Year-End Tax Planning for Salaried Employees 2026: 401(k) Max, HSA/FSA, Loss Harvesting, QCD, and Roth Conversion Ladders

By Sarah Chen, CFP | Published: June 16, 2026 | Updated: July 20, 2026

Key Topics: 401(k) contribution limit 2026 $24,500 under 50 / $32,000 catch-up 50+, HSA limit 2026 $4,300 single / $8,750 family triple tax advantage, FSA use-it-or-lose-it grace period March 15 2027 / carryover $640, tax-loss harvesting $3,000 net capital loss against ordinary income, Roth conversion ladder low-income bracket gap strategy, QCD $115,000 2026 SECURE 2.0 age 70.5, backdoor Roth IRA & mega backdoor 401(k) 2026, donor-advised fund appreciated stock charitable, capital gains brackets 0% / 15% / 20% 2026, net investment income tax 3.8% threshold 2026

October through December is the only window you have left to reduce your 2026 tax bill LEGALLY before December 31 rolls around. Unlike small business owners, W-2 salaried employees have a limited toolkit — but those tools are powerful and UNDERUSED. Per IRS 2026 contribution limits: 401(k)/403(b)/TSP $24,500 (under 50) / $32,000 (50+ catch-up). IRA $7,000 / $8,000. HSA $4,300 single / $8,750 family / $1,000 catch-up 55+. FSA health $3,200 / Dependent Care FSA $5,000. These pre-tax deferrals reduce your taxable income DOLLAR FOR DOLLAR. Plus tax-loss harvesting up to $3,000 net capital loss against ordinary income, Roth conversions timed at low-income gaps, and for 70.5+ QCDs (up to $115,000/yr inflation-adjusted 2026 per SECURE 2.0 + OBBBA) straight from IRA to charity without counting in AGI.

Every year, around late October, I start getting panicked emails from salaried clients who suddenly realize they haven't done any tax planning for the year. "Sarah, what can I still do before December 31?" The short answer: quite a lot — but only if you act before the calendar flips. For W-2 employees, your tax situation is mostly locked in by year-end because almost all your income comes through payroll, which has already been reported and taxed. But the levers that ARE available to you during Q4 are some of the highest-ROI moves you can make in personal finance. A single one-hour planning meeting in mid-November can easily save you $2,000 to $10,000+ on your April 2027 tax bill, depending on your income and how much room you have left in your accounts.

The biggest mistake I see salaried employees make year after year is assuming that because they don't own a business or have complex investments, there's nothing they can do. That's simply not true. A software engineer making $180,000 who maxes their 401(k), maxes their HSA, harvests $3,000 of losses in their taxable brokerage, and does a strategic $15,000 Roth conversion in a low-income gap year can easily reduce their effective tax rate by 4-6 percentage points compared to a colleague at the same salary who does none of these things. Compounded over a 30-year career, the difference in after-tax wealth accumulation is staggering — often multiple hundreds of thousands of dollars. So let's walk through every tool in your salaried-employee toolkit for 2026, exactly how the numbers work, and the action items you need to complete before December 31.

Deferral Accounts #1 — Pre-Tax 401(k)/403(b)/Governmental 457(b): Dollar-for-Dollar Taxable Income Reduction

The single most powerful tax-reduction tool available to the vast majority of salaried W-2 employees is the pre-tax elective deferral into an employer-sponsored defined contribution plan — whether that's a 401(k) (private sector), 403(b) (nonprofit, education, religious), Thrift Savings Plan (TSP, federal government), or governmental 457(b) (state and local government). Every dollar you defer into one of these accounts on a pre-tax basis reduces your Form W-2 Box 1 taxable wages by exactly one dollar. There is no phase-out, no income limit, no AGI threshold — it is a pure dollar-for-dollar reduction in your taxable income for the year. This makes pre-tax deferrals the first item you should max out in any year-end tax planning checklist, before you even look at IRAs, HSAs, or anything else.

For the 2026 tax year, the employee elective deferral limits under Rev. Proc. 2025-42 are as follows. If you are under age 50 for the entire calendar year (i.e., you do NOT turn 50 on or before December 31, 2026), your maximum employee pre-tax + Roth employee deferral combined is $24,500 — up from $23,000 in 2025, a roughly 6.5% increase reflecting inflation. If you DO turn 50 or older at any point during 2026 (even if your 50th birthday is December 31, 2026), you are eligible for an additional catch-up contribution of $7,500 on top of the base limit, bringing your total employee deferral maximum to $32,000 for the year. These limits apply combined across all employer plans you participate in during the year — if you switched jobs in 2026 and contributed to two different 401(k)s, the sum of both deferrals cannot exceed the applicable limit, and excess deferrals must be corrected by April 15, 2027, to avoid double taxation.

