Tax-Efficient Investing 2026: How to Cut Your Tax Bill by Thousands This Year

In today’s episode, we’re tackling these topics:

💰 Why after-tax returns matter more than headline performance

📉 Using tax-loss harvesting and carryforwards effectively

📍 Asset location: what belongs in taxable, IRA, and Roth accounts

🏦 The hidden tax impact of cash and high-yield savings accounts

🩺 How investment income affects Medicare IRMAA and healthcare costs

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The Hosts:

Kevin Kroskey, CFP®, MBA – About – Contact

Tyler Emrick, CFA®, CFP® – About – Contact

Episode Transcript:

Tyler Emrick:

Most investors spend time worrying about returns, but what really matters is what you keep after taxes. Two portfolios can earn the same return, but have completely different tax outcomes.

In today’s episode, we’re talking about tax efficient investing for 2026. How to make structural decisions around losses, asset location, and income that can cut your tax bill by thousands without trying to predict the market.

Walter Storholt:

Back on Retire Smarter, another episode today, I’m Walter Storholt alongside Tyler Emrick, a CERTIFIED FINANCIAL PLANNER, a chartered financial analyst, one of the wealth advisors at True Wealth Design. You can find us at truewealthdesign.com or click the link in the description of today’s show to schedule a discovery call to see if you’re a good fit to work with the team.

Well, Tyler, we’re back again. Continuing our conversation from the last episode a little bit about January being a good checklist time of year. Good time of year to kind of just do some rebalancing we talked a little bit about. And now we want to dive in today a little bit more into the investments like you teased us a few moments ago.

And I liked your teaser of how to cut your tax bill by thousands this year. Anybody’s hands going to be up if that’s the case wanting to hear more. So I’m looking forward to what you got in store for us.

Tyler Emrick:

Oh, absolutely. I think it’s just shifting your mind to focus on truly after tax returns. As we think about managing money and where your assets are located, a lot of times when you’re making investment decisions inside of a Roth or inside of an IRA, those buys and sells and things like that, they don’t necessarily matter as much.

It really just matters when you pull money out of your particular accounts. That’s when normally when good old Uncle Sam gets his hands on a piece of that pie. Or in the case of a Roth, of course, you pay those taxes, generally speaking, as the money goes in on say a Roth conversion or whatever.

But if you start to build up your assets outside of retirement accounts into taxable brokerage accounts, we can even lump like these high yield savings accounts. Well, we’re actually getting some interest on savings accounts now, right? So there are absolutely individuals that are going to get tax documents from their bank and go, “Woo, that’s a big tax hit. I got a lot of interest that kind of came through.” And that interest obviously always trickles down into the tax documents there and into your tax return.

So we want to be mindful of not only, “Hey, how much return are we getting?” But also how much return are we getting after good old Uncle Sam gets a piece of that pie? So we just got a few key points here that we want to touch on that we think are just always good to keep in the back of your mind as you’re making some of those investment decisions.

And you had mentioned earlier, right? Hey, we’re in January, we’re starting the year. I’m sure a lot of individuals were in October, November, and December, were looking at their investments and saying, “Hey, should we be harvesting some losses inside of our accounts?” And the market’s been pretty good over the last few years.

So there might not have been a whole lot of losses inside of those portfolios, but it is an exercise at the end of the year that’s normally on most people’s kind of end of the year checklist, right? Well, hey, do we need to look at those investments and should we be harvesting some of those losses to get a tax benefit?

Walter Storholt:

Yeah. Even in a good year, maybe you took a flyer on something and it was a bad beat and maybe that’s what causes this conversation.

Tyler Emrick:

I think back to last year, April. April was when the tariffs talk started to happen. And in that particular month, the market had a lot of volatility, the market was down. And if you’re working with an advisor, you might’ve had an advisor that was going in there and should have been rebalancing or selling and harvesting some of those losses during that particular month.

Now, just like we experienced back in COVID in 2020, April, things bounced back pretty quickly and the market finished the year very well, right? But harvesting those losses, the opportunity was still there even in a year where the market was great last year.

