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Widow Tax

ArticleJohn Urban | Jul 25, 2026

THE WIDOW TAX is sold to the wrong households. It gets pitched to affluent couples as the reason to convert to a Roth or buy life insurance. The pitch says that when one spouse dies, the survivor files single, lands in a higher bracket, and gets clobbered. I ran the numbers for three couples at three incomes, and at the comfortable end the widow tax often costs nothing, or even less than nothing. The real cost lands lower down, on households nobody is selling anything to. What follows uses 2026 federal figures to show what the widow tax actually does in dollars, not in scary percentage points. The pattern runs opposite to the marketing. The higher your income, the smaller the hit, and the lower you go, the more it bites. Three Things Move When the first spouse dies, three things change, and they get bundled under one frightening label. One Social Security check stops, and a pension may shrink or end. That is lost income, and it is usually the largest of the three. It is not a tax. Spending shifts as well. The survivor pays one Medicare premium instead of two, but the mortgage still comes out of the same account. The third change is the only one the tax code causes: narrower single brackets, a smaller standard deduction and lower thresholds for the Medicare surcharge. The widow tax is that third piece alone, and the three households below measure how big it really is. The Affluent Couple Both spouses are over 65. Their income is about $360,000: $80,000 from Social Security, $210,000 from a pension and required minimum distributions, plus $30,000 in qualified dividends and $40,000 in long-term gains. They sit in the 24% bracket, and both already pay the Medicare surcharge. One spouse dies. The survivor keeps the larger Social Security check and most of the other income, landing at roughly $308,000. As a couple, they paid about $53,900 in federal income tax and a Medicare surcharge of about $9,240. As a single filer, the survivor pays about $55,000 in federal tax and a surcharge of about $6,355. The effective rate rises from 15.7% to 18.7%, which is the headline people remember. But the federal tax barely moves, up only about $1,100, because the survivor has less income to tax. The Medicare surcharge actually falls about $2,900, because two enrollees in the couple's joint tier cost more than one survivor a tier above. Net it all out, and the survivor pays about $1,800 a year less than the couple did. The rate went up, and the dollars went down. At the high end, the widow tax measured in money hands back a small refund. This is why the Roth conversion pitch aimed at comfortable couples misfires. If converting to Roth would cut the survivor's future taxable income without cutting the couple's lifestyle, the converted money was surplus. Surplus is money the survivor never needed to replace. Edward McQuarrie, a finance professor emeritus at Santa Clara University, made a version of this argument in a 2023 paper. He found the dollar hit inconsequential for affluent couples, and located any real cost lower down, where the Social Security torpedo bites. Where It Actually Bites Drop down to a couple with $180,000 of income: $60,000 from Social Security and $120,000 from a pension and required minimum distributions, all ordinary income. Both are over 65. The couple files jointly at $180,000; the survivor files single at about $150,000. As a couple, they paid about $17,148 in federal tax and no Medicare surcharge. The survivor pays about $22,737 in federal tax and a new surcharge of about $2,885. The federal tax rises about $5,600, and a surprising chunk of that comes from the collapse of the new $6,000 senior deduction, which phases out against a lower income threshold for singles. Then the survivor crosses into a Medicare surcharge tier the couple never paid. The total cost of widowhood here is roughly $8,500 a year, set against a $30,000 income loss. This is the one band where both the dollars and the rate move the wrong way. Now take a couple with $90,000 of income: $38,500 from Social Security, about the national average for two retired spouses, plus $51,500 from a pension and distributions. The survivor keeps the larger Social Security check and the full pension, landing at $73,500. As a couple, they paid about $3,433 in federal tax, at an effective rate of 3.8%. The survivor pays about $5,278, at an effective rate of 7.2%. There's no Medicare surcharge at this income, and there never will be. But the