Updated April 2026
If you earn a good income and still feel like taxes are eroding your progress, you are not imagining it. For high earners and pre-retirees, taxes are often the single largest drag on long-term wealth. Yet most people treat tax planning as a once-a-year exercise centered on filing, not strategy.
That is a costly mistake. Proactive tax planning, coordinated with your investment, retirement, and estate plans, can meaningfully reduce what you owe over your lifetime. At MJT & Associates, it is central to how we serve clients navigating the final decade or two before retirement.
Here is what smart, current tax planning actually looks like.
Why Tax Planning Is Not the Same as Tax Filing
Tax filing is a report on the past. Tax planning is a strategy for the future.
Effective planning means anticipating your tax situation across multiple years, not just the current one. It involves decisions about when to recognize income, which accounts to draw from first, how to structure charitable giving, and how life events like a business sale or retirement transition affect your bracket year by year.
The passage of the One Big Beautiful Bill Act (OBBBA) in 2025 made this even more important. Several major provisions are now permanent, including elevated standard deductions, expanded SALT deduction caps, and higher estate and gift tax exemptions. But many of these benefits phase out or interact with each other in ways that require careful coordination. Waiting until April to think about this leaves significant money on the table.
Key Tax Changes in 2025 and 2026 You Need to Know
The tax landscape has shifted considerably. Here are the most consequential updates for high earners and pre-retirees:
Higher Standard Deductions and SALT Relief
The standard deduction rises to $16,100 for single filers and $32,200 for married couples filing jointly in 2026. The cap on state and local tax (SALT) deductions increases to $40,400 in 2026, up from the previous $10,000 limit. For clients in higher-tax states or those with significant property tax bills, itemizing may now provide a meaningful advantage. However, the SALT deduction begins to phase out at a modified adjusted gross income (MAGI) of $505,000, so managing income timing around that threshold matters.
New Senior Deduction
Taxpayers age 65 and older are now eligible for an additional standard deduction: $6,000 for single filers and $12,000 for married couples filing jointly, subject to income limits. This benefit phases out above $75,000 of income for single filers and $150,000 for joint filers, and is scheduled to remain available through 2028. For clients in or near retirement, this is a meaningful planning opportunity.
Higher Estate and Gift Tax Exemptions
The federal estate and gift tax exemption rises to $15 million per individual, or $30 million for married couples, in 2026. This creates expanded opportunities for wealth transfer, particularly for business owners and those with significant illiquid assets. Even with fewer clients falling under the estate tax threshold, trusts remain relevant for income tax efficiency and asset protection.
Roth Catch-Up Requirement for High Earners
Beginning in 2026, employees whose prior-year wages exceed $145,000 are generally required to make 401(k) catch-up contributions on a Roth basis rather than pre-tax, provided their plan offers a Roth option. This is an important shift: catch-up dollars are taxed now but grow and can be withdrawn tax-free in retirement. For clients relying on pre-tax catch-ups to reduce current-year income, this change requires a recalibration of your approach.
Higher Retirement Contribution Limits
For 2026, elective deferral limits increase to $24,500 for 401(k), 403(b), and most 457(b) plans. Workers aged 60 to 63 also benefit from an expanded super catch-up contribution. These limits offer high earners additional runway to reduce taxable income through tax-deferred savings.
Six Tax Planning Strategies Worth Acting On
These strategies are most effective when implemented as part of a coordinated plan, not in isolation.
1. Maximize Tax-Advantaged Retirement Accounts
Contributing the maximum to employer-sponsored plans reduces your taxable income dollar for dollar. For high earners, this is foundational. Beyond the 401(k), consider whether a Health Savings Account (HSA) fits your situation. HSAs offer a rare triple tax benefit: deductible contributions, tax-deferred growth, and tax-free withdrawals for qualified medical expenses. Contributions for the prior tax year can still be made up until the filing deadline, which provides additional flexibility.
For business owners, SEP-IRAs and defined benefit plans can allow substantially higher contributions than a standard 401(k), creating significant current-year deductions.
2. Use Roth Conversions During Lower-Income Windows
If you retire before drawing Social Security, or if your income temporarily dips due to a business transition, those lower-income years create an opportunity to convert pre-tax retirement funds to Roth at a reduced rate. Once in a Roth account, funds grow tax-free and are not subject to required minimum distributions (RMDs).
Partial, systematic conversions over several years, timed to fill lower brackets without triggering higher IRMAA surcharges or SALT phaseouts, can significantly reduce your long-term tax burden. We cover this strategy in greater depth in our article Is a Roth Conversion Right for You? on the MJT blog.
3. Manage Capital Gains Strategically
Investment gains are taxable, but how much you owe depends heavily on timing and structure. Tax-loss harvesting, selling underperforming investments to offset realized gains, can reduce your taxable investment income in a given year. Capital losses that exceed gains can offset up to $3,000 of ordinary income annually, with the remainder carried forward.
Asset location, placing interest-generating investments in tax-advantaged accounts and growth-oriented investments in taxable accounts, is a less-discussed but equally powerful approach. It does not change what you own; it changes where you hold it.
4. Give Strategically, Not Just Generously
Charitable giving can be significantly more tax-efficient when structured well. Qualified Charitable Distributions (QCDs) allow individuals age 70.5 or older to direct up to $108,000 per year from an IRA directly to a qualified charity, reducing taxable income without needing to itemize. This is particularly valuable for managing your MAGI in years when Medicare premium surcharges are a concern.
