Something Old, Somethings New
I’ve lived in central Pennsylvania for most of my adult life - long enough to develop a real appreciation for its culture, history and beautiful landscapes. It more than compensates for our miserable winters.
Which is why I was recently surprised to first learn about the legend of the Squonk, a bizarre creature said to have roamed Pennsylvania’s vast hemlock forests - before logging and industrial deforestation largely wiped out these ancient, majestic trees ages ago.
If you’re not familiar, the Squonk comes from Pennsylvania folklore. The story emerged from the lumber camps in northern Pennsylvania during the heavy deforestation years of the nineteenth century and was first written down in 1910. Unlike most campfire tales, the Squonk creature isn’t dangerous or menacing.
Instead, the legend says the Squonk is so unhappy with its hideous appearance - pig-shaped, wrinkled, and wart-infested - that it hides from the world deep in the hemlock forests, quietly and constantly crying in sadness. It even leaves pools of tears on the forest floor; weird.
What caught me off guard is that not a single native Pennsylvanian that I’ve polled so far has ever heard of the Squonk - yet it has pop-culture credibility elsewhere. The rock band Genesis even wrote a song about it in the 1970s (“Squonk”), and Steely Dan slipped a Squonk tear reference into Any Major Dude Will Tell You (a great song). There’s even a surprising amount of Squonk merch on Amazon and e-Bay right now.
Aside from natural curiosity, there’s another reason I’m fixated on the Squonk, which I’ll share in good time.
In the meantime, back to reality. 2026 brings a number of important tax, legal, and financial changes. Let’s review by topic.
- The standard deduction increases to $32,200 married and $16,100 single. 2026 is the second (of five years) where the state and local income tax (“SALT”) deduction is $40,000, no longer capped at just $10,000. There’s a catch: The higher tax deduction fully phases out after $600,000 of joint gross income, $300,000 single, so proactive income tax planning for high income taxpayers will be even more important through 2029.
- Maximum 401K elective deferral contributions increase to $24,500 and the catch-up provision (age 50 and older) increases to $8,000 for 2026. However, if your 2026 gross W2 compensation exceeds $150,000, the catch-up component must be allocated to a Roth K account in the plan and taxes paid on the earned income.
- A catch: your 401K plan must allow for Roth K accounts – some do, some don’t – which may preclude you from making catch-up contributions for 2026. If you’ve reached age 50, check with your HR department so see if this rule impacts your ability to max fund your plan. And if you don’t have a Roth K option, ask for one!
- New to 2025 was a “super catch-up” 401k contribution provision, allowing another $8,000 of extra contributions to a 401K plan for participants age 60-63; for 2026 the contribution max jumps to $11,250. Same deal: If your W2 compensation exceeds $150,000, the excess contribution must be taxed and added to a Roth account in the plan; no Roth option, no extra contribution.
- One more comment about the new catch-up rules before moving on: They do not apply to SIMPLE IRA plans but do apply to 403B retirement plans.
- Health Savings Accounts. We’re happy to report that HSA rules were modified effective for 2026 to allow for a broader range of health plans to be HSA funding eligible. The plan deductible must be at least $1,700 individual and $3,400 family to be HSA eligible. The maximum HSA contribution for a single insured is $4,400 for 2026 and family is $8,750 with $1,000 catch up contributions once age 55 ($2,000 if each spouse has their own account).
- The beauty of the HSA account is tax-deductibility, tax-deferral and tax exemption. They are a savvy way to build health expense reserves, especially for folks seeking to retire before age 65 Medicare eligibility.
- 529 Plans. Beginning in 2026, families can withdraw up to $20,000 per year per student from a 529 plan for qualified K–12 expenses, up from $10,000. This bump expands planning flexibility for families using private or parochial schools.
- Trump Accounts. Last but not least, the brand new Trump tax-advantaged saving accounts for young children beginning January, 2026. Instead of buying Trump sneakers, instead grab some free money and tax benefits from the federal government for your rug rats via the Trump Account.
- Here’s how it works. If you open up a Trump Account directly with the US Treasury, the government will add $1,000, no strings. The child must have been born between January 1st 2025 through December 31, 2028 and only one account is allowed per child. You can open up a new account for any child under age eighteen but won’t receive the $1,000 seed money.
- You can fund up to $5,000 per year (indexed for inflation) through age 17 and the tax treatment is most similar to an IRA. Distributions are taxed pro-rata and a ten-percent early withdrawal penalty applies for distributions before age 59.5. Paying for college or trade school, buying a home and adoption are three common penalty exemptions.
- A grandparent cannot open a Trump Account for a grandchild unless they are the legal guardian, but they can contribute towards the annual contribution amount.
- Government contributions are expected to commence in July 2026.
- The program may seem like social engineering, but free money is free money and it won’t add that much more to our national debt.
- A cool wrinkle is that some philanthropists are already stepping up to fund Trump accounts for children from disadvantaged backgrounds. For example, Michael Dell has pledged $6.25 billion (!) to fund Trump Accounts for twenty-five million children for low-income families. Good stuff.
A lot to digest. As always, our doors are open to help you make the best decisions for you and your family regarding these financial matters.
Happy New Year and until next time, be well…..Tim