survivor's effective rate nearly doubles, because more of the Social Security benefit becomes taxable, up to the 85% ceiling, when the single thresholds replace the joint ones. The added tax is about $1,845, and the lost income is $16,500. Real money for a household least able to absorb it. It doubles the effective rate, and it hurts. Read the three together and the widow tax points the wrong way from the marketing. At $360,000 it costs less than nothing, roughly a $1,800 annual saving. At $180,000 it costs about $8,500. At $90,000 it costs about $1,850, but the effective rate doubles. The affluent couples being sold protection don't need it. The middle couples who feel the sting are not being sold anything, and they're the ones for whom a few thousand dollars a year actually constrains a life. The tax code has three different mechanisms, and which one finds you depends almost entirely on your income. At the top, the Medicare surcharge does the work, and it falls. In the middle, the surcharge appears from zero. At the bottom, the Social Security torpedo raises the taxability of the benefit from 75% to 85%. The mechanism changes with the income, and so does the household's ability to absorb the hit. Plan Ahead This is where the widow tax conversation usually stops, and where I think it should start. The moves most likely to leave a survivor better off are the ones you make years before, and they help whether or not the widow tax ever bites. Converting traditional IRA money to Roth over several years before retirement smooths your taxable income. It lowers the required minimum distributions that will later push a single filer into higher brackets. It can also keep a survivor under a Medicare surcharge tier the couple never worried about. Drawing accounts in a sensible order, spending down the right buckets first, reduces the future tax base that a single bracket structure will tax more steeply. Managing required distributions as they grow, rather than letting them balloon off a rising balance, limits the single bracket exposure that builds across a long widowhood. A more tax-efficient bequest helps the people who inherit what is left. None of that is widow rescue. It is good multi-year planning that happens to compound in the survivor's favor. The widow tax is one input to that planning, not the reason for it. The reason is that the year your spouse dies is the worst possible year to be making financial decisions, and the more of those decisions you have already made, the fewer you hand to someone who is grieving. You can do a rough version of this at your own kitchen table, and you should, ideally long before you need to. Estimate the survivor's income after the smaller Social Security check and any pension change, then estimate the survivor's spending from your actual budget, not a generic rule of thumb. Subtract. If reliable after-tax income still supports the life the survivor wants, with margin, the tax rate was never the thing to worry about. Then project the survivor's federal tax, the net investment income tax where it applies and the Medicare surcharge as a single filer, and compare it to the couple. Keep the tax separate from the lost income, so you can see what the tax code actually did. Sometimes, as the affluent couple shows, it does you a small favor. Only then does a planning move earn a look, and only if you can answer what it costs today, what it might save later, who benefits and what has to come true for it to work. The widow tax is real, but it isn't the catastrophe it's sold as. At higher incomes it's not a cost at all. Lower down it is a real cost, and the lower you go, the more it's worth measuring, because the households it constrains have the least margin to spare. The planning that matters most is the kind you do years ahead, smoothing income, holding down future distributions, managing the surcharge tiers and putting the estate in order. Do that, and you've done right by your survivor, for reasons that have little to do with fear and a great deal to do with care. You'll have done it in the years when you still had the time, and the clarity, to do it well. ________________________________________________________________________________ John Urban is the founder of RetireSmartIRA, a retirement tax-planning app. Earlier, he founded GT Nexus, a supply-chain software company acquired by Infor in 2015. He lives in Northern California with his wife, Kathy, and enjoys time with family, travel, reading, Bay Area sports, and the occasional deep dive into the fine print of the tax code.