Employer matching contributions are ON TOP of these employee deferral limits. This is the single most common point of confusion I see among clients, so let me be emphatic: the employee deferral limit ($24,500 or $32,000) applies only to YOUR contributions from your own salary. Any money your employer kicks in as a matching contribution, a safe harbor non-elective contribution, a profit-sharing contribution, or a QNEC/QMAC does NOT count against your $24,500/$32,000 employee deferral limit. The overall "additions limit" under Internal Revenue Code §415(c) for 2026 — which is the total of employee deferrals + employer contributions + forfeitures that can be added to your account in a single year — is $73,500 for under-50 employees and $81,000 for age-50+ employees (the $7,500 catch-up is part of this higher total). So if you're under 50, defer $24,500 yourself, and your employer matches 50% up to 6% of your $150,000 salary ($4,500), you've only used $29,000 of the $73,500 415(c) space. That remaining $44,500 of headroom is what enables the mega backdoor Roth strategy we'll discuss later.

Now for the Q4 playbook: let's say it's October 1, 2026, and you log into your 401(k) portal and discover you've only deferred $18,000 so far this year. You're 42, so your 2026 limit is $24,500 — you have $6,500 of remaining room. You get paid biweekly (26 paychecks per year), 10 of which are left in the year. Your current deferral election is 12% of salary, and your gross biweekly paycheck is $4,000, meaning you're currently deferring $480 per paycheck. At that rate, over 10 more paychecks you'll defer another $4,800 — bringing your year-end total to $22,800, which is $1,700 short of the $24,500 max. The fix is simple: log into your plan's self-service portal right now and crank your deferral percentage up for the remainder of the year. To defer an extra $6,500 over 10 paychecks, you need $650 per paycheck, which on a $4,000 gross biweekly is 16.25%. Most plans let you change your deferral percentage at any time, effective the next pay period — there's no annual election lock-in for 401(k)s like there is for FSAs. Even if you need to go as high as 50-70% for the last couple of paychecks to catch up, you can always reset it back down on January 1, 2027. The key is to NOT leave free pre-tax space on the table.

ROTH 401(k) vs PRE-TAX 401(k) decision rule: The choice between Roth and pre-tax for your employee deferrals boils down to one comparison: your CURRENT marginal federal (and state, if applicable) income tax bracket versus your EXPECTED marginal tax bracket in retirement when you withdraw the money. If your current marginal bracket is HIGHER than your expected retirement bracket, pre-tax deferrals win — you get a tax deduction today at a high rate and pay tax later at a lower rate. If your current bracket is LOWER than what you expect in retirement (common for early-career professionals under roughly $100K single or $200K MFJ who are still climbing the income ladder), or if you believe federal tax rates will rise across the board by the time you retire due to the federal debt trajectory, then Roth 401(k) deferrals are better — you pay tax today at a low rate and withdraw completely tax-free in retirement. For clients in the 22% bracket or lower, I generally lean Roth; for clients in the 24% bracket or higher, I generally lean pre-tax, unless they already have a massive pre-tax balance and want to diversify their tax buckets. The Salary After Tax Calculator can model exactly how much each 1% of 401(k) deferral increases your take-home vs reduces taxable income, so you can run the pre-tax vs Roth comparison side by side with your actual numbers.

Deferral Account #2 — HSA: The ONLY Triple-Tax-Advantaged Vehicle That Exists

If you are enrolled in a qualifying High Deductible Health Plan (HDHP) for 2026 — defined for 2026 as a plan with a minimum deductible of $1,600 self-only / $3,200 family and a maximum out-of-pocket limit of $8,050 self-only / $16,100 family — you are eligible to contribute to a Health Savings Account (HSA). And if you are eligible, you should contribute the maximum every single year, no exceptions, full stop. The HSA is the single most tax-advantaged account in the entire Internal Revenue Code. There is nothing else like it. Every other retirement or savings account has at least one tax drawback somewhere — the HSA has none, if you use it correctly.

2026 HSA contribution limits per Rev. Proc. 2025-42: $4,300 for Self-Only HDHP coverage, $8,750 for Family HDHP coverage. If you turn 55 or older at any point during the 2026 calendar year, you can contribute an additional $1,000 catch-up contribution on top of whichever limit applies to your coverage tier. If both spouses are 55+ and both have HDHP coverage, each spouse can make their own separate $1,000 catch-up — you just have to open separate HSA accounts for each spouse's catch-up, since catch-ups cannot be made to a joint HSA.

