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Tax

Retirement Accounts and Tax Planning for CPA TCP

By SimplyCPA · 11 October 2026

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  1. 2026 limits: 401(k)/403(b)/457 $24,500 (catch-up $8,000 at 50+, $11,250 at 60–63); IRA $7,500 (catch-up $1,100); SIMPLE $17,000; total annual additions $72,000.
  2. Traditional vs Roth: Traditional saves tax now and taxes withdrawals; Roth taxes contributions now and makes qualified withdrawals tax-free.
  3. Phase-outs: The traditional IRA deduction phases out if you're covered by a workplace plan (joint: $129,000–$149,000 MAGI in 2026); Roth contributions phase out at $153,000–$168,000 for single filers.
  4. Required minimum distributions: Generally begin at age 73 for traditional accounts; Roth IRAs have none for the original owner.
  5. Early withdrawals: Generally a 10% additional tax before age 59½, with exceptions such as death, disability, first-time home purchase (IRAs) and substantially equal periodic payments.

2026 contribution limits

Plan2026 limitCatch-up
401(k), 403(b), governmental 457, Thrift Savings Plan$24,500$8,000 (age 50+); $11,250 (ages 60–63)
Traditional and Roth IRA (combined)$7,500$1,100 (age 50+)
SIMPLE IRA / SIMPLE 401(k)$17,000$4,000 (most plans)
Defined contribution annual additions (employee + employer), incl. SEP$72,000—
Compensation limit used in plan calculations$360,000—

Traditional vs Roth

TraditionalRoth
ContributionPre-tax or deductibleAfter-tax
GrowthTax-deferredTax-free
Qualified withdrawalsTaxed as ordinary incomeTax-free (account open 5 years and age 59½, death or disability)
Required minimum distributionsYesNone for Roth IRA owners
Best whenToday's rate is higher than the expected retirement rateToday's rate is lower, or for tax diversification

IRA income limits (2026)

  • Traditional IRA deduction — if the contributing spouse is covered by a workplace plan and files jointly, the deduction phases out between $129,000 and $149,000 of MAGI. If neither spouse is covered, there's no limit.
  • Roth IRA contributions — phase out between $153,000 and $168,000 of MAGI for single and head of household filers. High earners can still contribute to a non-deductible traditional IRA and convert it (a "backdoor Roth"), subject to the pro rata rule if other pre-tax IRA balances exist.

Plans for the self-employed

  • SEP IRA — employer contributions up to 25% of compensation (about 20% of net self-employment earnings for owners), within the $72,000 annual additions limit.
  • Solo 401(k) — the owner can contribute both as employee ($24,500 deferral) and as employer, often allowing more on lower incomes than a SEP.
  • SIMPLE IRA — for employers with 100 or fewer employees; lower limits but simple administration.

Distributions

  • Required minimum distributions (RMDs) generally start at age 73 under SECURE 2.0 (rising to 75 for people born in 1960 or later). Missing an RMD triggers a 25% excise tax, reduced to 10% if corrected promptly.
  • Early withdrawals before age 59½ face a 10% additional tax unless an exception applies — death, disability, substantially equal periodic payments, medical expenses above 7.5% of AGI, and, for IRAs, up to $10,000 for a first-time home purchase and qualified higher education expenses.
  • Rollovers — complete within 60 days; only one indirect IRA-to-IRA rollover is allowed per 12 months. Direct trustee-to-trustee transfers are unlimited.

Planning example: A 62-year-old consultant with $180,000 of net self-employment income can defer $24,500 into a solo 401(k), add the $11,250 age-60-to-63 catch-up, and make an employer contribution — sheltering well over $70,000 in 2026, compared with a SEP limited to about 20% of net earnings.

See also individual tax planning strategies and REG retirement plans.

Sources

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