Market Indicators

ArticleAdam M. Grossman | Jul 25, 2026

WHEN IT COMES to financial decisions, many investors subscribe to an approach known as evidence-based investing. The idea, as the name suggests, is to base decisions, whenever possible, on data rather than on intuition or other informal methods. This sounds logical. It isn’t perfect, though. Economic and financial indicators have weaknesses which are important to be aware of. Consider, for example, the Cyclically-Adjusted Price-to-Earnings, or CAPE, ratio, developed by Robert Shiller, a Yale professor and Nobel laureate, along with a colleague. Owing to its pedigree, the CAPE is highly respected. And a study by the Vanguard Group found that the CAPE had the strongest ability to predict market returns among fifteen different metrics it tested. For these reasons, many view it as the gold standard for stock market valuation. But how accurate has it been? For years, the CAPE ratio has been flashing red. Since 2018, in fact, it’s been more elevated than it was at the peak in 1929, just before the crash. It seems to be indicating extreme risk. And yet, the market has continued to move higher with only temporary setbacks, defying the CAPE’s warnings. Even Shiller himself has acknowledged that the CAPE’s predictive abilities can fall short. In 2021, he made this seemingly contradictory statement in an opinion piece: “The stock market is already quite expensive,” he wrote, “But it is also true that stock prices are fairly reasonable right now.” Here’s how he explained this seeming contradiction: While the stock market at the time was expensive by historical standards, he noted that investors should never look at any one metric in a vacuum. Investments need to be considered in comparison to other available options. On that basis, he said, stocks were not expensive, because bonds at the time were also expensive. Recognizing how the CAPE can register misleading readings under certain conditions, Shiller and a colleague have since developed a modified version of the CAPE called the Excess CAPE Yield. This new metric helps investors compare the prospective relative returns of stocks and bonds. Shiller’s message, in other words: The original CAPE ratio on its own shouldn’t be seen as conclusive. Another well-respected metric that’s stumbled in recent years is the Sahm rule. In general terms, this rule says that when the unemployment rate begins to increase at a particular rate, a recession is likely. In back-testing, it’s been shown to be remarkably accurate. Since 1959, it would have generated just two false positives. A few years ago, however, the Sahm rule threshold was breached, theoretically indicating a recession. But Claudia Sahm, the rule’s creator, was quick to explain why investors shouldn’t be nervous. “The Sahm rule is likely overstating the labor market's weakening due to unusual shifts in labor supply caused by the pandemic and immigration,” she wrote. And in the years since, as Sahm guessed, the economy and the stock market have indeed avoided recession. The upshot: Economic indicators may work—and even work reliably—for a period of time, but then break down when something about the economy changes in a fundamental or unique way, as occurred in the wake of Covid. Economic indicators carry another fundamental flaw: In some cases, an indicator might be correct in its prediction but less than accurate in its timing. It might tell us what’s likely to happen, in other words, but won’t tell us when that event is expected to occur. Probably the most famous occurrence along these lines was in 1996, when Alan Greenspan, then the chair of the Federal Reserve, proclaimed that the stock market was exhibiting “irrational exuberance.” Greenspan turned out to be absolutely right: A bubble was forming in the market, valuations were irrational and a crash was coming. But he didn’t get the timing right. The crash that ultimately occurred didn’t arrive until early 2000—more than three years after he issued his warning. And in those intervening three years, the market more than doubled. Investors who got more cautious in response to the initial warning would have missed out on significant gains. Along the same lines, consider what occurred with the pandemic. When Covid appeared in 2020, it seemed to arrive completely out of left field with no warning. The reality, though, is that certain experts did have pandemic risk on their radar. A 2019 risk assessment by the Federal Emergency Management Agency (FEMA) highlighted the risk of a pandemic among a short list of concerns. The problem, though, was that the report was vague, describing a risk but without any indication when it might occur. It was like a clock with no hands. It was because of examples like this that the fund manager Peter Lynch has said, “It’s futile to predict the economy, interest rates, and the stock market...If you spend 13 minutes a year on economics, you’ve wasted 10 minutes.” That’s humorous, but where does that leave us? On the one hand, we know better than to consult storefront psychics. But economic indicators aren’t terribly reliable either. Investor Howard Marks offers a helpful answer. In his book Mastering the Market Cycle, Marks offers this suggestion: Imagine, he says, a jar filled with a mix of balls of various different colors. No one can tell with the naked eye how many there are of each. But if you can at least have a sense of the mix, that can be helpful. By the same token, no economic indicator should be seen as conclusive, but taken together, they may provide a sense of where things stand. What does this mean in practical terms? Suppose, for example, you’re considering rebalancing your portfolio and wondering how aggressive to be in reducing risk. You could use Marks’s guideline in this case. If the market seems high, you might be a little quicker to reduce risk. But at the same time, we should always keep in mind the “irrational exuberance” episode as a cautionary tale. It’s a reminder to never veer too far in any one direction. As I’ve suggested before, a center-lane approach often represents the best path forward. Adam M. Grossman is the founder of Mayport, a fixed-fee wealth management firm. Sign up for Adam's Daily Ideas email, follow him on X @AdamMGrossman and check out his earlier articles.

One Person’s Luxury, Another’s Necessity

Mark Crothers | Jul 21, 2026

"I’m with your wife. We tried many cleaning services while we were both working; we concluded they left the house dirtier than when they found it. The idea they were bringing vacuums and other materials used in other people’s houses was dusgusting! I’m not a super cleaner, but better than we were paying for."

- Marilyn Lavin

Can we be completely safe?

Ben Rodriguez | Dec 17, 2025

"Harry Sit who writes on his blog The Finance Buff recently emailed me a notice about a July 2026 article about outgoing transfer lock at Vanguard and Fidelity."

- William Perry

Go While You Still Can

DavidHLancaster | Jul 22, 2026

"Health issues have stopped our travel. I miss traveling and there are a few places on the bucket list we will never see, but the good news is we traveled to 45 countries and all 50 states before age caught up with us. Once you retire, putting off what you really want to do is not a good idea. No matter what, the future is limited. We started traveling the month after I retired. To Russia that time. We have been to Ukraine, Israel, all of Europe, Denmark and Sweden, Argentina, walked with Penguins on the Falkland Islands and more. No matter what you want to do, do it sooner than later."

