Five ways to optimize your tax savings with help from the IRS

No one wants to pay more in taxes than they have to. But here’s something you might not realize: while the IRS collects taxes, the tax code also provides plenty of opportunities to reduce, defer or potentially eliminate taxes on certain savings.

Here are five strategies to consider: 

1. Fund your 401(k) or a traditional IRA

First, make sure you contribute to your workplace retirement plan, typically a 401(k), or a traditional Individual Retirement Account (IRA). Pre-tax contributions to a 401(k) can reduce your taxable income today, while allowing those savings to grow tax-deferred until they are withdrawn in retirement.

In 2026, the maximum 401(k) contribution is $24,500, or $32,500 for those age 50 and older, with a higher limit of $35,750 for those ages 60 to 63. Catch-up contributions for certain higher-income earners must be made on a Roth, rather than pre-tax, basis.

In addition to contributing to a workplace retirement plan, you can contribute to a traditional IRA, although whether your contribution is tax-deductible depends on your income and other factors. The maximum contribution to an IRA in 2026 is $7,500 if you’re under age 50 and $8,600 for those 50 and older. (Retirement account contribution limits are generally adjusted periodically for inflation.) Traditional IRAs also allow your investments to grow tax-deferred, with taxes due when you take withdrawals in retirement. Withdrawals can be made without penalties after you reach age 59½.

2. Contribute after-tax dollars to an IRA and convert to a Roth IRA (backdoor Roth) 

Beyond traditional retirement accounts, Roth IRAs can provide another opportunity for tax-advantaged retirement savings, offering tax-free growth and qualified tax-free withdrawals in retirement. However, income limits restrict who can contribute directly.

For high earners who exceed those limits, a backdoor Roth conversion may provide another way to fund a Roth IRA. The strategy involves making an after-tax, non-deductible contribution to a traditional IRA, then converting those funds to a Roth IRA.

One important consideration is what’s known as the “Aggregation Rule.” When determining the taxable portion of a Roth conversion, the IRS generally considers the combined value of all your traditional IRAs, including SEP and SIMPLE IRAs, rather than just the account you are converting. If your IRAs contain both pre-tax and after-tax dollars, the conversion will include a proportional share of each, with pre-tax contributions and earnings subject to income tax, while after-tax contributions are not taxed again.

3. Contribute to a mega backdoor Roth 401(k)  

For high earners looking to save even more on a Roth basis, an employer-sponsored retirement plan may provide another opportunity.

If permitted by your employer’s plan, a mega backdoor Roth 401(k) allows you to make after-tax contributions to your 401(k) beyond the regular employee contribution limit and later convert those funds to a Roth account. Unlike a Roth IRA, a Roth 401(k) does not have income limits for contributions. This method benefits those who have already maxed out their traditional 401(k) and are looking for additional tax-efficient retirement savings opportunities. 

In 2026, the overall limit on contributions to a 401(k) is $72,000, including employee contributions, employer contributions and after-tax contributions. Catch-up contributions can increase the total to $80,000 for those 50 and older, or $83,250 for those ages 60 to 63. The amount available for a mega backdoor Roth is the difference between what has already been contributed to your plan and the applicable overall limit.

Confirm with your employer and plan provider whether your plan permits after-tax contributions to the mega backdoor Roth strategy. You’ll want to evaluate your situation closely with a tax advisor, including your current and future tax brackets, and when you plan to take distributions, to determine if this strategy makes sense for you.

4. Establish a 529 plan for education 

Retirement isn't the only long-term goal that can benefit from tax-advantaged savings. If you’re saving for a child or family member’s education, consider creating and funding a 529 education savings plan. A 529 plan offers multiple tax advantages:

• Investments in the account grow tax-deferred
• Withdrawals for qualified education expenses are tax-free

  Qualified expenses include college tuition, fees, books, computer equipment and certain room and board costs. Up to $20,000 per beneficiary each year can also be used for qualified K-12 education expenses. Some states also offer state income tax deductions or credits for contributions, providing an additional potential benefit. However, state tax rules vary, and certain K-12 withdrawals could trigger state taxes or the recapture of previously claimed tax benefits.

There is no federal annual contribution limit for 529 plans, although individual plans may set limits and contributions are subject to federal gift tax rules. In 2026, you can give up to $19,000 per beneficiary without using any of your lifetime gift tax exemption. You can also elect to front-load up to five years of annual exclusion gifts into a 529 plan. That means an individual could contribute up to $95,000 in 2026, or a married couple could contribute up to $190,000, subject to certain requirements.

Another key advantage is flexibility. The account owner retains control over the funds, and if the original beneficiary doesn’t need the money, the account can be transferred to another family member without penalty or assets can be rolled over into a Roth IRA for the beneficiary, subject to certain limitations.  

5. Take advantage of a Health Savings Account (HSA) 

Finally, if you have the opportunity, take advantage of a Health Savings Account, because it can be a powerful tax-saving tool. It is the only tax-savings vehicle currently available that provides triple tax benefits: 

• Contributions may reduce your taxable income
• Interest and investment earnings grow tax-free 
• Withdrawals for qualified medical expenses are tax-free 

Tax-free HSA withdrawals are limited to qualified medical expenses. Realistically, all of us will face medical expenses at some point in life, so it makes sense to start saving. For 2026, you can contribute up to $4,400 for self-only, while families can contribute up to $8,750, with an additional $1,000 catch-up contribution for those 55 and older. 

Bear in mind that there are some eligibility requirements. To contribute to an HSA, you generally must be covered by an HSA-eligible health plan, cannot be enrolled in Medicare and cannot be claimed as a dependent on someone else's tax return. Your eligibility may also be affected by other health coverage, including a general-purpose flexible spending account (FSA) held by you or your spouse. However, certain limited-purpose FSAs, such as those covering dental and vision expenses, are permitted.

Always evaluate all your tax planning options 

Reducing your income taxes is an ongoing process, not just something to consider every April. By making strategic use of tax-advantaged accounts, you can potentially reduce or defer taxes while building savings for retirement, education and health care.