Now, some individuals might find themselves in a situation to where they’re actually had enough losses to where they carry forward to the next year. If you don’t use them all in your say 2025 tax return, then those losses don’t go away. They just kind of carry over to the next year.

This is a big caveat to our tax aware long, short investing strategy that we’ve done a number of episodes on lately. Where we’re trying to harvest these losses and a lot of times they will carry over as a tax asset for you to use at a later point in time.

And that’s one of the key points that I wanted to bring up here first is if you’re an individual that had some of those harvested losses that flowed through and carried over to 2026 here, well, then the question becomes is, hey, do you want to take the time to potentially rebalance or sell some investments and use some of those losses? Whether you’re using them for distributions as a retiree, maybe you’re pulling money out of your taxable brokerage account and you have to sell positions that have grown in value. And if those losses carried over, then you’re able to use them in this year.

Now, of course, what we’re talking about here are investment losses inside of a brokerage account. So while they’re not necessarily going to give you a whole lot more room for a Roth conversion or anything like that to add more in what we call income to your portfolio. They can to a small degree because we are able to use up to $3,000 a year of portfolio losses against our income.

But they will certainly help a lot of retirees and individuals that are pulling money from your taxable brokerage account or living off of those to help rebalance or get distributions to live off of through the year. So I think that’s a good first checklist item if you happen to be in that camp to take a look and do it.

The second thing is, and in our last podcast, we talked about this a lot, Walt. Where it was like, “Hey, it’s the beginning of the year.” We have a lot of things that can happen over the year. A lot of our decisions will compound over the year. And I think this next point kind of falls into that bucket.

And this is taking a look at your accounts and what investments that you have inside of each of those particular accounts. The fancy term we say is asset location. And what I’m getting at here is this asset location can really add some major tax benefits to you in the long term.

What do I mean by asset location? This is simply taking an inventory of the accounts that you have. Well, maybe you have an IRA, maybe you have a 401k, a Roth, a taxable account, and maybe a savings account, right? So maybe you have four or five, six different accounts that you use that you’re saving in that have different purposes.

What you want to do is you want to look at all of those accounts and look at, well, what investments do I have in each of those particular accounts? Okay. Do I have investments in my taxable brokerage account that cost me a lot in taxes in the prior year?

These would be things like you have a mutual fund that has the infamous capital gains distributions that happen at the end of the year, whether you want them or not, right? You get this big distribution at the end of the year from your mutual fund and those hit your tax return and there’s really no flexibility that you have to get around those. They legally have to pay them out. Well, this might be a good time to say, “Hey, do I want to rebalance out of that? Do I want to get into something that’s maybe an ETF that’s a little bit more tax efficient?”

Another thing we want to look at is, “Well, hey, if you have a Roth account. Well, what type of assets do I have in that Roth account?” Generally speaking, we want to have our more risky, higher expected return assets in a Roth account. A Roth account grows tax-free. It normally doesn’t make a whole lot of sense to have interest bearing investments like cash inside of your Roth.

You would want your cash in other accounts, maybe like your IRA, that when that growth will be taxed when you pull it out, right? So looking at those Roth accounts and saying, “Hey, should I have?” Maybe making sure that you have stocks inside of there if that fits into your overall allocation and risk profile and all that good stuff?

The other thing to be thinking about is the cash that you have and what that’s coming down and what that’s actually doing to your tax return. We mentioned this on the last podcast, but interest rates have been high now, really since the end of 2022. A lot of high yield savings accounts are paying that three and a half, 4% interest. 4% is pretty darn good right now. The interest rates have gone down a smidge. And certainly the Federal Reserve has come out and said that it looks like they’re going to try to continue to lower interest rates over the upcoming year.

We’ll see if that comes to fruition or not, but managing that cash position and how much interest is actually hitting a return or how much do you want to keep in cash? That can creep up, especially for those individuals that are good savers or those individuals that maybe got a lump sum of money, whether it be a big bonus or something like that at the end of the year.