Now let me spell out the triple tax advantage clearly, because this is the part that blows clients away when they first see it: (1) Contributions are PRE-TAX. If you contribute via payroll deduction through your employer's cafeteria plan (Section 125), the HSA contribution comes out of your pay before federal income tax, Social Security tax, Medicare tax, and (in most states) state income tax are calculated. If you contribute directly to an HSA you opened yourself outside of payroll (e.g., with Fidelity or Lively), you get an above-the-line deduction on Form 1040 Schedule 1 for the contribution amount — same federal and state income tax savings as a pre-tax payroll deduction, though you don't get the FICA (Social Security + Medicare) tax savings that way, which is why the payroll deduction method is strictly better for employed people. (2) Earnings inside the HSA grow TAX-FREE. Interest, dividends, capital gains — none of them are taxed, ever, as long as the money stays in the HSA. There's no capital gains tax on HSA investments, no 3.8% NIIT, nothing. (3) Withdrawals for QUALIFIED MEDICAL EXPENSES at any age are 100% TAX-FREE, FOREVER. There is no RMD (Required Minimum Distribution) rule for HSAs — you can leave the money invested and growing until age 90+ if you want, with zero forced withdrawals. If you use the money for NON-medical expenses after age 65, you just pay ordinary income tax on the distribution, same as a traditional IRA — there's no penalty. Before 65, non-medical withdrawals are subject to a 20% penalty plus income tax, but that 65+ carveout effectively lets you treat the HSA as a "super IRA" once you hit Medicare eligibility.

The mistake I see at least 60% of my salaried clients make with their HSA is using it as a checking account for current medical bills. They swipe their HSA debit card for every $40 prescription, every $150 urgent care visit, every $300 lab panel, draining the account down to near zero every year. This is objectively the worst possible way to use an HSA from a wealth-building perspective. The clients who invest their HSA balance in low-cost broad-market index funds (VTI, VXUS, BND, etc.) inside the HSA for 20+ years — and instead pay for current out-of-pocket medical expenses with after-tax money from their checking account, saving their receipts for later — end up with $150,000 to $300,000+ of completely tax-free HSA balances by retirement. That pays for Medicare Part B and Part D premiums, Medicare deductibles and copays, dental work, vision, hearing aids, long-term care services, and every other qualified medical expense in retirement — all completely tax-free. Even without the medical receipts, if you just pull the money out as ordinary income after 65, it's still as good as a traditional IRA, but with the FICA-tax-savings bonus on contributions that traditional IRAs don't give you. So if you're still spending down your HSA every year, I want you to seriously reconsider that approach starting today. HSA pre-tax contributions come out of Box 1 W-2 wages; model the impact in our Social Security & Medicare Calculator to see the exact FICA and income tax savings for your salary.

Deferral Account #3 — FSA "Use It or Lose It" Rules, Grace Period Through March 15

Flexible Spending Arrangements (FSAs), like HSAs, are employer-sponsored Section 125 cafeteria plan accounts that let you set aside pre-tax salary for specific expenses. But unlike HSAs, FSAs are subject to the infamous "use it or lose it" rule, and there are two completely separate types of FSA with very different rules — the Health FSA and the Dependent Care FSA — that I need to cover separately because clients mix them up constantly.

Health FSA (medical expenses): The 2026 maximum employee salary reduction election for a general-purpose Health FSA is $3,200, per IRS Notice 2026-32. The general rule for Health FSAs is that amounts contributed during the plan year must be SPENT on qualified medical expenses (same definition as HSA-qualified expenses, essentially) DURING that plan year, or you FORFEIT the unspent balance back to your employer — the classic "use it or lose it." However, the IRS has authorized two optional safe harbors that employers CAN (but are not required to) adopt in their plan documents, and most large employers do pick one. The first safe harbor is the GRACE PERIOD of up to 2½ months after the plan year end. For a calendar-year FSA (by far the most common), this means you have from January 1, 2027, through March 15, 2027, to spend any remaining 2026 FSA dollars — and during that grace period, you can use the 2026 balance for qualified expenses incurred in either 2026 OR 2027. The second safe harbor is the CARRYOVER provision, which allows you to carry over up to $640 of unused 2026 Health FSA balance into the 2027 plan year without forfeiture. Here's the critical catch: an employer can adopt ONE of these safe harbors or NEITHER, but NOT BOTH. You cannot have both a grace period and a carryover in the same plan. So your immediate action item for Q4 2026 is to log into your benefits portal or call your HR department and find out EXACTLY which safe harbor (if any) your Health FSA plan has adopted. If your plan has the grace period through March 15, 2027, you have more breathing room and can spread your spending into early next year. If your plan has the $640 carryover, anything above $640 still needs to be spent by December 31 or forfeited. If your plan has neither safe harbor (rare for large employers, more common at small companies), every dollar above zero must be spent by December 31, 2026, or it's gone forever. Don't guess — confirm your plan's rules in writing.

