Act Now to Lower Taxes for 2026

Motley Fool Hidden Gems Investing

Host Robert Brokamp and guest Amanda Kish walk through a comprehensive fourth-quarter tax planning checklist designed to optimize finances f

Key takeaways

• Amanda Kish outlines 2026 contribution limits: $24,500 for 401(k)/403(b) plans with an $8,000 catch-up for those 50+, plus higher super catch-ups for ages 60-63.
• Robert Brokamp highlights that the Vanguard Total Bond ETF trades near $70, down from its ~$90 peak in 2020, creating viable tax-loss harvesting opportunities beyond just equities.

Main topics

• 2026 retirement contribution limits & catch-up rules
• Tax-loss harvesting & wash sale rule compliance

Notable quotes

"by April, most of your options are already gone and you're basically just reporting what has already happened."

Conclusion

The episode delivers a practical, deadline-focused roadmap for leveraging year-end

Transcript preview

Speaker 2 (0:03) What you can do to lower your tax bill for 2026 this week on the Saturday Personal Finance Edition of the Motley Fool Hidden Gems Investing Podcast. Speaker 2 (0:19) I'm Robert Brokamp, and it's the first Saturday of the month, so it's time for the next installment of the 2026 Financial Planning Challenge, which we're calling A Year Well Planned. And speaking of the year, it's now three-fourths over, making now a good time to do some fourth-quarter tax planning and make sure you are paying as much as you're supposed to, but not a penny more. And here to answer eight questions that will help you optimize your taxes for 2026 is my foolish colleague, Amanda Kish. Amanda, thanks for joining us again. Speaker 3 (0:47) Thank you so much. I'm glad to be back. All Speaker 2 (0:49) right. So I will ask each of the questions. Amanda will explain why the question is important, and then I may add a thought or two. So let's start with question number one, which is, are you on track to max out or at least meaningfully increase your tax advantage retirement contributions this year? Speaker 3 (1:06) Yeah, great place to start. And that is important because assuming that you're making pre-tax contributions, every dollar that you put into a 401k, 403b, or traditional IRA is a dollar that doesn't get taxed this year. So just as a Speaker 2 (1:21) refresher Speaker 3 (1:22) for 2026, the 401k and 403b contribution limit is $24,500 with an additional $8,000 catch-up if you are 50 or older. And then if you're between the ages of 60 to 63, there's an even higher super catch-up limit to be aware of. And then for IRAs, the annual contribution limit is $7,500 or $8,600 with the catch-up. So if you have been contributing a flat percentage since January on autopilot, like most of us, now is really the time to actually run the math. So pull up your last few pay stubs. see what you've contributed year to date, and then compare that against the annual limit. And if you've got the cash flow to do it, you can often increase your contribution percentage for just the last few paychecks of the year to close that gap. Some employers will also let you make a true catch-up lump sum contribution before December 31st, so that is worth checking with your plan administrator or HR to see if that's possible. And then if you're self-employed, Speaker 2 (2:27) of course, this Speaker 3 (2:27) question gets even more interesting because if you've got a SEP IRA, solo 401k, those have much higher limits. Those go into the tens of thousands of dollars. And the deadline for funding some of those extends past year end and into your tax filing deadline. So ultimately, no matter what kind of plan you have, it's worth a quick check toward the end of the year just to make sure that you're on track to max out those contributions if possible. Speaker 2 (2:53) And I'll extend this to a couple other tax advantage accounts. Of course, there's the health savings account, which any contribution will lower taxable income this year. And then I'll also point out 529 college savings accounts, which don't really have an annual limit and a deadline per se, but most states offer a deduction on the state tax return for contributions to a 529. Every state has their own rules, so make sure you look into your state's rules. But if you want to take that, it does have to go in before the end of the year. And if you want to take a distribution from your 529 for any qualifying expenses, you need to take that in the year that you incurred the cost. All right, question number two. Have you reviewed your taxable accounts for tax loss harvesting opportunities this year? Speaker 3 (3:38) Yep. So tax loss harvesting is the process of selling an investment. And again, this only applies to taxable accounts. Selling an investment that is currently worth less than what you paid for it in order to realize that loss for tax purposes. So that loss can then offset capital gains that you've realized elsewhere in your portfolio this year. And then if those losses exceed the gains after everything's all totaled up, up to $3,000 of that excess can offset. ordinary income, such as your salary. Anything beyond that $3,000 can then carry forward to future Speaker 2 (4:12) years indefinitely. Speaker 3 (4:14) Tax loss harvesting matters most, I think, for people who are holding stocks or funds that have had kind of a rough year. But it is also relevant if you have rebalanced a taxable account and realized gains, let's say, earlier in 2026, as those gains might now have an offsetting loss sitting somewhere else in the portfolio. And of course, if we're talking about tax loss harvesting, I have to throw in there, the important thing that everyone needs to keep in mind here is the wash sale rule. So if you sell a security at a loss and then you buy the same security or something that the IRS considers substantially identical within 30 days, either before or after the sale, that loss then gets disallowed for tax purposes. That's a 61 day window that can trip people up from time to time, especially with ETFs or exchange traded funds, because two similar sounding funds may be considered to be substantially identical, sometimes even if they are from different providers. So if you do want to stay invested in that same general asset class after harvesting a loss, look for a similar but not identical fund to swap into temporarily. Speaker 2 (5:29) And I will add that tax loss harvesting isn't just for stocks and funds. It really can be just about for any type of investment, including bonds, which have had a rough year. In fact, the Vanguard Total Bond ETF, which is the biggest bond ETF in the world, it's currently around $70 a share. So it's well below its all-time high of almost $90 a share set in 2020. So you could do some tax loss harvesting with your bonds as well. And Amanda talked about a couple of ways to violate the wash sale rule. And I want to highlight a few others. So first of all, you can't buy that investment back during that 61 day window, and neither can your spouse. And you can't do it in another account. So you can't take the loss in your brokerage account and buy it in your IRA or 401k or your spouse do it. And one way that people accidentally buy shares of the investment is through automatic dividend reinvestment if they hold it in some other place. So that's something to keep in mind. And then one final thing to keep in mind is that there are lots of rules around options as well, right? So you can't buy a call option on the investment and there's some other option strategies that could violate the wash sale rule. So make sure you know all of those. Speaker 1 (6:41) For many