How tax-efficient investing could boost your portfolio returns

Retail investors may already be preparing for the start of the 2026 tax filing season, which the IRS announced this week will begin on Jan. 26.

Using tax-efficient investing strategies throughout the year can help minimize an investor’s tax burden and optimize their portfolio’s value for years to come, says Bill Harris, the founder and CEO of Evergreen Wealth, a financial advisory firm focused on maximizing after-tax wealth.

Those include assessing which types of accounts you use for different investments and being strategic about how and when you sell.

Tax-aware financial planning is the “single most important factor in investing that you can control,” said Harris, an entrepreneur who has held roles as CEO of PayPal, Intuit and Personal Capital. However, most people don’t plan ahead when it comes to taxes and their investments, he said. 

“There’s a difference between should do’s and must do’s. We ‘must’ file our taxes. We ‘should’ plan our taxes,” said Harris.

Here are some changes to tax-advantaged retirement accounts to be aware of, and important steps to take that can help reduce the tax impact on investments. 

Awareness of different accounts — including how they tax investments and how much you can contribute — is the essential first step.

• Contributions to traditional 401(k)s and individual retirement accounts are tax-deferred. You make them with pretax dollars, reducing 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 They grow tax-free and can be withdrawn tax-free in retirement.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 incur annual taxes on income, such as dividends and capital gains.

Key tax changes in 2026 enable investors to maximize contributions to tax-advantaged retirement accounts. This year, contribution limits for traditional and Roth IRAs increased to $7,500, with a maximum $1,100 catch-up contribution for individuals age 50 and older. 

Limits for traditional, pretax 401(k) plans, Roth 401(k) plans made with after-tax contributions and similar employer-sponsored plans rose to $24,500. Individuals age 50 and over may contribute up to a maximum of $8,000 in catch-up contributions. Employees ages 60 to 63 are eligible to make a “super catch-up” contribution of up to $11,250. 

Research from Vanguard shows older investors who are high earners are more likely than average to max out their retirement plan contributions — and they may be most likely to be impacted by a tax change for 2026. 

Starting this year, catch-up contributions generally must be after-tax Roth if you earned more than $150,000 from your current employer in 2025. That means you won’t be able to get an up-front tax break with a pretax catch-up contribution, but those contributions won’t be taxed when they’re 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 a whole lot is people are maxing out their Roth contributions,” he said, “and are starting to save in other vehicles.”

Having a combination of tax-advantaged and after-tax brokerage accounts makes so-called asset location, where your investments will be located, a critical tax-planning strategy, experts say. Which accounts you contribute to can make a difference in your current year’s tax bill, as well as later in retirement.

For example, financial advisors may recommend placing assets with high-growth potential, such as stocks and mutual funds, in a Roth account for eventual tax-free withdrawals, while holding more tax-efficient assets, such as municipal bond funds, in your personal after-tax or brokerage accounts.

“A portfolio that is managed without an integrated tax strategy will, in many cases, pay tens or even hundreds of thousands more in lifetime taxes than necessary,” Pittsburgh-based lawyer and certified public accountant James Lange told CNBC in an email.  

When selling investments in a brokerage account, consider tax implications. Investment gains on assets held for one year or less are taxed as regular income; those held for more than one year are subject to capital gains taxes, with rates of 0%, 15% or 20%. High earners may face an additional 3.8% surcharge, for a total rate of 23.8%.

Consider taking advantage of tax-loss and tax-gain harvesting in after-tax accounts, Harris says. Tax-loss harvesting involves identifying opportunities to sell assets at a loss to offset gains and reduce taxes.

Tax-gain harvesting involves strategically selling winning investments. That can be beneficial if you qualify for the 0% capital gains bracket during a lower-income year, for example. Some investors in that situation use tax-gain harvesting to rebalance their portfolios or reset their basis on investments to save on future taxes.

Donating appreciated assets can be another smart tax-efficient strategy, Harris said.

That might involve qualified charitable distributions, or QCDs, which allow retirees to transfer funds from a pretax retirement account directly to a qualifying nonprofit. A QCD doesn’t increase your adjusted gross income, and can help satisfy annual withdrawal requirements.

Another option: a donor-advised fund. These investment accounts allow investors to claim an up-front deduction on transferred assets and then dole out the funds to nonprofits over time.

“It is a spectacular vehicle,” Harris said. “Rather than giving cash, you can donate stock, appreciated stock, and that way, you not only get the tax deduction, but you also never pay tax on the embedded capital gain.”

— CNBC Senior Producer Stephanie Dhue contributed reporting to this story. 

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