Retirement Retirement Planning

Your 401(k) Could Grow More Under Trump's Tax Agenda - Here's Why

Retirees need to know about this.

By Catherine Collins

Edited by Calista Headrick

Updated Feb. 25, 2026

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Millions of Americans invest in 401(k)s every year, and changes in tax policy impact their tax returns now and in the future. Whether people plan on working for decades more or are already retired, the amount they add to 401(k) retirement plans and pay in taxes affects cash flow in one way or another.

President Donald Trump has been a proponent of tax cuts both during his first administration and second term. Here's how some of his ideas on taxes could be good news for your 401(k).

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Why 401(k) taxes matter to retirees

Currently, 43% of Americans have a 401(k), meaning a large share will rely on them to provide income in retirement. If retirees have a traditional 401(k), they will have to pay income tax on any withdrawals. For that reason, changes in 401(k) policy or updates to the tax code may impact retirees' cash flow, one way or another.

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How traditional 401(k)s are taxed

Traditional 401(k)s are the most common type of retirement account. Contributions that employees make to traditional 401(k)s reduce their taxable income. However, that means that during retirement, withdrawals are taxed at ordinary income. Retirees need to be mindful of how their 401(k) withdrawals impact their tax bracket, especially when combined with other forms of retirement income, such as Social Security.

How Roth 401(k)s are taxed

Roth 401(k)s are taxed differently from traditional 401(k)s. With a Roth 401(k), employees contribute after-tax income, meaning they don't get the benefit of lowering their taxable income on their present-day tax returns. The benefit, though, is that if they meet certain qualifications, they can withdraw money tax-free in retirement.

Trump's past tax policies

President Trump's 2017 Tax Cuts and Jobs Act lowered income taxes for many different people. This has an indirect impact on 401(k) plans because it means workers will have more take-home pay. Workers can choose to use that increased take-home pay to invest more for retirement.

The Tax Cuts and Jobs Act was set to expire in 2025, which led President Trump to sign the One Big Beautiful Bill Act (OBBB) in 2025.

Trump's recent tax proposals

The One Big Beautiful Bill Act (OBBB) bill provided several tax policy updates, namely, extending some of the tax cuts from the 2017 Tax Cuts and Jobs Act. These changes lowered many people's individual tax rates, which means they may pay less in taxes overall.

On top of that, the good news for retirees is that the OBBB also gave an additional $6,000 annual deduction for those aged 65 and older. That, combined with potentially lower tax rates, can be beneficial for retirees who rely on a fixed income to fund their lifestyle.

New 401(k) rules for 2026

President Trump's focus has primarily been on updating income tax policies, but there are other changes that take effect in 2026 due to the Secure 2.0 Act. This is important for specific workers to know because it may change the amount of taxes they pay each year.

The biggest change is that high earners over age 50 making $150,000 per year or more must make catch-up contributions as Roth contributions, not traditional 401(k) contributions. This change means high earners won't be able to lower their annual taxable income as much as in previous years. However, in retirement, they can withdraw the Roth contributions tax-free (if they meet certain criteria).

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What this means for retirement planning

Most of Trump's ideas on taxes focus on income taxes, but these policy updates do impact people's 401(k)s. That's because tax changes impact how much people pay in taxes, both during their working years and retirement years. For those who are nearing retirement, staying up to date on any new tax policies is vital, especially if it impacts take-home pay and their ability to retire on time.

How to stay up-to-date on tax reform

Tax laws change, especially with administration changes. These laws have an impact on the amount of take-home pay people have and how much extra income they can allocate to retirement goals. It also has an impact on retirees, who must pay attention to tax news and updates in case it causes them to change their retirement plan strategy.

Those who are still working can consult with their HR department to stay up to date on changes. Retirees can keep up to date by reading the news and asking professionals, like a financial planner and an accountant, if they're concerned about any changes.

Bottom line

President Trump's past policies and recent bills show that his administration cut income taxes for many different tax brackets. It's important for workers to understand how this impacts 401(k)s, namely when it comes to tax time and withdrawals. For many, Trump's ideas on taxes will be good news and help contribute to a stress-free retirement.

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