- R Quinn

Costa Rica: The Richest Man On The River

Andrew Clements | Jul 22, 2026

"Bob, thank you so much for sharing this information and for taking the time to read my post."

- Andrew Clements

Buying a car in retirement

Julie C | Jul 11, 2026

"We're in the process of buying our first new car in 11 years. Probably will be a Subaru Outback (that is what we have now and it has been very reliable). We are working thru the Costco auto buying service and I've got a pretty good offer already, 18% off MSRP. Of course all the fees, taxes, etc (including a tariff charge of almost $1000 since the Outback is now made in Japan) will add back most of the discount. Sales tax is almost $3500 alone. I haven't sat down with a Sales Manager yet, probably do that tomorrow. The car they quoted is a black car with black interior -- definitely a no no in the desert southwest. We'll see what happens when I ask for a quote on a light colored car. I did notice that the car we drove had Dunlops on it. I thought was sort of tacky for a top level trim car. Subaru used to fit Bridgestones to most models. Our current Outback was bought thru an Autonation Subaru dealer and it was no hassle at all. They took about 12% off the MSRP and offered a few "add ons" at the Finance desk but there was no pressure to accept anything."

- paul gipson

Fear of the Unknown…

gnussen623 | Jul 22, 2026

"Thank you “Dunn” (very clever)! I especially like your point about giving myself permission to slow down and take proper time to reflect and recharge. This will be a challenge for me as well, but it is sound advice that I will absolutely try to follow."

- gnussen623

A discussion on health insurance, premiums, profits and such- a 50 year perspective most people don’t want to accept

R Quinn | Jul 15, 2026

"Dick, could you please comment on Mark Cuban's effort to lower drug prices with his Cost Plus Drug Company? I see with Part D coverage selecting a pharmacy such as CVS is often less helpful in getting a prescription filled (very expensive that is!) but one can fill it with MCCPDC at a VERY reasonable cost outside the Part D coverage. He talks about pharmacy benefit managers and their control of the system. Perhaps you would complain for once?"

- V Saraf

Too Good to be True

DAN SMITH | Jul 22, 2026

"Oh my, I thought that was yellow highlighter🤣"

- DAN SMITH

FIFA Financials

R Quinn | Jul 19, 2026

"Being at Anfield could just as easily traumatize him for life as give him precious memories based on last season's variability."