Dependent Care FSA (DCFSA): This is the one that trips people up every single year, so listen carefully. The Dependent Care FSA for 2026 has a maximum election of $5,000 per household per year ($2,500 if married filing separately). This account is for daycare, preschool, before-and-after-school care, summer day camp, and adult dependent care for a spouse or parent who is physically or mentally incapable of self-care and lives with you for more than half the year. Here is the non-negotiable rule for DCFSAs, written directly into Internal Revenue Code §129: there is NO carryover and NO grace period for Dependent Care FSAs, ever. The only spending window is the plan year itself. For a calendar-year plan, that means every dollar you elected to put into your 2026 DCFSA must be spent on dependent care services that were PROVIDED (not just billed, not just paid for — actually provided to the dependent) during calendar year 2026, and you must submit a valid reimbursement claim with receipts to your plan administrator by the plan's claims filing deadline (typically 90 days after plan year end, i.e., March 31, 2027, for most plans — but the service date must still be in 2026). If you elected $5,000 into your 2026 DCFSA but only have $3,200 of valid daycare receipts from 2026, the remaining $1,800 is forfeited back to your employer. There is no refund, no appeal, no exception. I have had clients literally crying in my office in March because they forgot to submit their summer camp receipts by the deadline or they over-elect DCFSA by $2,000 because they thought their kid's overnight camp qualified (it doesn't — overnight camp is explicitly excluded from dependent care FSA eligible expenses, only day camp counts). Don't be that person. Check your DCFSA balance TODAY and make sure you have enough 2026 receipts coming. If you're going to forfeit money, consider scheduling extra after-school enrichment, a winter day camp in December, or other eligible care before the year ends.

IRA Contributions (Traditional vs Roth) — Deadline Is Tax Day, Not Dec 31

Here's a rare piece of good news in the tax code: Individual Retirement Arrangement (IRA) contributions for the 2026 tax year do NOT have to be made by December 31, 2026. You have from January 1, 2026, all the way through the regular filing deadline for your 2026 return — which is April 15, 2027 — to make 2026 IRA contributions. Importantly, filing an extension of time to file your return (October 15, 2027, for most people) does NOT extend the IRA contribution deadline. The extension applies only to filing the paperwork with the IRS, not to actually making the IRA contribution. So you have until April 15, 2027, to get that money into your IRA account, and when you make the contribution, your IRA custodian will ask you which tax year you want it applied to — make sure you select 2026, not 2027. For 2026, IRA contribution limits are $7,000 if you're under age 50 by year-end, and $8,000 if you're age 50+ (the $1,000 catch-up). These limits apply combined across all your Traditional and Roth IRAs — you can split between them any way you like, but the total across both cannot exceed $7,000 / $8,000.

Now, deductibility. For Traditional IRA contributions, the deductibility phase-out ranges for 2026 if you (or your spouse, if MFJ) are covered by an employer-sponsored retirement plan at work (401(k), 403(b), TSP, etc.) are as follows: Single filers: modified adjusted gross income (MAGI) between $83,000 and $93,000 — deductibility phases out ratably over this $10,000 range, zero deductibility above $93,000. Married Filing Jointly (when the spouse making the IRA contribution is covered by a workplace plan): MAGI between $142,000 and $152,000 — same 10k phase-out band. If you're MFJ and the IRA-contributing spouse is NOT covered by a workplace plan but the other spouse IS covered, the phase-out range is much wider: $230,000 to $240,000 of MFJ MAGI for 2026. If you're above the deductibility phase-out for your filing status, you can STILL contribute to a Traditional IRA — it just has to be an AFTER-TAX (non-deductible) Traditional IRA contribution, which you must report on Form 8606, Part I, to track your "basis" in after-tax dollars so you don't pay tax on them again when you withdraw later.