Making sure that you’re being very efficient with those cash levels and you’re not letting them creep up too high. And you’re maybe becoming more conservative across all your accounts than you want to. Or maybe you’re causing yourself to have a little bit more of a tax hit because the interest is coming down on your tax return a little more than you want to.

So this asset location theme, we’ve talked about many times on the podcast. But I think, hey, we’re starting the new year, taking an inventory, just look at your statements and kind of look at these high level things, right?

What’s in my Roth? What’s in my IRA? What’s in my brokerage accounts? How big are my savings? These types of decisions, hey, now’s the time to do it. Because as the year progresses, you get less and less opportunity to be able to fend off some of these big tax hits that might be coming down the road.

Speaker 3:

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With a fully integrated approach to financial planning, tax strategy, investments, and business advisory, their team can bring clarity and confidence to every part of your financial life. Take the first step toward a stronger financial future with a no cost, no obligation discovery meeting. Just click the link in today’s show description to get started.

Walter Storholt:

Yeah, it makes total sense. And I love your idea of, I mean, again, we’ve talked about it before, but for those who might be new to the show this year, maybe their resolutions to get more financially healthy and so they’re engaging in more content like what we’re doing today.

I just want to reiterate your asset location example of just one of those layers of planning that I think the average person’s not going through, right? Like, “Hey, might be pummeling money into some great accounts and they’re spread apart.” But that next level, you guys always take things to that next level of, “All right, but this investment over here in the brokerage account, what if we actually move that one to the Roth IRA and invest it that way in the Roth?”

And then this thing that you’ve got in the Roth that has very little churn, move that out over into the brokerage account and now look at what you’ve done. The efficiency, the saved money in the long term. You’re telling people you’re really teaching us to zoom out and look at all of our investments as a whole, but then don’t forget to zoom back in and then allocate appropriately from what you learned on the zoom out.

So that conceptually is making a lot of sense to me to view the whole thing as one pie, but then we come back in and determine what kinds of slices we need to make for each account.

Tyler Emrick:

Yeah. And, Walt, this is really imperative for our retirees that are listening, right?

Walter Storholt:

Yeah.

Tyler Emrick:

As you’re thinking about retirement and our retirees, they’re dealing with things like IRMA, right? Which, hey, if you go over a certain income threshold, you’re going to be paying more for your Medicare Part B premium, Part D premium as well, right?

So things like this asset location can have some pretty big ramifications on that, right? I hear it a lot like, “Hey, I like investments that produce dividends or something like that.” Well, hey, if you have a lot of money in a taxable brokerage account and you have it in dividend producing stocks, even if you didn’t sell those stocks, those dividends are then coming down and hitting your tax return and bumping up your adjusted gross income.

And if they get to a point when you start looking at all your other income, social security, pension plans, IRA distributions, all that stuff, and you start stacking them on big dividends and big capital gains distributions, that doesn’t give you a lot of control and a lot of flexibility over your income each year.

And as you know, some of these limits like IRMA or maybe even bumping yourself up into the next tax bracket, all these things can save you a lot of money and create good after tax returns in the long run that we want to really, really be mindful of. I’m not saying dividend producing stocks aren’t fine. I’m just saying, “Hey, where are you holding them? Well, how do they fit into your overall game plan and your overall strategy?”

Yeah, they might sound nice and great, but does that make sense? Or holding a big investment that kicks off a lot of interest, like big bond funds and things like that in your taxable brokerage account. Does that really make sense? Does that put you in a bad situation at the end of the year?

Because again, a lot of these investments, right, they’re kicking those off monthly, quarterly. And the longer you wait to make those decisions, you’re going to be coming up at the end of the year and all that stuff has already came down, trickled down, and hit your tax return.

So paying attention to those things now I think is a wonderful opportunity. And that’s why we just wanted to spend a couple 10 minutes here just bringing that to light because simple things like this really do add up.

Walter Storholt:

One change could literally save you thousands of dollars, whether we want to frame that as a mistake that you don’t even know that you’re making, that one change avoids then that mistake. If you draw just enough accidentally that you’re kicking in IRMA surcharges.