- bbbobbins

Lessons on the Ground

ArticleDennis Friedman | Jul 18, 2026

THE OTHER DAY, WHILE walking to my mailbox, I noticed a summer class schedule for a private gifted youth academy lying on the ground. I assumed it belonged to one of my neighbors, who has elementary-aged children. Their interest in extra academics didn't surprise me. Many families move to this area because of its excellent schools. Parents here clearly value education. On any given day, it's common to hear children practicing the piano or violin as you walk through the neighborhood. I admire parents who encourage their children to excel in school. But as I looked over that schedule, I found myself wondering about the lessons that aren't taught in a classroom. Coincidentally, another neighbor's son had just graduated from college and was preparing to begin his career. If he were my son, what advice would I give him as he stepped into adulthood? After some thought, I settled on five ideas. Invest to Build Wealth. The most reliable way for ordinary people to build wealth is to become owners instead of just consumers. Buying shares of businesses allows you to participate in the growth of the global economy rather than relying solely on a paycheck. The good news is that you don't need much money to begin. What matters most is time. Starting early allows compounding to work its magic, with investment returns generating returns of their own over many years. Be a Long-Term Investor. If I could offer only one piece of investing advice, it would be to keep things simple. Invest regularly in low-cost index funds and stay invested. Trying to pick winning stocks or predict market swings is tempting, but history suggests that patience usually beats prediction. I recently read a New York Times column by Jeff Sommer that made this point well. Long-term market returns are driven by a surprisingly small number of extraordinary companies. The problem, of course, is knowing in advance which companies those will be. Broad diversification through index funds allows investors to own tomorrow's winners without having to guess who they are. Even if you think you're smart enough to spot those superstar companies, holding onto them for the long haul is a rollercoaster. They can be incredibly volatile. I've learned that lesson firsthand. A few years ago, my wife and I bought a small position in Nvidia (NVDA). It represented only a tiny fraction of our portfolio, but the stock's wild price swings made us uncomfortable. We eventually sold our shares too early for about $112, and the last time I checked, it was trading at $204. Do I regret selling? Not really. The vast majority of our stock holdings remain in Vanguard's Total Stock Market Index Fund (VTI), which owns Nvidia along with thousands of other companies. That approach has allowed us to sleep well at night while still benefiting from the market's long-term growth. Cultivate Friendships. Money matters, but people matter even more. Looking back, some of the biggest turning points in my life came because of friends. One college friend, Chuck, helped me get my foot in the door at an aerospace company when I was a history graduate struggling to find work. That opportunity led to a rewarding career. Another friend, Steve, introduced me to the woman who became my wife. That single introduction changed the course of my life far more than any investment decision ever could. But those special bonds don’t happen by accident; they require making time for them despite a busy career. Good friends encourage us, open doors we never expected, and help us through life's inevitable setbacks. Those relationships are among the greatest investments anyone can make. Give Every Job Your Best. I learned the value of hard work from my parents. When I was growing up, my father routinely left for work before sunrise and often didn't return until evening, six days a week. At the same time, he and my mother managed a 36-unit apartment building. My mother prepared dinner for our family before leaving for her own job each morning, returning home in the evening with just enough time to spend a few quiet hours with my father before doing it all again. Watching them taught me that meaningful accomplishments usually require persistence more than brilliance. There will be phases in your life when long hours are unavoidable. During those times, give your work your best effort. A reputation for reliability and diligence has a way of creating opportunities that talent alone cannot. Protect Your Greatest Asset. For someone just beginning a career, the greatest financial asset isn't an investment account. It's the ability to earn a living. Poor health can quietly undermine that ability. Regular exercise may not seem like a financial strategy, but it helps protect the income that makes every other financial goal possible. I recently came across a quote from a doctor in the comment section of an article in The New York Times that captured this idea perfectly: "Exercise, by its effect on skeletal muscle, can in part preserve cognition, prevent depression, prevent cardiovascular disease, prevent diabetes, prevent some cancers, prevent osteoporosis, and preserve independence. And the list goes on. There isn't a single pill on earth that delivers all of those benefits." Taking care of your health isn't simply about living longer. It's about preserving your independence and giving yourself the opportunity to enjoy the life you've worked so hard to build. As I walked back from the mailbox, I hoped the child whose summer schedule I'd found would do well in every class. Academic success opens many doors. But I also hope someone teaches lessons like these along the way. Years from now, I doubt anyone will remember a report card or a test score. They'll remember the habits that shaped a life: investing patiently, working hard, nurturing friendships, and taking care of their health. Those lessons may never appear on a syllabus, but they can make all the difference. Dennis Friedman retired from Boeing Satellite Systems after a 30-year career in manufacturing. Born in Ohio, Dennis is a California transplant with a bachelor’s degree in history and an MBA. A self-described “humble investor,” he likes reading historical novels and about personal finance. Follow Dennis on X @DMFrie and check out his earlier articles

Widow Tax

ArticleJohn Urban | Jul 25, 2026

Market Indicators

ArticleAdam M. Grossman | Jul 25, 2026

One Person’s Luxury, Another’s Necessity

Mark Crothers | Jul 21, 2026

- Marilyn Lavin

Can we be completely safe?

Ben Rodriguez | Dec 17, 2025

"Harry Sit who writes on his blog The Finance Buff recently emailed me a notice about a July 2026 article about outgoing transfer lock at Vanguard and Fidelity."

- William Perry

Go While You Still Can

DavidHLancaster | Jul 22, 2026

- R Quinn

Costa Rica: The Richest Man On The River

Andrew Clements | Jul 22, 2026

"Bob, thank you so much for sharing this information and for taking the time to read my post."

- Andrew Clements

Buying a car in retirement

Julie C | Jul 11, 2026

- paul gipson

Fear of the Unknown…

gnussen623 | Jul 22, 2026

- gnussen623

A discussion on health insurance, premiums, profits and such- a 50 year perspective most people don’t want to accept

R Quinn | Jul 15, 2026

- V Saraf

Manifesto

Jul 24, 2026

NO. 73: WE SHOULD be alert to things we think we know—which managers or stocks will shine, which way markets are headed—that, in truth, are unknowable and yet may poison our decisions.

