High-income earners often miss opportunities to reduce taxes and build long-term wealth. From Roth conversions to tax-efficient investing, decisions made before December 31 can have a lasting impact on your financial future.
As 2026 comes to a close, here are five important tax-planning questions to discuss with your financial advisor and tax professional.
1. Am I Making the Most of Roth Accounts?
Many investors focus on reducing taxes today through traditional retirement accounts, but it's equally important to consider the taxes they'll pay in the future. If you expect your income or tax rate to be higher in coming years, contributing to Roth accounts now may be a smart strategy.
Unlike traditional retirement contributions, Roth contributions are made with after-tax dollars. However, qualified withdrawals in retirement are tax-free. During years when your income is relatively low, consider contributing to a Roth IRA if you meet the income requirements or directing some or all of your 401(k) contributions into your employer's Roth 401(k) option.
Roth conversions offer another opportunity. By converting a portion of a traditional IRA to a Roth IRA, you pay taxes on the taxable amount today rather than when the funds are withdrawn in retirement. This can be particularly beneficial during lower-income years or before required minimum distributions (RMDs) begin.
Action: Review your projected 2026 income and future tax expectations. Determine whether Roth IRA contributions, Roth 401(k) contributions, or a partial Roth conversion could improve your long-term tax position. Roth conversions generally must be completed by December 31 to count for the current tax year. Roth IRA contributions can be made up to the tax deadline in April.
2. Are My Investments Held in the Most Tax-Efficient Accounts?
What you invest in matters, but where you hold those investments can also affect your after-tax returns.
Asset location involves placing investments in accounts where their tax characteristics are most advantageous.
For example, taxable bonds and certain actively managed funds may generate income or distributions that create annual tax liabilities. Holding these investments in tax-deferred accounts can reduce that immediate tax burden. Meanwhile, tax-efficient stock funds and municipal bonds may be better suited for taxable brokerage accounts.
Over time, thoughtful asset location can help investors retain more of their investment returns without changing their overall investment strategy.
Action: Review investments across your taxable, traditional retirement, and Roth accounts. Look for opportunities to improve tax efficiency, but avoid triggering unnecessary capital gains when repositioning taxable investments.
3. Am I Missing Retirement Savings Opportunities Because of My Income?
High-income earners sometimes assume they cannot contribute to Roth accounts because of income restrictions. However, two strategies may provide additional opportunities.
A backdoor Roth IRA involves making a nondeductible traditional IRA contribution and converting it to a Roth IRA. This strategy has no income limit, although existing pretax IRA balances can make part of the conversion taxable under the IRS pro-rata rule.
A mega backdoor Roth may be available through certain employer retirement plans that permit additional after-tax contributions and Roth conversions or eligible rollovers.
These strategies can be especially valuable for households already maximizing their regular retirement contributions.
Action: Determine whether you're eligible for a backdoor Roth and ask your employer whether your 401(k) permits after-tax contributions and Roth conversions. The 2026 IRA contribution limit is $7,500, plus $1,100 for those age 50 or older. Nondeductible IRA contributions generally require IRS Form 8606.
4. Am I Using Investment Losses to Reduce My Tax Bill?
Investment losses can create valuable tax-planning opportunities through tax-loss harvesting.
This strategy involves selling investments that have declined in value to offset realized capital gains elsewhere in your taxable portfolio. If losses exceed gains, up to $3,000 can generally be deducted against ordinary income annually, with remaining losses carried forward.
For example, suppose you realized $25,000 in capital gains this year but also hold an investment with a $10,000 unrealized loss. Selling that investment could reduce your net taxable capital gain to $15,000, potentially saving $2,000 in federal taxes at a 20% capital gains rate.
However, investors must be mindful of the IRS wash-sale rule, which can disallow losses when substantially identical investments are purchased within 30 days before or after a sale.
Action: Review your taxable accounts for unrealized losses and compare them with gains already realized in 2026. Coordinate transactions carefully to avoid wash-sale violations.
5. Am I Overlooking Tax Strategies for Appreciated Stock and Charitable Giving?
High-income earners with substantial employer stock or charitable intentions may have additional opportunities to reduce taxes.
One often-overlooked strategy is Net Unrealized Appreciation (NUA), which applies to qualifying employer stock held in a retirement plan.
Instead of rolling appreciated company stock into an IRA, eligible investors may distribute the shares to a taxable account. Generally, the original cost basis is taxed as ordinary income upon distribution, while appreciation accumulated inside the plan can qualify for long-term capital gains treatment when sold.
Charitable giving offers another opportunity. Donating appreciated securities directly to an eligible charity may help avoid capital gains taxes while potentially providing a charitable deduction.
For individuals age 70½ or older, a Qualified Charitable Distribution (QCD) allows eligible IRA distributions to go directly to charity, generally excluding the amount from taxable income. QCDs can also satisfy required minimum distributions.
Action: Before rolling over employer stock, determine whether NUA treatment could be beneficial. If charitable giving is part of your financial plan, consider whether appreciated securities or QCDs offer greater tax efficiency than cash donations.
Five Tax-Planning Moves to Review Before December 31
Effective tax planning isn't simply about reducing this year's tax bill. It's about making decisions that improve your financial position over time.
Before year-end, consider whether you should:
- Evaluate Roth conversions and maximize retirement contributions.
- Improve the tax efficiency of where your investments are held.
- Explore backdoor Roth and mega backdoor Roth opportunities.
- Harvest investment losses to offset taxable gains.
- Review appreciated employer stock and tax-efficient charitable giving strategies.
Not every strategy is appropriate for every household. Your income, investments, retirement timeline, and financial goals should guide these decisions.
At Strategic Stewardship, we believe thoughtful tax planning is an important part of wise financial stewardship. Coordinating your investment decisions with your broader financial and tax strategy can help you make the most of the resources entrusted to your care.
If you haven't reviewed your 2026 tax strategy, now is a good time to start that conversation with your financial advisor and tax professional.
Frequently Asked Questions About Tax Planning for High Earners
Can high-income earners still contribute to a Roth IRA?
Yes, potentially through a backdoor Roth strategy. However, existing pretax IRA balances may create taxable income when converting.
Is a Roth conversion beneficial during a high-income year?
Not always. Converting during a lower-income year may produce better long-term results. The decision should consider both current and anticipated future tax rates.
When is the deadline for tax-loss harvesting in 2026?
Investment sales generally must be executed by December 31, 2026, to realize losses for the current tax year.
This article is for educational purposes and does not constitute individualized tax or investment advice. Consult your financial advisor and tax professional before implementing these strategies.