Donor-advised funds (DAFs) allow you to take an immediate deduction in a high-income year while directing the actual grants to charities over time. Donating appreciated securities rather than cash can eliminate capital gains tax entirely while generating a deduction at full market value.
5. Coordinate Income Timing with Your Bracket
Timing matters as much as the dollar amount. If you expect to be in a lower bracket next year, deferring income and accelerating deductible expenses into the current year can produce two-year tax savings. If your bracket will be higher, the reverse applies.
This kind of year-over-year modeling is especially important for clients receiving deferred compensation, planning a business sale, or approaching Social Security claiming age. Each of those events has tax implications that extend beyond the year they occur. We discuss how to integrate these decisions in our article on The Entrepreneur's Exit Plan.
6. Revisit Your Estate and Legacy Structure
With the estate tax exemption now at $15 million per individual, fewer families face estate taxes directly. But that does not mean legacy planning is less important. The focus has shifted toward income tax efficiency: how to transfer wealth to heirs in a way that minimizes their tax burden, not just the estate's.
Irrevocable trusts, including grantor retained annuity trusts (GRATs) and spousal lifetime access trusts (SLATs), can be effective tools for transferring appreciating assets outside the taxable estate while preserving some access to income. Reviewing beneficiary designations on retirement accounts is also critical, as inherited IRAs carry specific distribution rules under current law. For a practical overview of the documents every family should have in place, see our Legacy Planning Checklist: 7 Documents You Can't Ignore.
The Coordination Problem: Why Piecemeal Planning Falls Short
Each of the strategies above works. But each one also has interactions with the others. A Roth conversion increases your MAGI, which can affect IRMAA thresholds, SALT deduction phaseouts, and the taxation of Social Security benefits. Charitable giving can reduce your MAGI in the same year that a QCD or gain harvest creates income. Capital gains timing affects your bracket, which affects whether a conversion makes sense.
This is why integrated planning matters. When your tax strategy, retirement income plan, investment approach, and estate documents are designed together and reviewed regularly, decisions reinforce rather than undercut each other.
At MJT & Associates, we build this kind of coordinated plan. You can learn more about our approach in Achieve Financial Wellness: The Benefits of a Holistic Financial Planner.
Common Questions About Tax Planning
Q1: How early in the year should I be thinking about tax planning?
As early as possible. The most impactful tax decisions, such as Roth conversions, loss harvesting, and retirement contributions, require time to implement and model accurately. Clients who engage in tax planning throughout the year consistently have better outcomes than those who address it at year-end or during filing.
Q2: I already work with a CPA. Do I also need tax planning from a financial advisor?
These are complementary, not redundant. A CPA typically focuses on accurate reporting of past-year activity. A financial advisor who integrates tax planning looks forward: modeling how current decisions affect future brackets, coordinating investment and withdrawal strategies, and identifying opportunities your CPA may not see because they are not reviewing your full financial picture.
Q3: What is the most overlooked tax planning opportunity for pre-retirees?
Roth conversions during the gap years between retirement and Social Security claiming are consistently underutilized. Many people retire in their early-to-mid 60s with temporarily lower income, then add Social Security on top without any strategy for the income that follows. Those early years of lower taxable income represent a genuine window to convert pre-tax dollars at favorable rates. Missing it means paying higher taxes later, often on a much larger RMD balance.
Q4: How does a business sale affect my tax planning?
A business sale can be one of the highest-income events in a client's life. The structure of the transaction, installment sale, asset vs. stock sale, use of Qualified Small Business Stock (QSBS) exclusions, and the timing of deductions all have significant tax implications. This is not something to address after the deal is done. Planning should begin at least two to three years in advance wherever possible. See our article The Entrepreneur's Exit Plan for a detailed overview.
Q5: Does tax planning look different for someone going through a divorce?
Yes, considerably. Divorce affects filing status, income recognition, the treatment of asset transfers, and the structure of retirement account divisions (including QDROs). Alimony and child support have different tax treatments depending on when the divorce was finalized. Working with advisors who understand both the financial and tax dimensions of divorce is important to avoid costly missteps. We provide divorce planning support as part of our practice.
Related Reading on the MJT Blog
- Is a Roth Conversion Right for You?
- The Entrepreneur's Exit Plan: How to Retire from Your Business on Your Terms
- Achieve Financial Wellness: The Benefits of a Holistic Financial Planner
- The Legacy Planning Checklist: 7 Documents You Can't Ignore
- Gray Divorce: 5 Financial and Tax Considerations for Couples Over 50
Conclusion
Tax planning is not about finding loopholes. It is about making deliberate decisions across your full financial life so that more of what you earn stays with you and your family. With meaningful changes now in effect, including expanded retirement contribution limits, a new senior deduction, higher SALT caps, and elevated estate exemptions, the window for strategic action is real.
The clients who benefit most are not necessarily those with the highest incomes. They are the ones who plan ahead, coordinate across all the moving parts, and revisit their strategy as their circumstances evolve.
At MJT & Associates, we build tax planning into every engagement, not as a separate service, but as part of how we think about your retirement, your business, and your legacy.
Ready to take a closer look at your tax picture? Contact us today to schedule a consultation.