Truths

Jul 24, 2026

NO. 89: HOUSES don’t appreciate much. Over the long haul, home prices have climbed just one percentage point a year faster than inflation—and much of that gain would have been offset by maintenance costs, property taxes and homeowner’s insurance. Instead, the big gain comes from the rent or, if you live in the house yourself, the imputed rent.

think

Jul 23, 2026

RETURN COMPONENTS. If the stock market’s dividend yield is 2% and earnings per share grow 4%, the investment return would be 6% a year. This is a decent guide to long-run returns. But short-run results could stray far from 6%, depending on the speculative return—changes in how investors value corporate profits, as reflected in price-earnings ratios.

act

Jul 22, 2026

OPEN A ROTH IRA for your teenagers. Have they been mowing lawns or scooping ice cream this summer? If they have earned income, they’re eligible for a Roth, which you could fund solely out of your pocket or with help from them. At their modest tax rate, the Roth’s tax-free growth will likely prove more valuable than a traditional IRA’s initial tax deduction.

Money Guide

Manifesto

Jul 24, 2026

NO. 73: WE SHOULD be alert to things we think we know—which managers or stocks will shine, which way markets are headed—that, in truth, are unknowable and yet may poison our decisions.

Spotlight: Taxes

AARP tax calculator changed to 2025

William Perry | May 28, 2025

AARP updated their 1040 free Tax Estimator for 2025 today. The calculator is before any changes in the H.R. 1 bill passed by the House recently.
One easy work around to see how the proposed law change may impact your 2025 taxes is plugging into the AARP calculator itemized deductions – interest the H.R. 1 additional $4K and $2K (if you are filing MFJ status) if you think the additional senior standard amounts will become law in 2025 plus your standard deduction for 2025.

Overtime and Tips Deduction

Bogdan Sheremeta | Dec 13, 2025

THE IRS JUST provided some guidance on how the tips and overtime deductions will work. I wanted to spend a few minutes going over the details so that you can learn how it would be reported on your taxes and share this with friends and family.
Overtime
As a reminder, the OBBBA created Section 225, which allows you to deduct qualified overtime compensation.
This deduction is capped at $12,500 per return ($25,000 for joint filers) and is subject to a phaseout based on modified adjusted gross income.

Home Tax Tips

Bogdan Sheremeta | Mar 7, 2026

IF YOU OWN a home or are planning to buy one, there are a few things you need to know from the tax standpoint that could save you money:
1. Mortgage Interest
If you have a mortgage, you can typically deduct the interest you pay on the loan up to $750,000 ($1,000,000 if taken before December 16, 2017) but only if you itemize your deductions (schedule A)
You can also deduct points you paid if you itemize.

Capital Gains Planning

Bogdan Sheremeta | Jan 3, 2026

THE IRS RECENTLY announced inflation adjustments for the tax year 2026.
2 quick changes:

Standard deduction

For single taxpayers, the standard deduction rises to $16,100 for 2026, an increase of $350 from 2025.
For married couples filing jointly, the standard deduction rises to $32,200, an increase of $700 from tax year 2025.

Capital Gains Rates

For single taxpayers, long-term capital gains are taxed at 0% if the taxable income is up to $49,450 ($98,900 for married couples filing jointly).

Business and Side Hustle Tax Tips

Bogdan Sheremeta | Dec 20, 2025

BUSINESS OWNERS HAVE far more control over their tax bill than W-2 employees. But only if you know how the rules actually work.
The tax code is structured to reward self employment, business investment, and retirement saving, yet many business owners leave significant money on the table simply because they are unaware of all the strategies.
If you are eligible, a Solo 401(k) plan can be an effective way to lower your taxes or shield your investments from future taxation.

IRS 2026 Updates

Bogdan Sheremeta | Nov 15, 2025

SECTION 415(D) OF the IRC requires the Secretary of the Treasury (IRS) to annually adjust limitations for cost-of-living increases. So, let’s dive into some of the changes:

401(k), 403(b), and Most 457 Plans:

For 2026, the 401(k)/403(b)/457(b) amount you can contribute is increasing from $23,500 to $24,500. If you are in a 24% marginal tax rate, that’s an additional $240 of federal taxes you can defer. If you are over age 50, the catch-up contributions are also increasing by $500,

