Tax Planning Strategies for High-Income Earners

For high-income earners, taxes are often one of the largest annual expenses—and one of the most important areas for proactive planning. As income increases, marginal tax rates rise, deductions phase out, and additional surtaxes may apply. Without intentional planning, a growing share of earnings can be lost to taxes each year.

While taxes cannot be eliminated entirely, strategic, forward-looking planning can help reduce taxable income, improve tax efficiency, and support long-term financial goals. As we move fully into 2026, it is also important to recognize that some 2025 planning opportunities remain open, while others have closed. Understanding what can still be done—and what now applies only to 2026—is key.

Below are several tax planning strategies high-income earners should consider for 2026, along with reminders about remaining 2025 contribution deductions, where applicable.

Employer-Sponsored Retirement Plans

Employer-sponsored retirement plans remain one of the most powerful tools for reducing current taxable income while saving for the future.

For 2026, the IRS has increased elective deferral limits to:

• 401(k), 403(b), and most 457(b) plans: up to $24,500
• Catch-up contributions (ages 50+):
  up to $8,000
• Enhanced catch-up (ages 60–63, if allowed by the plan): up to $11,250

These higher limits allow eligible participants to defer a meaningful portion of income into tax-advantaged accounts. Pre-tax contributions reduce taxable income dollar-for-dollar, which can be especially valuable for those in higher marginal tax brackets.

It is also important to note a SECURE 2.0 change now in effect: certain higher-income employees (generally those earning more than $150,000 in prior-year FICA wages) may be required to make catch-up contributions on a Roth (after-tax) basis, rather than pre-tax.

While Roth contributions do not reduce current taxable income, they may support long-term tax diversification by providing tax-free income in retirement.

Deferred Compensation Plans

Some executives and highly compensated employees have access to nonqualified deferred compensation (NQDC) plans. These plans allow participants to defer a portion of salary, bonuses, or other compensation into future years—often into retirement.

Deferred compensation can be particularly effective during peak earning years, when income is high and marginal tax rates are elevated. By shifting income into lower-income years, participants may smooth taxable income over time.

However, NQDC plans come with important considerations. Elections are typically irrevocable, funds are subject to the employer’s credit risk, and access to assets is limited. Because of these trade-offs, deferred compensation decisions should be coordinated carefully with retirement planning, cash-flow needs, and broader tax strategies.

Health Savings Account Strategies

For individuals enrolled in a qualifying high-deductible health plan (HDHP), Health Savings Accounts (HSAs) offer a rare combination of tax benefits: deductible contributions, tax-deferred growth, and tax-free withdrawals for qualified medical expenses.

For 2026, HSA contribution limits are:

• $4,400 for self-only coverage
• $8,750 for family coverage
• $1,000 catch-up for individuals age 55 and older
• Importantly, HSA contributions for 2025 can still be made until the tax-filing deadline in 2026, provided the individual was HSA-eligible during 2025. This allows taxpayers to reduce 2025 taxable income while also contributing toward 2026 limits separately.

Many high-income earners choose to pay current medical expenses out of pocket and allow HSA balances to grow over time. Used this way, HSAs can serve as a supplemental long-term planning tool for healthcare costs in retirement.

IRA Planning for High Earners

For 2026, IRA contribution limits are:

• $7,500 for traditional and Roth IRAs
• $1,100 added catch-up contribution for individuals age 50 and older

While many high earners are limited—or completely phased out—from deducting traditional IRA contributions or making direct Roth IRA contributions, planning opportunities may still exist. Strategies such as “back door” Roth IRAs or spousal IRAs can be appropriate in certain circumstances, depending on income, tax filing status, and other retirement savings.

It is also worth noting that 2025 IRA contributions can still be made until the 2026 tax filing deadline, offering a final opportunity to reduce 2025 taxable income or build tax-advantaged savings before focusing fully on 2026 contributions.

Equity Compensation Planning

Equity compensation is a powerful wealth-building tool, but it can also create significant tax exposure if not managed carefully.

Common forms of equity compensation include:

• Restricted Stock Units (RSUs), typically taxed as ordinary income when they vest
• Incentive Stock Options (ISOs) and Non-Qualified Stock Options (NSOs), each with distinct tax rules
• Employee Stock Purchase Plans (ESPPs), which may offer discounted purchase prices.

Because equity compensation often results in income “bunching,” it can push earners into higher tax brackets or trigger additional surtaxes. Coordinating vesting schedules, exercise decisions, and stock sales with retirement contributions, charitable giving, and estimated tax payments can help manage taxable income more effectively.

For high-income earners, equity planning is rarely a one-time decision. It requires ongoing coordination as compensation, tax laws, and market conditions evolve.

Charities and Tax-Aware Investing

Charitable giving can be both personally meaningful and tax-efficient when structured thoughtfully. Contributions to qualified public charities may be deductible up to 60% of adjusted gross income (AGI), subject to IRS rules.

Strategies such as donor-advised funds, or gifting appreciated securities, may allow individuals to support charitable causes while potentially reducing capital gains taxes and improving deduction efficiency.

In addition, tax-aware investment strategies—including asset location and tax-loss harvesting, when appropriate—can help improve after-tax outcomes over time. While these strategies do not eliminate taxes, they may help reduce the drag that taxes can have on long-term portfolio growth.

A Coordinated, Multi-Year Approach

For high-income earners, effective tax planning is rarely about a single strategy. It involves coordinating income sources, benefits, investments, equity compensation, and charitable-giving goals across multiple tax years, while remaining adaptable as tax rules continue to evolve.

The opinions voiced here are for general information only and are not intended to provide specific advice or recommendations for any individual. Grace S. Yung, CFP®, is a Certified Financial Planner™ practitioner and the CEO & Founder of Midtown Financial Group, LLC, in Houston. Since 1994, she has helped LGBTQ individuals, domestic partners, and families plan and manage their finances with care and expertise. She is a Wealth Advisor offering securities and advisory services through LPL Financial, a Registered Investment Advisor. Member FINRA/SIPC. Grace can be reached at grace.yung@lpl.com.For more information, visit www.midtownfg.com.