By Akemi Kondo Dalvi, CPA/PFS, CFP
As we near the end of 2025, the IRS has announced the new inflationary figures we can plan to see in 2026. On Oct. 24, the Bureau of Labor Statistics (BLS) announced that the Consumer Price Index (CPI) increased 3% over the last 12 months. In other words, the cost of commonly purchased consumer goods increased by 3% over the same time last year.1
The actual CPI rate was slightly lower than the 3.1% expected. That paved the way for the Federal Reserve’s Federal Open Market Committee (FOMC) to reduce the Federal Funds Rate by 25 basis points, or a quarter of 1%, on Oct. 29. The new Federal Funds target range stands at 3.75-4%. This rate is above the Fed’s original target of 2%. However, Fed Chairman Jerome Powell noted that economic activity continued to expand at a moderate pace, and job gains have slowed in 2025, ultimately leading to the decision to cut rates to stimulate the economy. 2
The CPI report was utilized by the Social Security Administration (SSA) to calculate the 2026 Cost-of-Living Adjustment. COLA is the increase in benefits designed to help Americans keep up with inflation and the rising prices of goods and services, so their standard of living remains stable.
For 2026, Social Security beneficiaries will receive a 2.8% increase in benefits. Currently, the national average monthly Social Security benefit payable to a retired worker is $2,015. After the 2.8% COLA in January 2026, that retired worker’s benefit would increase to $2,071.3 The Medicare Part B premium has not been released, but is projected to increase by $21.50.
Social Security and Supplemental Security Income payments are not dependent on congressional approval and will continue during the government shutdown. However, many SSA employees may be furloughed, which could affect the time it takes for the agency to service customers.
The IRS also released other inflationary figures for 2026. The maximum amount of earnings subject to taxation for Social Security (OASDI) increased from $176,100 in 2025 to $184,500 in 2026.4 The IRS also issued new catch-up contribution rules for 401(k), 403(b) and governmental 457(b) retirement plans. Catch-up contributions are extra retirement savings that employees who are age 50 or older may contribute to employer sponsored retirement plans, above the standard IRS plan limit.
Under SECURE 2.0, starting Jan. 1, 2026, employees age 50 or older who earn over $145k in salary and make catch-up contributions must make catch-up contributions to a Roth (after-tax) retirement savings account, in lieu of a pre-tax retirement account, which may have reduced their taxable income.
The same regulation allowed retirement plan participants age 60, 61, 62, or 63 starting Jan. 1, 2025 to make “super” catch-up contributions, regardless of their income. In 2025, the standard catch-up contribution was $7,500. However, the super catch-up limit was $11,250 for 401(k), 403(b), and governmental 457(b) plans, and is projected to increase to $12,000 for 2026.
More 2026 limits and benefits are expected to be released by the IRS in the weeks to come. Tax law updates, implementation rules, and effective dates will continue to unfold. If you feel you could benefit from the help of a financial professional, please reach out to your Certified Financial Planner or CPA Personal Financial Specialist. Whether you are exploring cash flow management, charitable gifting strategies, preparing for retirement, or navigating new tax policy changes, we’re here to help you make sense of it all.
1 https://www.bls.gov/cpi
2 https://www.federalreserve.gov/newsevents/pressreleases/monetary20251029a.htm#
3 https://www.ssa.gov/news/en/cola/factsheets/2026.html
4 https://www.ssa.gov/news/en/cola/factsheets/2026.html
The opinions expressed above are solely those of Kondo Wealth Advisors, Inc. (626-449-7783 info@kondowealthadvisors.com), a Registered Investment Advisor in the state of California. Neither Kondo Wealth Advisors, Inc. nor its representatives provide legal, tax or accounting advice.