Smooth Moves

Greg Spears | Jun 8, 2022

WHEN I ASKED MY college class this spring how many had been taught personal finance before, just a single hand went up. That’s why I teach Franco Modigliani’s lifecycle hypothesis of savings to my behavioral economics class. A brilliant student born to a Jewish family in Rome, Modigliani was awarded first prize in a national economics contest by Mussolini himself. Warned to flee Italy while he still could, Modigliani soon after booked a zig-zagging trip through Switzerland and France before landing in New York in 1939. He earned a PhD in economics at The New School for Social Research, then took a job at the University of Illinois. During a long drive back from a conference on saving, Modigliani hit on the theory that would make his name. He reasoned that people would gain the greatest utility, or satisfaction, if their spending was stable or rose slightly over their lifetime. A drop in spending was unsettling and risky—as Modigliani had experienced as a refugee, when he was forced to sell books to make the rent. Given this goal of steady spending, Modigliani thought the best approach to our financial life would be to save a fixed percentage of pay from the first day at work until retirement. Then we’d steadily draw down our savings, spending at the same rate we’d consumed during our working years. “Far from acquiring wealth as an end in itself, the role of savings was to accumulate resources to spend later on,” Modigliani wrote in his autobiography, Adventures of an Economist. Invoking the story of Joseph in the Bible, Modigliani wrote that we should save “during periods of fat cows in order to transfer and consume them during periods of lean cows, with the aim of maintaining a stable average consumption over the course of one’s…

Highway Robbery

Greg Spears | Jul 11, 2025

LAST YEAR, I fouled up my Pennsylvania EZ Pass account. I bought a used car in Maine and forgot to add it to my EZ Pass account. Much later, when I got back up to Maine this Memorial Day, my post office box was bulging with dunning notices from Pennsylvania, New York, Maine and Delaware. For most of a year, I had driven from Washington D.C. to Maine blissfully unaware that my EZ Pass transponder wasn’t paying a cent. Instead, I had entered the murky world of toll by plate, where a snap is taken of my license plate and a bill is sent to my address—in this case Maine. Two problems: Toll-by-plate charges are much higher than EZ Pass rates. Second, I don’t live in Maine in the winter, so I wasn’t getting those bills. Yes, I am loosely organized. It was months before I turned the key on my post office box in Maine to discover I was a notorious scofflaw. New York had sent my overdue tolls for crossing the George Washington Bridge to a collection agency. Maine had piled on late fees until a $1 toll turned into a $14 charge. Delaware, however, was the highway robber. I used to wonder how the State of Delaware could provide services without having a sales tax. Now I realize that it simply soaks the people who drive through it. A $4 toll in Delaware had blown up into a $91 charge, and this had happened to me four times. In a blur, I wrote some checks, made some calls, and filed some appeals. Delaware dropped its tolls down to $51 each. Maine kindly rescinded all the overcharges, so I paid them $1. New York wouldn’t budge, so I paid the collection agency $55. Pennsylvania was the easiest to…

Buffett’s Pension

Greg Spears | Jul 22, 2022

AS MY OLD NEWSPAPER company slid toward bankruptcy, it signed over the deeds to its newspaper buildings to the pension plan in an effort to meet its obligations. It was like burning the furniture to keep the house warm—and it worked about as well as you might expect. When the company finally filed for bankruptcy in 2020, it laid the blame on its unfunded pension obligations. The pension fund was short by $1 billion, according to a subsequent audit by the Pension Benefit Guaranty Corporation, which took over the plan and now pays me a monthly benefit. This is not an uncommon problem. Collectively, U.S. pension funds are short-funded by more than $1 trillion, having only 75 cents on hand for every dollar in benefits promised to employees, according to Boston College’s Center for Retirement Research. Given this backdrop, it’s surprising to hear of another newspaper company’s pension plan that’s overflowing with money. Graham Holdings—which for most of its existence owned The Washington Post—has a $2.1 billion pension surplus, according to the company’s recent filings. It’s so stuffed with money that the company expects to never contribute another cent to the plan. Credit for this is owed primarily to Warren Buffett, who steered the pension fund’s investments in an unorthodox direction while he was a company director in the mid-1970s. In a 19-page memo written to then-CEO Katharine Graham in 1975, he said hiring the usual institutional money management firms would be “doomed to disappointment.” He predicted that rising inflation rates would eat up the returns of the bond portfolios then favored by pension managers. Buffett instead recommended that the fund selectively buy stocks to meet the plan’s obligations. The Post’s directors agreed and hired two small, specialized investment firms that Buffett recommended in 1978. The majority of the company’s pension…

