Three Tax Resolutions to Protect Your Income in 2026

With 2026 almost here, it’s time for New Year’s tax resolutions. 

This year, I suggest readers focus on three issues likely to confuse them, based on Tax Report’s reader mail and comments. These are MAGI, or modified adjusted gross income; rules for tax-free Roth IRA withdrawals; and the way charitable donations of IRA funds can lower required IRA payouts.

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Yes, these topic are complicated—but knowing about them could help snag a tax break or avoid a pitfall.

I hope 2026 brings you as few tax troubles as possible. Here are resolutions to consider:

I WILL remember that MAGI is a shape-shifter.

Congress has a penchant for giving with one hand and taking away with the other. So it often phases out tax breaks or phases in higher taxes based on the filer’s adjusted gross income, or AGI. AGI is on Line 11 of Form 1040; it includes most income and excludes most tax deductions and credits.

But lawmakers also tinker with AGI. For some provisions, they have filers add back income from other tax breaks to determine eligibility for the one in question. This is called modified adjusted gross income, or MAGI, and it often infuriates taxpayers by causing hidden tax increases.  

What trips up many Tax Report readers is that the U.S. tax code doesn’t have just one MAGI. Instead, it has more than a dozen—and they differ.

The best-known MAGI applies to taxpayers with Social Security income or Medicare income-based premiums called Irmaa. It requires the add-back of tax-exempt income from municipal bonds to AGI, which in turn can raise taxes and Irmaa premiums. The goal is to prevent filers from reducing their reported income through tax-free munis, which could lead to lower Irmaa premiums or tax on Social Security payments.

The good news for many taxpayers who will benefit from new tax breaks for seniors, tips, overtime, and state and local taxes (SALT) is that the MAGI add-backs don’t include muni-bond income. Instead, they are for certain income earned by Americans working abroad, and certain residents of Puerto Rico and possessions such as Guam. That’s a narrow slice of filers.

Moral: Beware of MAGI, but determine the add-backs before panicking.

I WON’T ignore rules about tax-free Roth IRA withdrawals.

These rules are so complex they often defy summary. But running afoul of them can incur tax or a 10% penalty, or both, so here are useful highlights. For exceptions and more nuances, see IRS Publication 590-B. Also consider getting professional advice, especially if large amounts are involved. 

Rule #1 covers millions of savers and is fairly simple: Withdrawals from a Roth IRA can be completely tax-free and penalty-free if the owner has reached age 59½ and the owner has had a Roth IRA for at least five years.

Example: If a saver converts a pretax IRA to a Roth IRA at 68 and has never had a Roth IRA, no tax or penalty is due if he withdraws conversion dollars. But withdrawals of future earnings on the conversion amount will be taxable as ordinary income until he’s 73. If this saver dies sooner, his heirs will need to wait the rest of the five years to withdraw earnings without tax—but it’s fine to withdraw the conversion amount.

Rollovers from Roth 401(k)s to Roth IRAs are becoming more common, and the rules for them differ. While savers can withdraw their original Roth 401(k) contributions at any point after the rollover, the treatment of rolled-over earnings from inside the 401(k) varies.  

Did the saver start contributing to that Roth 401(k) at least five years ago, and is he at least 59½? If not, has he had a Roth IRA for at least five years? If neither is the case, withdrawals of any rolled-over earnings are subject to tax until five years is up, and if the saver is under 59½, there is also a 10% penalty.

As for earnings generated after the rollover: If the saver hasn’t had a Roth IRA for at least five years and isn’t at least 59½, those earnings are subject to tax until five years is up. There’s also a 10% penalty if the saver is under 59½.

For savers withdrawing from any Roth IRAs, often the “ordering” rules are a boon. They deem that withdrawals come first from direct contributions, then conversions, and finally earnings. As a result, many savers taking partial withdrawals can avoid taking out taxable earnings.

Rule #2 is that direct contributions to Roth IRAs can be withdrawn without tax or penalty at any time. So if a young worker contributes $5,000 a year to a Roth IRA for six years and then wants to withdraw $30,000 of contributions to help buy a car, that’s fine—although the money can’t be put back after 60 days.

However, if she withdraws earnings and she’s under age 59½, she’ll likely owe tax and a 10% penalty on them. The ordering rules described above can help avoid this. For records, see your IRS Forms 5498 or talk to the custodian, says Ian Berger, an IRA specialist with Ed Slott & Co.

I WILL understand how to coordinate charitable gifts of IRA funds with required IRA withdrawals.

For many charity-minded taxpayers age 70½ and older, donating assets from traditional IRAs via qualified charitable distributions (QCDs) is the most tax-efficient way to give. The 2025 limit for QCDs is $108,000.

While there’s no deduction for the donation, the withdrawal doesn’t increase adjusted gross income. Even better: The QCD can count as part of the saver’s required minimum distribution, or RMD, if he or she is age 73 or older. This reduces tax on required payouts.

Many donors are confused as to when QCDs offset RMDs, so here’s help. 

The first dollars out of a saver’s own IRAs each year count as the RMD. If a saver has a $50,000 RMD and withdraws that amount, the RMD has been satisfied. If he then wants to give QCDs of $10,000 to his college or church, he can. But his total withdrawal will be $60,000—and the $10,000 QCD isn’t part of his RMD.

For the QCD to be part of the required withdrawal, it must be among the first RMD dollars withdrawn. 

This provision has leeway: A filer who has a $50,000 RMD could give $10,000 of QCDs and then withdraw $40,000 more. Or he could withdraw $25,000, give $10,000 of QCDs, and then withdraw $15,000. In each case, the RMD would be $50,000 and the taxable portion would be $40,000. But once the saver has withdrawn $50,000 of taxable IRA funds, a QCD can’t be part of the RMD. 

Of course, savers who are 59½ and older can withdraw as much as they want. But for seniors looking to reduce taxes on RMDs through charitable donations, it’s important to know the rules.

Write to Laura Saunders at Laura.Saunders@wsj.com