you guys got the
seniority and you go till 65. All right, so you’re probably not at peak earnings at age 50
probably. But for folks outside the airlines, they, probably are getting close to it.But here’s the
point. So they, you know, 145, okay, if you’re getting close to max earnings, that means
you’re also climbing up the tax brackets. Which means the IRS is just, a tax grab, right?
Whatever your marginal is, you multiply that by eight or twelve. If you, you know, you got,
you got a spouse and they’re gonna do the same thing.So multiply whatever your marginal
tax rate is by, 16 or 24,000 and there you go. There’s a little bit more revenue for the
government.

[00:17:22]That’s what’s frustrating, but it is coming, so if you’re somebody who had
previously planned to make those catchup contributions and you had previously planned to
make them pre-tax, and next thing you know that you’re unable, well this is why.So just be
aware. And here’s the thing too, I love raw just as much as anybody else, but I do
understand that there’s a point, particularly depending on what state income tax that you are
in, and then your own federal, your marginal federal bracket, there’s a point where in a lot of
cases, it makes sense to transition your 401k contributions to pre-tax, because the savings
do become substantial, whenever you go from Roth to pre-tax. Okay. That being said, we
work with clients about making, even if I’ve switched my 401k contributions from Roth to
pre-tax, we’re still interested in maxing out raw shelf space in the way of a Roth IRA and
doing a backdoor, as a decision tree, hey, I maxed out my 401k, my next dollars, do I want
them to be in a brokerage account where those dividends and capital gains are not going to
be shielded, and I will have to pay taxes on those at some point. Or do I want to be in a tax
free account? And typically when we get to that point, a $7,000 contribution year over year
is, you know, it’s not a game changer.

[00:18:45]But certainly, I mean, if, if the shelf space is available to me, I want it. Right? And
so, you know, I love Roth just like anybody else. I do understand that there’s nuances in
terms of planning and the planning can make a big difference. Now, here’s the other thing.
Let’s do a quick review of the differences between the 401k and the IRA, because we use
the same language, we use Roth and pretax in both cases, but they could be different things
and there’s different rules. It’s not lost on me that I do this every day, and so, let’s just do a
quick little review to make sure we’re on the same page. So when we say Roth, that just
means tax structure. Okay. That means I’ve put in after tax contributions. I’ve already paid
taxes on these contributions, or, or I will be paying taxes on these contributions, and then
when the money comes out, my earnings will be tax free. That’s what Roth means, right?
Then pre-tax, it is the opposite, right? So I’m putting money in, I’m taking a tax deduction
now, but then in the future when I take the money out, my earnings, I’ll have to pay tax on my
earnings and on my contributions in fact. And so Roth just means tax structure.

[00:19:59]Now, 401k and IRA are account types. So think if you’ve got different accounts.
Different account types, you got different rules. All right, so your 401k is gonna be really big
contribution limits like we just talked about. Your employer, your airline is gonna be able to
put in money for you through the NEC, you’re gonna be able to choose, you know, of your
24,500. If that money goes to Roth or if it goes to pre-tax. Right? So, so that’s the 401k side.
On the IRA side, the, I actually stands for individual, so it’s all you, right? Like you put money
in there there’s a much smaller contribution limit, so that it’s that 7,000 this year, 7,500 in
2026 plus a thousand dollars if you’re age 50 or older. And so, those are the key differences
between the 401k and the IRA. They can both be Roth or they can both be pre-tax, but
different amounts and then different rules as we just, which just went, went through. And it
used to be, every time you could hear like, hey, I was told that I made too much money and
I’m not able to do a Roth.I mean, that would always be. Hey, well that meant you can’t do a
Roth IRA and you can still do Roth 401k. And oh, by the way, here’s this backdoor way to, to
get into, and it’s completely legal. Here’s this backdoor way to get into a Roth IRA anyway,
right? So that, that’s used to be what it is.

[00:21:26]Now, I expect you’ll hear. Hey, I, I’ve been told that I made too much money. I have
to do Roth, and that conversation is gonna be well only on your catchup contributions in your
401k, you’re still gonna have a choice on that first 24,500 whether you direct that to pre-tax
or Roth. And believe me, it’s not a set it or forget it. Because as you climb the tax brackets,
and that can make a huge, huge difference. So that’s everything I wanted to go over in
today’s episode was, hey, we got these 2026 changes coming up. Wanted to share that tax
grab that’s coming for you in 2026, especially if you’re age 50 or older. By the way, if you’re
between 60 and 63, you’ve got the extra money that you can put in, and then as we talked
about in the beginning we just reflect, right? Like reflect on the things that went well this year
and celebrate that, right? And then think about what you’re gonna do different next year and
then get busy. So with that, guys, thanks for joining this episode, by the way, love hearing
from you guys. So, please do continue to send your questions info@pilotsportfolio.com. We’ll
get those addressed. We’ll see you on the next episode.