The New Economics

Greg Spears | Sep 9, 2021

FROM THE TIME I started covering Washington as a reporter in 1980, politicians have been condemning the federal budget deficit. Ronald Reagan was running for president that year. He excoriated his opponent, President Jimmy Carter, for increasing the federal debt by—brace yourself—$55 billion in 1979. These days, that wouldn’t pay a week’s bar tab for Uncle Sam. With the sole exception of Bill Clinton, every president for 40 years has added to the federal debt, all while campaigning loudly against deficit spending. It’s like seeing the Saturday night drunk singing in the church choir on Sunday morning. Lord be praised, the sinner is saved. Or not. But nothing compares with the bender we’re on today. There’s a new economic theory in Washington, and it contends that deficits don’t matter. You won’t hear many politicians saying that out loud, but their votes suggest we’re in a new economic era governed by Modern Monetary Theory (MMT). Standard Keynesian economics calls for the government to run a deficit when the economy is depressed. That’s what happened in 2009 when Congress passed a $787 billion stimulus bill to fight the Great Recession. Government deficits can create demand for goods and services when the private sector is struggling, thus restoring the economy to its normal function. Since COVID-19 hobbled the world economy in March 2020, Washington has run deficits of incredible size. Over the past year and a half, Congress has passed six major bills providing $5.3 trillion in rescue spending, according to the deficit-hating Peter G. Peterson Foundation. Still on the runway is a $1 trillion infrastructure bill, which is expected to pass into law this fall. Behind that is a $3.5 trillion Democratic wish-list proposal. Washington is spending as if it can simply print more money to pay its obligations. That, in a…

Oldies but Goodies

Greg Spears | Sep 28, 2021

IF YOU’VE EVER wanted to own antique furniture, now is the time to buy. The cost of “brown furniture” has plummeted. That old-money mahogany is deeply out of fashion with today’s tastemakers, who prefer mid-century modern set out in spare, white rooms. I won’t claim that 18th century goods are better aesthetically. That’s my personal preference, and probably an East Coast sensibility. Rather, I’d say that old furniture is better value. The fact that a table or desk has survived for two centuries is a testament to its durability—and it may cost less now than flat-pack furniture made of particle board. Last summer, I spotted a Chippendale tea table with a solid mahogany top. A faded note pasted to the underside dated it to 1773. I bought it for $105 from the dealer, who said he wanted to make room for other goods. It could have been priced at five or 10 times as much a decade earlier. Another piece we own—an English dressing table—dates to around 1750. My wife worries that her makeup jars may leave rings on its top. I tell her that use marks can be helpful indicators of authenticity. Besides, it cost $250, so it can be put to use without fear of hurting its value. I try to draw the line at buying antique chairs. People were tiny long ago. Their chairs can break under modern weight. But tables, desks, chests and chests of drawers all seem to function as well today as the day they were made. It does take time to acquire a roomful of antiques because you can’t just buy a set. But the hunt for something rare is a good weekend diversion for me. I’m always trying to snag a bargain—and can easily find them these days. One problem: Low prices make…

Not Staying the Course

Greg Spears | Sep 19, 2025

THE MOST FAMOUS expression at Vanguard is to ‘stay the course.’ It’s meant to suggest that investors should remain steadfast and not sell stocks in a downturn. This has proven great advice over the decades, but I’ve not been staying the course lately. I’ve been selling stock funds and buying bond funds this summer. Yet I think my actions would have the blessings of Vanguard founder Jack Bogle, who made the phrase ‘stay the course’ famous. Mr. Bogle used to have lunch with the crew in the cafeteria, called the Galley in keeping with Vanguard’s nautical naming style. There, he would dispense wisdom to all comers. Bogle advised keeping investing as simple as possible (though not too simple), and this included his ideas about asset allocation. During one lunch conversation, he said that the adage that you should own your age in bonds was generally correct, but he might make one adjustment. I’m 69 years old, so if I followed the traditional rule, I would invest 69% of my portfolio in bond funds and 31% in stocks. Bogle suggested tweaking the formula by subtracting your age from 110 and owning that percentage of stocks. By this adjustment to the rule, I would invest 59% bonds and 41% stocks. At summer’s start, 70% of my retirement assets were in stocks. I’ve profited from being overweight in stocks. So, why not let it ride? Well, I don’t need to make more money in the market. I do need to protect what I’ve got. When the market briefly corrected earlier this year, I admit I had regrets. After it recovered, I felt I was offered a do-over. I didn't stay the course. After a season of selling, I’ve whittled my stock holdings down to roughly 45%. The remainder is in bonds and money…

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