How tax-efficient investing could boost your portfolio returns in 2026 and beyond
With the IRS setting January 26 as the official start of the 2026 tax filing season, financial experts are urging investors to adopt proactive, tax-efficient strategies to minimize liabilities and maximize long-term portfolio growth. According to Bill Harris, founder and CEO of Evergreen Wealth and former CEO of PayPal and Intuit, tax-aware planning is the "single most important factor in investing that you can control."
"Most people don't plan ahead when it comes to taxes and their investments," Harris noted, distinguishing between the mandatory act of filing taxes and the strategic "should" of planning for them.
Here are essential considerations and steps for reducing the tax impact on investments in the coming year.
Leverage Higher Retirement Account Limits
Understanding the tax treatment of various accounts is foundational. For 2026, contribution limits have increased, allowing for greater tax-advantaged savings:
IRAs: The limit for both traditional and Roth IRAs is now $7,500, with a $1,100 catch-up provision for those 50 and older.
401(k)s: The limit for employer-sponsored plans (traditional and Roth) is $24,500. Catch-up contributions are $8,000 for those 50+, with a "super catch-up" of $11,250 available to employees ages 60-63.
A critical change affects high earners: starting in 2026, individuals who earned more than $150,000 from their employer in 2025 must make any catch-up contributions on an after-tax Roth basis, forgoing an immediate tax deduction in exchange for tax-free growth and withdrawals.
Implement Strategic 'Asset Location'
For investors holding a mix of tax-advantaged and taxable brokerage accounts, 'asset location'—deciding which assets belong in which account—is a powerful tool. Advisors often recommend placing high-growth assets like stocks in Roth accounts for eventual tax-free withdrawals, while holding tax-efficient investments like municipal bond funds in taxable accounts. Neglecting this strategy can result in significantly higher lifetime taxes.
Sell Investments with Tax Implications in Mind
In taxable brokerage accounts, the timing and method of selling investments carry tax consequences. Short-term gains (on assets held one year or less) are taxed as ordinary income, while long-term gains benefit from lower capital gains rates (0%, 15%, or 20%). High earners may also face a 3.8% net investment income tax.
Strategies like tax-loss harvesting (selling losers to offset gains) and tax-gain harvesting (strategically realizing gains in low-income years to benefit from the 0% rate) can optimize an after-tax return.
Optimize Charitable Giving
Donating appreciated assets instead of cash can enhance tax efficiency. Two prominent methods are:
Qualified Charitable Distributions (QCDs): Allow retirees aged 70½ or older to transfer funds directly from an IRA to a charity, satisfying required minimum distributions without increasing adjusted gross income.
Donor-Advised Funds (DAFs): Enable investors to donate appreciated stock, claim an immediate tax deduction, and avoid capital gains taxes, while distributing grants to charities over time.
By integrating these strategies, investors can better navigate the complexities of the tax code, preserving more of their wealth for the long term.