Tyler Emrick:

It’s a dollar over.

Walter Storholt:

You’ve lost money and now because of that. That now has kicked in, that’s less money in your pocket. Thousands of dollars can be saved with just one tiny change in that specific example, obviously, every situation’s different.

Tyler Emrick:

Well, there’s a multitude of them, right? We did a podcast a couple months ago on the ACA credits for individual healthcare and individuals under 65. And hey, that’s a cliff now too, right? The legislation changed to where if your income is over a certain amount, you could go from getting a pretty sizable subsidy towards your healthcare, to pretty much nothing.

Things like asset location are the biggest opportunity there when you’re planning for some of these other items. So it’s not just tax planning, but it’s healthcare planning for Medicare. It’s healthcare planning for individuals pre 65. And it has all these other ramifications.

It’s part of the reason why we believe in really truly taking a holistic planning approach to everything that you’re doing. Your investments, your healthcare strategy, your tax strategy. Because all of them have levers that affect the other. And you kind of have to have it all buttoned up and have a game plan for all of it to kind of make sure that you don’t fall into some of these traps.

Walter Storholt:

Yeah. I know we have some DIY-ers that listen to the show and that’s fantastic. And I think most people though, like the average person, even if they’ve done a great job saving for their financial future, saving for retirement, and even if they’ve built up a fantastic nest egg, I view it like this.

They’re still sitting in a room that’s got a wall of levers that they can pull. But until they start having these conversations with people like True Wealth Design, they don’t realize that there’s five other doors behind them that all have their own rooms full of levers. And most people never get access to those rooms.

And it’s not because they couldn’t get access to it. They just didn’t even know that the doors were behind them. And hopefully on this show, what we’re trying to do is show you that there are other rooms with a whole bunch of more levers that can be pulled. And make sure that you’re having those kinds of conversations when you’re engaging with an advisor, when you’re getting closer to retirement especially. But even years before that, you can still start pulling some of these levers, making these things happen.

Make sure you’ve got all those levers at your disposal and that you’re aware of them. And the team at True Wealth Design is going to help you pull the right ones and even discover them in the first place. So if you’d like to set up a 20-minute discovery call to work with an experienced advisor on the team to see if you’d be a good fit to work with one another and learn a little bit about where some of those gaps in your plan might be, where some of the mistakes might be popping right up that you can avoid, especially by planning early in the year.

It’s very easy to set up that call. All you have to do is go to truewealthdesign.com. We’ve got it linked in the description of today’s show as well to make it easy, but it’s truewealthdesign.com. Look for the let’s talk button if you go that route, otherwise we’ll link you right to it and you can schedule your time to visit very easily.

You can do it from online and then meet from wherever you are. Very easy to do that. Tyler, you guys work with folks nationwide, so very easy to plug in and have these conversations, right?

Tyler Emrick:

Absolutely. And you don’t have to have an extremely complex situation for this to apply to you either, right? I mean, these are things that are affecting just about anybody, right?

Walter Storholt:

Good context.

Tyler Emrick:

Especially if you’re trying to retire before 65 and you have to worry about those ACA tax credits. Or you’re over 65 and you have IRMA. I mean, all these things are impacting just about everybody. Having at least a framework to work under and an understanding of them, I think is good advice for anybody to be taking a look at them.

Walter Storholt:

Sometimes the things we talk about on this show feel like the things billionaires are doing and thus you get this impression that only billionaires must be able to pull such levers. It’s not the case. These doors are open for anybody to come in, take advantage of when your situation’s the right fit. And it applies to more people than probably folks realize.

Tyler Emrick:

Absolutely.

Walter Storholt:

Cool. Well, thanks for the help as always, Tyler. We’ll be ready for the next episode next week. Come back and join us folks right back here on Retire Smarter.

Speaker 4:

Information provided is for informational purposes only and does not constitute investment, tax, or legal advice. Information is obtained from sources that are deemed to be reliable, but their accurateness and completeness cannot be guaranteed.

All performance reference is historical and not an indication of future results. Benchmark indices are hypothetical and do not include any investment fees.