Tax Preparation vs. Tax Planning: Four Strategies That Can Reduce What You Owe in Retirement

Taxes have become the most important and most talked-about conversation I have with my clients. 

 

Not investments. Not estate planning. Taxes. 

 

That might surprise you. But once you're in the years leading up to retirement — or you're already there — the decisions you make around taxes often have more impact on what you actually keep than anything else. And yet most people are only thinking about taxes once a year, in April, after the damage is already done. 

 

That's tax preparation. What I'm talking about is tax planning — and they are not the same thing. 

 

Tax preparation is looking backward. Someone compiles what happened last year and files a return. Tax planning is looking forward. It's me, your financial advisor, staying aligned with your CPA throughout the year, looking for opportunities before they close. The two have to work together. When they don't, things get missed. 

 

Here are four strategies we use with clients — some apply to business owners, some apply to W2 employees, and some apply to anyone approaching or already in retirement. 

1. The Solo 401(k): A Powerful Tool for Self-Employed Individuals (and Their Spouses)

If you or your spouse are self-employed — and you don't have any W2 employees — you may be eligible to set up a solo 401(k). That's important: no W2 employees. That's the qualifier. 

 

The reason this matters is the contribution limits. In aggregate between employer contributions, employee contributions, and any after-tax contributions, you can put approximately $72,000 per year into a solo 401(k), in 2026 (plus an additional $8,000 if you are 50 or older, or $11,250 if aged 60-63). That's a significant number. You can direct those funds toward a Roth account, or use them as a deduction on your taxes. If you're earning a lot and want to walk your taxable income down, you can save and defer at the same time. 

 

A Real Example: Solving the Pro-Rata Problem 

 

Here's where it gets more specific — and where even CPAs could miss something. 

 

A lot of high earners want to contribute to a Roth IRA, but their income is too high for a direct contribution. So they use a backdoor Roth IRA — contributing to a traditional IRA and then converting it to Roth. That strategy works, but there's a calculation called the pro-rata rule that people frequently overlook. 

 

The pro-rata rule determines how much of your backdoor Roth conversion becomes taxable based on how much pre-tax money you already have sitting in a traditional IRA. If you have a large traditional IRA balance, a meaningful portion of your backdoor Roth contribution will be taxable — even though you were trying to avoid exactly that. 

Here's how we solved that for one client. 

 

He was a W2 employee, so he technically couldn't open a solo 401(k) on his own. But his wife was self-employed. So we established a solo 401(k) under her business, and because of his involvement in her business, opened accounts for both of them. Then we rolled his traditional IRA money into his new solo 401(k). Because the solo 401(k) is not factored into the pro-rata rule calculation, we were then able to contribute to his traditional IRA and backdoor those funds into his Roth IRA — without any of that money being subject to taxes. 

 

A lot of moving parts. But what we accomplished was allowing him to continue contributing to a backdoor Roth IRA for the rest of his working years, while his traditional balance sits inside the solo 401(k) under his wife's business. 

2. Tax Loss Harvesting: A Strategy That Works for W2 Employees Too

So many of my W2 clients say the same thing: There's really no tax planning I can take advantage of. I'm a W2 employee. There are only so many deductions I have access to. 

 

That's understandable. But it's not accurate — and tax loss harvesting is one example of why. 

 

Tax loss harvesting gets a bad reputation because people hear "loss" and assume it means losing money. It doesn't. It's really just a timing strategy. The markets go up and down, and when a position is temporarily down, there's an opportunity to capture that loss on paper and use it to offset gains elsewhere. 

 

Here's a simple example. Let's say you own Home Depot stock and it's down. We sell it — capturing the loss — and immediately buy Lowe's. You still have the same exposure to that sector of the market. Meanwhile, you've taken the paper loss, which can now be used to offset capital gains in another position you've been wanting to reduce. If there aren’t any gains to offset, you can use up to $3,000 per year to lower your taxable income, with the balance carrying forward until used.  

