How Better Tax Planning Can Help You Drop the Extra Weight of Tax Drag in 2026
Episode 18
How Better Tax Planning Can Help You Drop the Extra Weight of Tax Drag in 2026
Published on December 31st, 2025
Episode 18 of Retirement Tax Matters serves as our Season One finale, focusing on how high-net-worth retirees can start the New Year with a leaner tax strategy. In this holiday special, Adam and Garrett introduce the concept of Tax Drag—the hidden, inefficient weight that taxes can place on your investment returns over time. The conversation pivots to actionable strategies for 2026, specifically highlighting the power of Asset Location. Garrett explains why holding fixed income in Traditional IRAs while prioritizing growth stocks in Roth IRAs could improve long-term after-tax returns. This episode challenges retirees to treat their portfolio like a fitness resolution: cutting out the empty calories of unnecessary taxes to build a stronger financial future.
Key Tax Planning Questions
Question 1: I have a mix of Roth, Traditional IRA, and brokerage accounts. How should I decide which investments go into which account to minimize my taxes in 2026?
This is the core question of a robust Asset Location strategy. For a retiree with between $2M–$8M in savings, getting this right can add significant value over a 30-year retirement by reducing tax drag.
Generally, we follow a hierarchy based on tax efficiency:
Fixed Income (Fixed Income) -> Traditional IRA: These assets often generate interest taxed at ordinary income rates. Since you will eventually pay ordinary income tax on withdrawals from a Traditional IRA anyway, it can make sense to shelter this high-tax income here. It also suppresses the growth of the account slightly, which can help manage future Required Minimum Distributions (RMDs).
High Growth Equities -> Roth IRA: Ideally, your assets with the highest expected appreciation would find a home in your Roth IRA. Since Roth IRAs grow tax-free and have tax-free withdrawals, you want the biggest growth in this bucket to maximize the tax-free benefit for you and your beneficiaries.
Tax-Efficient Equities/Munis -> Taxable Brokerage: Use this bucket for investments that generate little taxable income (like broad market ETFs or municipal bonds). If you hold stocks here for the long term, you benefit from lower long-term capital gains rates and the potential for a step-up in basis for your heirs upon your passing.
While this strategy is mathematically efficient, it can be psychologically more difficult. If you place all your aggressive growth stocks in your Roth IRA, that specific account will be more volatile than your more stable Traditional IRA. You must have the discipline to view your portfolio as one whole pie (e.g., a 50/50 split overall), rather than panicking when your Roth account drops temporarily. A portfolio that helps you stick with your plan is better than a mathematically optimal one.
Many HNW retirees can find themselves locked in with a high percentage of their wealth in Traditional IRAs, making their desired asset location impractical. If that’s you, don't worry about the past. Instead, focus on running an annual tax projection each fall. This allows you to systematically convert portions of that Traditional IRA to Roth over time, slowly improving your asset location mix while managing your tax bracket and IRMAA thresholds.
Full Episode Transcript
Adam: Good morning and welcome to Retirement Tax Matters. I’m Adam Reed, and this is Garrett Crawford, our CFP® professional. How are you doing this morning, Garrett?
Garrett: I’m back for one last holiday for 2025.
Adam: There we go—the season one finale.
Garrett: Whew!
Adam: I think we’re up to almost 20 episodes. We made it about half a year and stayed relatively consistent. We missed a couple here and there—I had to go and birth a baby, there was a sickness in there, and maybe Thanksgiving—but other than that, we were consistent. It’s been a lot of fun and educational for me, and I’m sure for a lot of people following along. It’s been awesome.
Garrett: Yeah, I’ve really grown to love and appreciate what we’re doing here. I hope we’re helping people, but even if we’re not, I’m having fun. We’re going to keep doing this. Maybe we should release this at 11:55 PM on New Year’s Eve, so as people in East Tennessee are counting down the ball drop, they can turn this on at midnight and hear the Retirement Tax Matters guys ringing in the New Year. We joked about taking an ad in Times Square, but we decided maybe not for season one.
Adam: I don’t think the ROI makes a lot of sense for us yet, so maybe next year.
Garrett: 2025 has been great. We loved it.
