How tax-efficient investing could boost your portfolio returns
Retail investors may be preparing for the start of the 2026 tax filing season when the IRS announces it. announced It will start this week on January 26th.
Using tax-efficient investment strategies year-round can help minimize an investor’s tax burden and optimize the value of his portfolio for years to come, says Bill Harris, founder and CEO of Evergreen Wealth, a financial advisory firm focused on maximizing after-tax wealth.
These include evaluating what types of accounts you use for different investments and being strategic about how and when you sell.
Harris, an entrepreneur who has served as CEO of PayPal, Intuit and Personal Capital, said tax-conscious financial planning is “the most important factor you can control in investing.” But he said most people don’t plan ahead when it comes to taxes and investments.
“There’s a difference between what should be done and what should be done. We should file our taxes. We should plan our taxes,” Harris said.
Here are some changes to know about tax-advantaged retirement accounts and important steps that can help reduce the tax impact on investments.
Take advantage of higher IRA and 401(k) limits
Awareness of different accounts (including) How they tax investments and how much you can contribute is the first important step.
- Contributions to traditional 401(k)s and individual retirement accounts are tax-deferred. You do these things with pre-tax dollars, which reduces your taxable income for the year. They grow tax-free, and you pay taxes on withdrawals.
- Contributions to Roth 401(k)s and IRAs are made with after-tax dollars. They grow tax-free and can be withdrawn tax-free in retirement.
- Investments in brokerage accounts are subject to annual taxes on income such as dividends and capital gains.
Significant tax changes in 2026 allow investors to maximize their contributions to tax-advantaged retirement accounts. This year, contribution limits for traditional and Roth IRAs increased to $7,500; There is a maximum catch-up contribution of $1,100 for individuals age 50 and over.
Limits increased to $24,500 for traditional, pre-tax 401(k) plans, Roth 401(k) plans with after-tax contributions, and similar employer-sponsored plans. Individuals age 50 and over can contribute up to a maximum of $8,000 in catch-up contributions. Employees ages 60 to 63 are eligible to make “super catch-up” contributions of up to $11,250.
Stay informed about 401(k) catch-up contribution tax changes
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Research from Vanguard It shows that high-income older investors are more likely than average to maximize their retirement plan contributions and may be most affected by the 2026 tax change.
Starting this year, if you earned more than $150,000 from your current employer in 2025, catch-up contributions must generally be after-tax Roth. This means you won’t get an upfront tax deduction for pre-tax catch-up contributions, but those contributions won’t be taxed when withdrawn.
Andre Robinson, CEO and president of retirement plan provider MissionSquare, says many workers are already choosing the Roth option. “One of the things we see very often is people max out their Roth contributions and start saving in other vehicles,” he said.
Manage ‘entity location’
Experts say having a combination of tax-advantaged and after-tax brokerage accounts has become a critical tax planning strategy, called “asset positioning” where your investments will be placed. Which accounts you contribute to can make a difference in your current year’s tax bill, just as later in retirement.
For example, financial advisors may recommend placing high-growth potential assets, such as stocks and mutual funds, in a Roth account for tax-free withdrawals, while keeping more tax-efficient assets, such as municipal bond funds, in your personal after-tax or brokerage accounts.
“A portfolio managed without an integrated tax strategy will in many cases pay tens or even hundreds of thousands more in taxes than required over a lifetime,” James Lange, a Pittsburgh-based attorney and certified public accountant, told CNBC in an email.
Buy investments taking into account taxes
Consider the tax consequences when selling investments in a brokerage account. Investment gains from assets held for one year or less are taxed as ordinary income; those held for more than one year Capital gains taxes of 0%, 15% or 20%. High-income earners may face a 3.8% surcharge, for a total of 23.8%.
Consider taking advantage of tax loss and tax gain harvesting in after-tax accounts, says Harris. Tax loss harvesting involves identifying opportunities to sell assets at a loss to offset gains and reduce taxes.
Tax gain harvesting involves the strategic sale of winning investments. This could be useful if you qualify for a 0% capital gains bracket in a lower-income year, for example. Some investors in this situation use tax benefit harvesting to rebalance their portfolios or reset their investment basis to save on future taxes.
Rethink your charitable giving strategy
Donating appreciated assets can be another tax-efficient strategy, Harris said.
Another option: A donor-advised fund. These investment accounts allow investors to claim an up-front deduction on transferred assets and then distribute the funds to nonprofits over time.
“It’s an amazing tool,” Harris said. “Instead of giving cash, you can donate the stock, the appreciated stock, and that way you not only get a tax deduction, but you never pay taxes on the embedded capital gain.”
CNBC Senior Producer Stephanie Dhue contributed to reporting on this story.
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