 

After 30 days (the wash sale period — you can't repurchase the same stock within 30 days or the loss gets disallowed), we can sell Lowe's and buy Home Depot back. Same exposure. Tax benefit captured. 

 

Harvesting Gains at 0% 

 

There's another version of this strategy that's especially useful for people in the early years of retirement, when income has dropped. 

 

If your taxable income is low enough, you can actually sell a stock position at a gain and owe 0% in federal taxes. Not everyone qualifies — you have to walk your income down below a certain threshold — but we're always watching for it. 

 

Here's why it matters. If I have a stock that I bought at $50 and it's now worth $100, and I can sell it with no taxable event, the following year I'm starting from a $100 cost basis. If it continues to appreciate, my future tax liability is significantly reduced. We'reessentially resetting the basis at no tax cost. 

3. Qualified Charitable Distributions (QCDs): Reducing Your RMD Tax Bill if You're Charitably Inclined

Once you reach age 73, the IRS requires you to take required minimum distributions — RMDs — from your pre-tax retirement accounts. Those distributions are taxable income, and for a lot of clients, they're the thing that pushes them into a higher bracket than they expected. 

 

If you're charitably inclined and you're 70½ or older, a qualified charitable distribution (QCD) is worth knowing about. 

 

A QCD allows you to send money directly from your IRA to a qualified charity. For tax year 2026, you can distribute up to $111,000 this way — and that distribution counts toward fulfilling your RMD for the year, but it doesn't show up as taxable income on your return. 

 

To be fair, this strategy only makes sense if you were already planning to give to charity. If you're not charitably inclined, you'd rather receive your RMD, pay the taxes, and keep 60 cents on the dollar than give 100% of it away. But for the right person, a QCD is one of the cleanest ways to satisfy an RMD without adding to your taxable income. 

4. QLACs: Deferring RMD Income Until Age 85

The second RMD strategy is less commonly known — and it involves an annuity, which is a product we don't typically use. But this one is different enough that it's worth understanding. 

 

A qualified longevity annuity contract (QLAC) allows you to reposition a portion of your pre-tax IRA money into an annuity contract. The key is that those dollars are no longer factored into your RMD calculation. For 2026, that limit is $210,000 per taxpayer — so a married couple could potentially move $420,000 out of the RMD calculation. 

 

And you can delay the income from that annuity until as late as age 85. 

 

What that does is lower your RMD amount each year, while also reducing the pre-tax balance that's generating growth — growth that would otherwise compound your future RMD problem.  

 

The Point of All of This 

 

These four strategies — solo 401(k) setup, tax loss harvesting, QCDs, and QLACs — don't apply to every client. Some are for business owners, some are for retirees, some are for W2 employees who assumed there was nothing available to them. 

 

Of course, we can’t always find a solution for every client using these strategies, but we're always pulling on the tools we have in our tool belt to make sure we are not leaving any stone unturned and that we're maximizing the benefit to you and your tax situation. The tax return is the starting point — not the afterthought. And the window to act on most of these is open all year, not just in April. 

 

 

 

 

 

Disclosures 

Investment advisory services are offered through Glasgow & Associates, LLC, d/b/a Masonboro Advisors (“Masonboro”), an investment adviser registered with the Securities and Exchange Commission. Additional information about Masonboro is available on the SEC’s website at www.adviserinfo.sec.gov. 

The content displayed herein is for general informational purposes only and does not constitute investment, accounting, legal or tax advice to the reader or viewer, nor is it an offer to sell securities. Masonboro provides tax and estate planning advice that is incidental to the investment advice it provides to its clients. Additional tax services and insurance services are offered through our affiliates Masonboro Tax Advisory Corp. (“Masonboro Tax”), and Quotey, LLC, respectively. Masonboro is not a law firm and does not provide legal advice. Masonboro will coordinate with any other tax, accounting or legal professional a client may choose.  

Please consult Masonboro, Masonboro Tax, Quotey, or another qualified professional before making decisions regarding your financial situation. Past performance is not a guarantee of future results. All investments involve risk, including loss of principal.