Adam: New Year’s is probably on everybody’s mind. Whether you’ve been talking with friends, you're at the gym, or you’re at church hearing a sermon about it, everyone seems to be capitalizing on the idea of New Year’s resolutions. If you’ve ever looked at the stats, they’re hilarious—90% of people have already given up 30 days in. Humans commit to things quickly, and we also give up on things pretty quickly.
Garrett: The human experience.
Adam: Exactly. So, we wanted to offer some ideas to be mindful of—things you could be working on with your financial advisor, with us, or on your own. See us as your personal trainers kicking off January 2026. Weight loss is the number one resolution every year; even thousands of years ago, everyone was saying, "I want to lose a few pounds." We’re making a play on that with how to reduce "tax drag." Maybe your taxes are getting a little heavy around the belt. What can we do to put our tax burden on a diet heading into 2026? Garrett, what can people do to position their portfolios well if their goal is to run "leaner and meaner" in the tax department?
Garrett: I really like this idea of tax drag. I’ve read about it for years. A lot of people tuning in might not resonate with that term or may have never heard it, but it is the technical term for that extra, inefficient mass you’re pulling with your investments. If I had to start at the beginning, a good example would be your traditional IRA. You’ve been dutifully saving into it your entire career, but all that money is not yours. You haven’t paid tax on it yet; you’ve deferred those taxes into the future. That can be a good thing and more efficient than a normal taxable brokerage account, but there comes a day when you pull money out and realize a good portion of it belongs to someone else.
Garrett: In 2026, we’re going to hit on strategies for the specific niche Adam and I focus on: people who are five or ten years from retirement, or recently retired, who have saved well—perhaps between $2 million and $8 million. There is a litany of tax planning strategies you need to be aware of that your peers with less savings might not talk about. For example, many retirees have taxable brokerage accounts where they pay long-term and short-term capital gains. If you don't pay attention, those taxes act like an investment management expense ratio. You might be paying taxes when you shouldn't have, or perhaps a big Roth conversion triggered the Net Investment Income Tax.
Garrett: One easy way to reduce that tax weight is "asset location." This means holding the right type of investments in the right type of account. When you earn interest or ordinary dividends from bond or fixed-income ETFs, you pay your ordinary income tax rate. I’ve been working with several clients this December on this. If they have a balanced risk tolerance and both a Roth and a traditional IRA, we might put more growth stocks in the Roth IRA, where the money can grow tax-free. Then, we put the fixed income—which kicks off ordinary income—inside the traditional IRA. If you stick bonds inside a brokerage account, you get hit with a tax bill on that interest every year, which is inefficient. We’re not talking about "deprivation diets" that are negative for your health; it’s about being smart with what you "eat." Nobody wants empty calories. Are you doing anything with your investments that isn't necessarily bad, but could be done better? Asset location will be a big focus for the next year or two.
Adam: Absolutely. I think there are two main takeaways from this episode. First, we have a free resource on our website: a six-point checklist for people transitioning into retirement. That is a great place to start. Secondly, we release podcast episodes every Wednesday at 8:00 AM on YouTube, Spotify, and Apple Music. Not every week will be pertinent to you—maybe you just retired and QCDs are five years away—but check the titles to see what piques your interest. Use us as your trainers. Garrett will get in your face and yell, and I’ll encourage you. We’ll play "good cop, bad cop" in the weight room with you this year.
Garrett: This episode fittingly concludes our Season One. Looking into the upcoming year, our goal is to put out these conversations weekly. We’re not robots—we have vacations and might miss a couple—but I look forward to going deeper. If you are just tuning in, go to our website and click the "Episodes" button. We are categorizing these conversations into 12 categories so you can find topics that appeal to you. I don't see many people doing what we’re doing: highlighting the need for tax-return-driven financial planning for this high-net-worth retiree group. Often, you only get boilerplate advice. This upcoming year, we’re going to go deeper and get even better at it.
Adam: From us here at Providence and Retirement Tax Matters, have a Happy New Year. We’re looking forward to 2026 alongside you all. I'm Adam Reed.
Garrett: I'm Garrett Crawford. Maybe we can add a little ball and confetti to our thumbnail for 2026. We'll see what we can do. Happy New Year and best wishes to your family. We’ll see you in Season Two.
Adam: This is Retirement Tax Matters. See y'all later.