Written by Janet Berry-Johnson
Published Mar 20 | 8 minute read
By the time you’re in your peak earning years (or already retired), you may assume you have your tax situation pretty much under control. You contribute to charities, save money, work with an advisor and file tax returns on time.
Yet every April, that final tax bill still might feel larger than you expected.
Indeed, many high earners and retirees are caught off guard by how much they owe, even when they feel like they’re “doing everything right.” That’s often because tax planning isn’t happening year-round.
Beyond reducing taxable income, there are other proactive moves you can make to manage your tax liability and strengthen your overall financial position.
Here are seven ways to invest with tax efficiency in mind, plan charitable and family giving thoughtfully, and align tax decisions with your long-term financial goals.
Maximizing contributions to tax-advantaged retirement accounts is one of the most effective ways to reduce taxable income and build lasting wealth.
With an employer-sponsored retirement account like a 401(k) or 403(b), you can contribute up to $24,500 in 2026 ($32,500 if you’re age 50 or older, or $35,750 if you’re age 60-63, though some income limitations apply).
Pretax contributions reduce your taxable income and lower your adjusted gross income (AGI), which could help you qualify for tax deductions and credits with income limits. They also reduce your exposure to Medicare Income-Related Monthly Adjustment Amount (IRMAA) surcharges, which are income-based increases to Medicare Part B and Part D premiums that apply to higher earners in retirement.
Other options for tax-advantaged retirement accounts include:
Keep in mind that timing matters. You have until December 31 to contribute to workplace plans, but the deadline for contributing to an IRA or SEP IRA is your tax filing deadline.
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Contributions to Roth IRAs and Roth 401(k)s aren’t deductible now, but qualified withdrawals of those contributions and any growth they’ve seen are tax-free after age 59.5. Roth accounts aren’t necessarily “better.” The right choice for you depends on your current and expected future tax brackets.
If you’re in your high-earning years and expect lower income in retirement, capturing a tax deduction now with a traditional IRA contribution may make sense. If you expect higher future tax rates, paying taxes now but enjoying tax-free withdrawals from a Roth in the future might be more appealing.
In addition to choosing between Roth and traditional contributions, you may also consider converting existing traditional IRA assets to a Roth.
A Roth conversion requires paying taxes on the amount you convert now, which might make sense in a lower-income year. Converting strategically could help you reduce future required minimum distributions (RMDs)—the mandatory withdrawals the IRS requires from traditional retirement accounts starting at age 73—and provide greater flexibility in retirement.
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Selling an investment for more than what you paid for it triggers capital gains taxes. Long-term gains (assets held more than one year) are taxed at preferential rates—typically 0% to 20% depending on income—while short-term gains are taxed at ordinary income rates. Tax-loss harvesting involves selling investments that have declined in value to realize a loss. Those losses can offset capital gains from other investments, reducing your overall tax bill.
If losses exceed gains, you can use up to $3,000 per year to offset other ordinary income, such as wages. Any unused losses can be carried forward to future years. For higher earners with significant taxable investment accounts, this strategy can smooth tax liability from year to year.
However, it’s crucial to keep the wash sale rule in mind. This rule disallows losses if you buy the same—or a “substantially identical”—security within 30 days before or after the sale, preventing investors from claiming a tax benefit while maintaining the same investment position.
Tax-loss harvesting can involve many moving parts, so it’s especially powerful when coordinated with a financial advisor as part of a broader long-term investment strategy.
READ MORE: How Does Investing Money Affect Your Taxes?
You put a lot of thought into charitable giving, deciding which organizations to give to and how much. But the way you give matters, too.
Directly donating appreciated assets, like stocks you’ve held for over a year, is often more tax efficient than giving cash. You can deduct the stock’s full fair market value on your taxes (with limitations) and avoid paying capital gains tax on the appreciation. This approach can yield a larger donation than selling the asset, paying capital gains taxes and donating the remainder.
A donor-advised fund (DAF) is another option to maximize the tax benefits of charitable giving. With a DAF, you contribute to an eligible fund and get an immediate tax deduction. You can then recommend grants from the fund to your chosen charities over time.