Which brings us to the BACKDOOR ROTH IRA strategy. Since the Tax Cuts and Jobs Act of 2010, there has been no income limit on converting a Traditional IRA to a Roth IRA — anyone can do a Roth conversion at any income level, at any age. So the backdoor Roth playbook is simple: (1) If you're above the Roth IRA contribution income limit (2026 Roth limits: single $146K–$161K MAGI phase-out, MFJ $230K–$240K phase-out), instead of contributing directly to Roth, contribute $7,000 / $8,000 of after-tax non-deductible money to a Traditional IRA (Form 8606 tracks it). (2) The next day (or whenever — there's no waiting period required by the IRS, though many custodians impose a short settlement hold), convert that Traditional IRA balance directly to your Roth IRA. (3) Since the Traditional IRA had only after-tax basis, the conversion itself should have little to no tax due — just pay tax on any earnings that accrued between contribution and conversion (which will be minimal if you convert quickly). The catch, and it's a big one, is the PRO-RATA RULE on Form 8606. If you have ANY existing pre-tax balance in ANY Traditional IRA, SEP IRA, or SIMPLE IRA anywhere (from old 401(k) rollovers, previous deductible contributions, etc.), the IRS aggregates ALL of those balances together and treats the conversion as being proportionally composed of pre-tax and after-tax dollars. So if you have $93,000 of pre-tax rollover IRA money sitting around and then add $7,000 of after-tax nondeductible contributions, your IRA aggregate is $100,000, 93% pre-tax / 7% after-tax. If you convert the $7,000, 93% of that conversion ($6,510) is treated as taxable pre-tax money being converted — exactly what you didn't want. Solutions to the pro-rata problem: (a) If your current employer's 401(k) accepts incoming rollovers, roll all your pre-tax IRA balances into the 401(k) before December 31, 2026 (the aggregation test uses the year-end balance per Form 8606 line 6), which leaves your IRA(s) with only after-tax basis for the conversion. Or (b) don't do backdoor Roth if you can't eliminate the pre-tax IRA balances — it's not worth the unexpected tax bill.

Finally, the Mega Backdoor Roth 401(k) for high-earners who want even more Roth space. This one is plan-specific — it only works if your employer's 401(k) plan document explicitly allows two things: (1) after-tax employee contributions (i.e., contributions beyond the $24,500/$32,000 pre-tax+Roth employee deferral limit, up to the $73,500/$81,000 415(c) overall additions limit, minus employer contributions); AND (2) either in-service withdrawals (so you can take the after-tax contributions out and roll them to a Roth IRA) or in-plan Roth conversions (IPRC, also called an "in-plan Roth rollover" or IRR, where you convert the after-tax sub-account directly to the Roth 401(k) sub-account within the same plan). If both features are enabled, you can contribute after-tax dollars up to whatever headroom you have under 415(c) after your own deferrals plus employer match, then convert immediately to Roth so the earnings don't build up taxably. For a 50+ employee maxing the $32,000 pre-tax deferral with $0 employer match, that's $81,000 − $32,000 = $49,000 of after-tax mega backdoor Roth space in 2026 — a massive amount of additional tax-free growth room. Check your Summary Plan Description (SPD) or call your plan administrator to see if after-tax contributions and IPRC/in-service withdrawals are permitted in your plan.

Tax-Loss Harvesting in Your Taxable Brokerage Account — Up to $3,000/Year Against Ordinary Income

If you have a regular taxable brokerage account (not an IRA, not a 401(k), not a Roth — just a standard individual or joint account at Fidelity, Schwab, Vanguard, Robinhood, etc.) that holds stocks, ETFs, mutual funds, bonds, or crypto, tax-loss harvesting is a Q4 ritual you should perform every single year without fail, ideally in the last week or two of December after you have a clear picture of your realized gains and losses for the full year. The math on tax-loss harvesting is brutally simple and extremely compelling.

Under the Internal Revenue Code and IRS Topic 409, capital losses first offset capital gains dollar-for-dollar with NO annual limit. If you realized $20,000 of long-term capital gains this year from selling some winners, and you realize $20,000 of losses from selling some losers, your net capital gain is zero — you pay ZERO capital gains tax on those gains, period. After all gains have been offset by losses, any NET capital loss remaining for the year can be deducted against your ORDINARY W-2 income (and other ordinary income like interest, short-term gains, etc.) up to a maximum of $3,000 per year for single and MFJ filers, $1,500 per year for married filing separately. Any net capital loss in excess of that $3,000 annual ordinary-income deduction does NOT expire and does NOT disappear — it carries forward indefinitely to all future tax years, retaining its character (short-term or long-term), until it is fully used up offsetting future gains or future $3,000 ordinary deductions. There is no time limit on the carryforward. I have clients who are still using capital loss carryforwards from the 2008 financial crisis against 2026 gains — 18 years later.

Here's the practical example everyone should run for themselves in Q4. Suppose you're single, W-2 salary $150,000 (24% bracket), you have no realized gains so far this year, and your taxable brokerage has a total US stock market ETF (say, VTI) that you bought for $35,000 in January 2022 and is currently worth $29,000 — a $6,000 unrealized long-term capital loss. If you sell that VTI position on December 28, 2026, you realize a $6,000 long-term capital loss. On your 2026 return: $3,000 of that loss directly offsets your $150,000 W-2 ordinary income, saving you $3,000 × 24% = $720 in federal tax (plus any state tax, e.g., another ~6% in California = $180 more savings, total $900). The remaining $3,000 unused net capital loss carries forward to 2027, where you can deduct another $3,000 against 2027 ordinary income for another ~$900 of combined savings. Total two-year value of harvesting that single $6,000 loss: roughly $1,800 in after-tax savings, for clicking "sell" in your brokerage app and then clicking "buy" on a similar-but-different ETF 31 days later (or immediately, with a different ticker — more on that in a second). That's free money on the table if you're willing to do the bookkeeping.

Now the WARNING everyone ignores until the IRS sends them a letter: the WASH SALE RULE under IRC §1091. The wash sale rule says that if you sell a security at a loss, and then within 30 CALENDAR DAYS BEFORE OR AFTER the date of that loss sale, you (or your spouse, or an IRA you control, or a corporation you control) purchase substantially identical stock or securities, or acquire a contract or option to buy substantially identical stock or securities, then the loss from the original sale is DISALLOWED — you cannot deduct it. The disallowed loss gets added to the cost basis of the new position you bought, and your holding period of the old position tacks onto the new position, so the loss isn't permanently destroyed, just deferred — but deferring the loss defeats the entire point of harvesting it in 2026. The 61-day window (30 days before + sale date + 30 days after) is the "wash sale period" you need to respect. The two standard workarounds the entire industry uses, neither of which has ever been formally challenged or struck down by the IRS (though they've never formally blessed them either, which is the standard disclaimer): (a) The wait-31-days approach: Sell the loser ETF/stock today, park the proceeds in a money market fund for 31 full days, then buy back the exact same ETF/stock on day 32. This is 100% safe from a wash sale perspective, but you have 31 days of "market risk" — if the asset rallies 10% during those 31 days, you missed out. (b) The similar-but-not-substantially-identical ETF swap: Sell VTI (Vanguard Total Stock Market, tracks the CRSP US Total Market Index) at a loss, and immediately use the proceeds to buy SCHB (Schwab Broad Market, tracks the Dow Jones US Broad Stock Market Index) or ITOT (iShares Core S&P Total US Stock Market, tracks the S&P Total Market Index). All three are "total US stock market" ETFs with near-identical risk, return, and composition — but they are issued by different fund companies and track different underlying indices from different index providers. There is no IRS guidance saying that two different ETFs from different issuers tracking different indices are "substantially identical" to each other, and decades of industry practice treat this swap as wash-sale-safe. This way you stay fully invested in the market with zero cash drag, while still harvesting the tax loss for 2026. Pick your poison — the safe 31-day wait or the slightly-more-aggressive immediate swap with a peer ETF. Either way, don't forget to turn off dividend reinvestment on the asset you just sold for 31 days, because a reinvested dividend purchase during the wash window is a purchase that can trigger a partial wash sale — I've seen that bite clients.

QCD for 70.5+ — The Best Charitable Move You Can Make (If You Qualify)

If you are age 70½ or older on the date of the distribution, the Qualified Charitable Distribution (QCD) is hands down the single most tax-efficient way to make charitable donations that exist in the tax code — if you itemize deductions, if you take the standard deduction, regardless of your bracket, QCD beats writing a check from your checking account. Period. The rules for 2026 under SECURE 2.0 Act §201, Pub 590-B, and OBBBA technical corrections are as follows.