This can be a tax-efficient way to meet your philanthropic goals because you can front-load deductible charitable contributions in a high-income year and benefit more from itemizing.
You might also consider qualified charitable distributions (QCDs) if you’re 70.5 or older. QCDs allow you to transfer money directly from your IRA to a tax-exempt organization. The amount transferred doesn’t count as taxable income, but it does count toward your RMD for the year. For 2026, the QCD limit is $111,000.
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For 2026, you can give up to $19,000 per recipient without having it count toward the gift tax exclusion ($38,000 per recipient for married couples who split gifts). These gifts aren’t taxable to the recipient and don’t affect your lifetime estate tax exemption. Gifts can therefore be a way to give tax-free amounts to your loved ones or heirs that reduce the size of a potentially taxable estate.
Perhaps you want to help your adult children or grandchildren cover tuition, a down payment on a home or the costs of a new business venture. You can also pay qualified education or medical expenses directly to the provider or institution without those payments counting toward the annual limit.
For 2026, the federal lifetime estate tax exemption is $15 million per person, so you will owe no federal estate tax on estates smaller than that. But bear in mind that some states have estate or inheritance taxes with lower thresholds. Still, the goal here isn’t aggressive tax avoidance; it’s thoughtful timing.
Another bonus: Giving strategically during your lifetime lets you gradually reduce the size of your taxable estate while seeing the impact of your support.
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As your income rises, so does the likelihood of encountering taxes you may not have been aware of.
For example, the net investment income tax (NIIT) is an additional 3.8% tax on investment income, including interest, dividends, rental income and capital gains. This tax kicks in once your modified AGI exceeds $200,000 ($250,000 for married couples filing jointly and $125,000 for married people filing separately).
High earners may also face Medicare surtaxes, which are an additional 0.9% Medicare tax on wages above $200,000 ($250,000 if married filing jointly and $125,000 if married filing separately).
These income thresholds make year-round tax planning essential. By the time tax season arrives, many income decisions are already locked in.
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Cash may feel neutral from a tax perspective, but where you keep that cash affects your after-tax returns.
You pay tax at ordinary income rates on interest earned from a high yield savings account, money market account or certificate of deposit. That doesn’t mean you should avoid earning interest, but it’s important to be intentional. Holding some cash in accessible accounts makes sense, but excess cash may be better deployed into tax-advantaged retirement accounts or diversified investments, depending on your time horizon.
It can be useful to work with professional financial and tax advisors who can help you consider taxes as part of your overall savings and investment strategy. That keeps tax planning in view rather than seeing it as an afterthought.
Tax planning isn’t about chasing loopholes—it’s about being intentional. When you integrate tax strategy into your broader financial plan, you keep more of what you earn and position your wealth to support your goals, your family and the causes you care about.
Tax-Planning FAQ
Q. How often should I revisit my tax strategy?
A: Ideally quarterly. Major life events, income changes or market volatility can shift your tax exposure midyear—not just at filing time.
Q: Can a Roth conversion increase my Medicare premiums?
A: Yes. A large Roth conversion can increase your modified adjusted gross income, potentially triggering higher IRMAA surcharges two years later. Timing and income planning matter.
Q: Are there risks to tax-loss harvesting?
A: Yes. Overusing it without considering your long-term allocation can distort your portfolio. It should support—not replace—your investment strategy.
Q: When does it make sense to “bunch” charitable donations?
A: In high-income years when itemizing deductions yields greater benefit. Donor-advised funds are often used for this strategy.
Q: Should I prioritize paying taxes now or deferring them?
A: It depends on your current tax bracket, projected retirement income and estate goals. Tax diversification—having assets in taxable, tax-deferred and tax-free accounts—can provide flexibility.
Janet Berry-Johnson is a certified public accountant, financial educator and writer with more than a decade of experience covering accounting, taxes and personal finance. She previously worked at a Top 200 accounting firm, specializing in income tax consulting and compliance for individuals and small businesses. Her work has appeared in The New York Times, Business Insider, Forbes and The Wall Street Journal.