A QCD is a DIRECT trustee-to-trustee transfer of up to $115,000 (2026 inflation-adjusted limit, indexed annually going forward per SECURE 2.0's $100,000 base with CPI-U adjustments) from your TRADITIONAL IRA (Roth IRAs do NOT qualify, SEP and SIMPLE IRAs only qualify if you're no longer making employer contributions to them) directly to a QUALIFIED 501(c)(3) PUBLIC CHARITY. Private non-operating foundations, donor-advised funds (DAFs), and supporting organizations do NOT qualify as QCD recipients — only operating public charities. The check from your IRA custodian must be made payable directly to the charity, not to you personally; if the check is payable to you and you endorse it over to the charity, it doesn't count as a QCD — it counts as a taxable distribution to you followed by a charitable contribution, which is not the same thing at all. You can do multiple QCDs in a year, as long as the total for the year doesn't exceed $115,000 per taxpayer (so a married couple where both spouses are 70.5+ can do $115,000 each from their separate IRAs, total $230,000 per household).

The two massive tax benefits of a QCD that make it superior to the standard "take RMD → donate from checking → claim Schedule A deduction" approach are: (1) The QCD does NOT count as taxable income on your Form 1040 at all. It's not included in gross income, not included in AGI, not included anywhere — it's completely invisible on your return except for a small notation line on Form 1040 line 4a showing the total IRA distribution amount and line 4b showing the taxable portion (which excludes the QCD). This is a huge deal because lower AGI cascades into dozens of other tax calculations that are based on AGI or MAGI. (2) The QCD counts toward satisfying your Required Minimum Distribution (RMD) for the year, up to the amount of the QCD. Since the SECURE 1.0 and 2.0 Acts phased in RMD age increases (73 for anyone born 1951–1959, 75 for anyone born 1960 or later), some people in their early 70s don't have RMDs yet — but the QCD is still available starting at age 70½ regardless of RMD status, which is great for charitably inclined retirees who don't need the RMD money yet but want to get pre-tax dollars out of their IRA without paying tax.

The cascading benefits of a lower AGI from a QCD are where the real savings hide, especially for middle-income retirees in the "tax torpedo" zone. (a) Less Social Security becomes taxable. The provisional income formula for determining how much of your Social Security benefit is taxed uses: AGI + nontaxable interest + one-half of Social Security benefits. If a QCD removes $11,000 from your AGI, it also removes $11,000 from provisional income, which can drop you below the $25,000 / $34,000 single or $32,000 / $44,000 MFJ provisional income thresholds, turning a partially taxable benefit into a fully nontaxable one, or reducing the taxable portion from 85% to 50%. (b) 3.8% Net Investment Income Tax (NIIT) savings. The NIIT 3.8% surtax applies to the lesser of net investment income or the excess of MAGI over $200,000 single / $250,000 MFJ. A QCD that drops your MAGI below those thresholds eliminates NIIT entirely. (c) Medicare IRMAA premium reduction. Medicare Parts B and D income-related monthly adjustment amounts (IRMAA) are determined based on your MAGI from TWO YEARS PRIOR. So a QCD you make in 2026 reduces your 2026 MAGI, which is the number the Social Security Administration will use in late 2027 to set your 2028 Medicare Part B and Part D premiums. IRMAA brackets can add $100–$400+ per person per month to Medicare premiums, so a well-timed QCD every couple of years can keep you in a lower IRMAA tier for life if you're near a bracket edge.

Last year, a 68-year-old widow client of mine had a $28,000 RMD due for 2025, and she normally wrote about $11,000 of checks each year to her church and the local animal shelter out of her regular checking account, planning to claim the charitable deduction on Schedule A. But here's the catch — she was single, the 2025 single standard deduction was $15,000, and her total itemized deductions without those donations (mostly SALT capped at the old $10K + a tiny bit of mortgage interest) only came to about $12,500. Even with the $11K of donations, her total Schedule A was $23,500, which is above the $15K standard — but she was only getting a marginal tax benefit on ($23,500 − $15,000) = $8,500 of itemized-over-standard excess, not on the full $11K of donations. Then I realized: she was born in 1957, so she turned 68 in 2025 — she had turned 70½ back in 2023, so she was QCD-eligible. I had her undo (recharacterize) the cash donations she had already made, and instead we did a $11,000 QCD directly from her traditional IRA to the two charities before year-end. The result: instead of her full $28K RMD being taxable, only $17K of the RMD was taxable — the $11K QCD was excluded entirely from her AGI. That $11K AGI reduction shifted her provisional income calculation just enough that the taxable portion of her $26K annual Social Security benefit dropped from 85% ($22,100) down to 50% ($13,000), saving her another ~$2,184 on the SS taxability side plus ~$1,236 on the reduced ordinary income from the smaller RMD. Her net combined savings after the federal tax reduction plus the reduced Social Security taxation came to $3,420 — for an hour of my work and a couple of phone calls to her IRA custodian and the charities. I get paid very well for those kinds of wins, and the client gets a $3K+ check she didn't expect. That's the power of the QCD.

Roth Conversions — Time Them When You're in a Bracket Gap

Roth IRA conversions — moving pre-tax money from a Traditional IRA, SEP IRA, SIMPLE IRA, or even an old 401(k) (after rolling it to an IRA first, or doing an in-plan Roth conversion within the 401(k) if the plan allows) into a Roth IRA, and paying ordinary income tax on the converted amount in the year of conversion — are the primary tool we use to "fill up" lower tax brackets intentionally during years when your income is temporarily depressed, and to build tax diversification across your retirement accounts so that when you're in your 70s facing RMDs, you have a mix of pre-tax (traditional), after-tax (Roth), and taxable (HSA, brokerage) buckets to withdraw from strategically to manage your AGI each year. Done correctly, Roth conversions over a multi-year period can reduce your lifetime effective tax rate by 2-5 percentage points, which on a $1M+ retirement portfolio translates to hundreds of thousands of dollars of after-tax wealth preserved for you and your heirs.

The best years to do strategic Roth conversions are the years when you're in a temporary "bracket gap" — a year where your ordinary income is abnormally low, so there's lots of room in the 10%, 12%, and even 22% brackets before you spill into the next higher marginal rate. The three most common bracket-gap scenarios I see in my CFP practice are: (1) Gap years between early retirement and age 73 (when RMDs start for 1951–1959 birth cohorts; age 75 for 1960+). If you retire at 60, you have 13 years (ages 60–72) where your income is whatever you choose to withdraw from your portfolio plus small dividends and interest from your taxable accounts. If you've saved enough, you can live off your taxable brokerage and HSA during those years, take $0 out of your pre-tax IRA, and then fill up the 12% bracket (which in 2026 goes up to $47,025 single / $94,300 MFJ taxable income, i.e., roughly $63K single / $126K MFJ AGI after standard deduction) with Roth conversions every single year until RMDs kick in. (2) Years with large losses or deductions. If you have a big Schedule C business loss from a side hustle, a suspended rental real estate loss that's been released due to selling a property, a large net operating loss (NOL) carryforward, or even just a $50K capital loss carryforward from the 2022 bear market that's offsetting gains, that loss can "soak up" the ordinary income created by a Roth conversion, making the conversion partially or entirely free from a tax perspective. (3) Years where you only worked part of the year after leaving a job. If you quit your $180K/year corporate job on September 30, 2026, to take a lower-paying nonprofit role or a gap year, you only have 9 months of high W-2 income, giving you Q4 with little to no income coming in — perfect for a conversion before year-end to fill up the rest of the 22% bracket.

The key rule for strategic conversions: only convert enough to fill up the current bracket without spilling into the next higher marginal rate. Don't blindly convert $50K "because Roth is good" if that $50K conversion pushes you from the top of the 22% bracket deep into the 24% or 32% bracket — paying 32% on the conversion when you could have waited until next year to pay 22% is a permanent wealth destroyer. Run the math, or better yet, have a CFP or EA run a multi-year tax projection for you, so you know exactly where the cliff is for each year. If you're planning for an early retirement starting at 60, consider building a 5-year Roth conversion pipeline (Roth Ladder): in the 5 calendar years before you plan to start withdrawing from Roth (to cover expenses before 59½ without the 10% early withdrawal penalty), convert chunks of pre-tax money each year into Roth, wait the required 5 years per conversion (the Roth 5-year clock on conversions is separate from the contribution 5-year clock), and then withdraw converted principal (not earnings) tax and penalty free before 59½. This is the standard FIRE (Financial Independence Retire Early) playbook for early retirees who are too young to access IRA money without penalty — a properly structured Roth ladder lets you access every dollar of converted principal penalty-free starting 5 years after each conversion year, regardless of your age.

Sources and Further Reading

• Revenue Procedure 2025-42 — Inflation-Adjusted Items for 2026: 401(k)/IRA/HSA/FSA Limits
• IRS Notice 2026-32 — 2026 Health FSA Maximum Salary Reduction, Grace Period, and $640 Carryover Limit
• IRS Publication 590-B (2026 Draft) — Distributions from Individual Retirement Arrangements (IRAs), QCD Rules
• IRS Topic 409 — Capital Gains and Losses (Wash Sale Rule, $3,000 Annual Ordinary Deduction Limit)
• SECURE 2.0 Act of 2022 (P.L. 117-169), §201 — RMD Age Increases, QCD $100K Base with Inflation Adjustments