Three Q1 Tax Planning Moves Every High Earner Should Know
Because reviewing contributions, compensation, and withholding in Q1 can help prevent surprises and keep more of your income working for you.
By Abigail McCloskey, CFP®, CLU®, and Cheryl Starr, CFP®, Affinity Wealth
We’re a few weeks into the new year, and this is typically when tax planning really moves from theory to execution.
For many of our clients, the new year brings familiar questions:
How will the new catch-up contribution rules affect me?
Should I adjust withholding now or wait?
Are there still ways to reduce last year’s tax bill?
That’s exactly why we focus so heavily on tax strategy year-round and especially in the early months. Throughout Q1, we’re working with you to review prior-year opportunities before deadlines close, coordinate benefits and compensation decisions, and stress-test assumptions so nothing catches you off guard later. We know that one decision often impacts another: your catch-up contributions affect your withholding needs, your RSU vesting can impact your tax bracket, and your deferred compensation elections influence your cash flow.
Our job is to help you see how these decisions connect and why getting them right early can make a meaningful difference in the year ahead.
1. Maximizing Your Tax-Advantaged Accounts (And Navigating New 2026 Rules)
One of the first things we review each year is your benefits and contribution strategy. These are decisions that often feel “set it and forget it,” but it's surprising how often small adjustments to your paycheck elections can add up to significant tax savings.
401(k)s and HSAs
Early in the year, we confirm that:
Your 401(k) contributions are on track to hit the annual maximum
Your Health Savings Account (HSA), if available, is being fully utilized as a long-term planning tool
HSAs can be especially powerful in that contributions are tax-deductible, growth is tax-free, and withdrawals for qualified medical expenses are also tax-free. When cash flow allows, we often recommend front-loading contributions, so your dollars have more time to compound.
New Catchup Contribution Rules
Starting this year, if you're a high earner aged 50 or older and made over $145,000 (indexed for inflation) in the prior year, your catch-up contributions to your 401(k) must go in as Roth contributions. This is a new IRS provision, and it's something we've been prepared for throughout 2025.
This means:
No immediate tax deduction on catch-up contributions
But tax-free growth and withdrawals in retirement
For many individuals, this is actually a smart long-term move—but it does require us to revisit your withholding strategy to help make sure you're not caught off guard by a slightly higher tax bill.
There's also an enhanced catch-up provision for those between ages 62 and 64, which allows for even higher contribution limits. If you're in that window, we’re helping ensure your strategy reflects the higher limits.
Deferred Compensation
For clients with access to deferred compensation plans, Q1 is often when elections are finalized. Unlike 401(k)s, deferred comp plans typically don't have contribution limits, which means you can defer taxes on a significant portion of your salary (maybe even your entire bonus), using the funds and paying taxes on them in retirement.
However, they also require careful coordination with:
Cash flow needs
Future tax brackets
Life goals
This is where planning comes into play. In a given year, you may have a large expense like a wedding, anniversary trip, or a home improvement project. In these years, you may prefer to pay the taxes and have the cash. Next year may be a different story.
Don't Forget Beneficiary Updates
While you're reviewing your paycheck elections and contribution amounts, this is also the perfect time to confirm your beneficiary designations are current. Life changes, like marriage, divorce, or a new child, may require you to revisit your retirement plan designations, as well as your benefits.
2. Identifying Prior-Year Contribution Opportunities
Even though we're already into the new year, you still have time to make contributions that count toward your prior-year taxes.
Roth IRA Contributions
If you're eligible to contribute to a Roth IRA, you have until the tax filing deadline (typically April 15) to make contributions for the prior year. Keep in mind that Roth contributions have income limits, so if you earned above a certain threshold last year, you may not qualify for a direct contribution. However, there are still strategies (like a backdoor Roth conversion) that may allow you to get funds into a Roth IRA.
This is one of those areas where income nuances matter, and it's something we monitor closely to help make sure you're staying within the rules while also maximizing opportunities.
Solo 401(k) for Business Owners
If you're a small business owner with a solo 401(k), you have even more flexibility. You can make some or all of your contributions up until your tax filing deadline, including an extension depending on your business structure. This gives us months of breathing room to see how your cash flow shapes up before deciding how much to contribute.
The solo 401(k) has two components:
an employee contribution (from your salary)
an employer contribution (from business profits)
Together, these can potentially add up to a substantial tax deduction. For many of our business owner clients, this is one of the biggest levers we have to reduce taxable income, especially in strong revenue years.
Our role is to help you think through this strategically, so you know all your options and can make confident, intentional decisions,
S-Corp Election: Another Q1 Decision for Growing Businesses
If your business is growing, Q1 is also a good time to evaluate whether it makes sense to file as an S-corp.
As your business grows, filing as an S-corp can allow you to take a reasonable salary (subject to payroll taxes) and then take additional income as distributions, which aren't subject to FICA taxes. This isn't just about income tax savings; it's about reducing your FICA burden, too. This isn't the right move for every business, but for some clients, it can result in meaningful tax savings. We work alongside your CPA to help you determine if this structure makes sense.
3. Fine-Tuning Your Withholding Strategy
One of the most common frustrations we hear from new clients is that they were surprised by a large tax bill—or worse, hit with penalties—because their withholding wasn't set up correctly. This is especially true for high earners with multiple income sources like W-2 wages, bonuses, restricted stock units (RSUs), and taxable investment accounts.
Why Withholding is Better Than Estimated Payments
If you have the option to increase your withholding from your paycheck (or from an IRA distribution), we almost always recommend doing that instead of making quarterly estimated tax payments. Here's why: the IRS treats withholding as if it was paid evenly throughout the year, even if you increase it all in December. Estimated payments, on the other hand, need to be made on time each quarter, or you risk penalties.
While a $1,000 penalty might not seem significant to a high earner, we believe any avoidable fee is money that could be working toward your goals instead.
Monitoring RSUs and Other Equity Comp
If you receive RSUs or stock options as part of your compensation, those vest events can suddenly push you into a higher tax bracket, creating a tax bill you weren't prepared for.
We run tax projections throughout the year to anticipate these vesting events and adjust withholding proactively, helping ensure there are no surprises come April. One decision here, like a major vesting event or a large capital gain, can have a ripple effect on your entire tax picture.
Tax-Loss Harvesting Isn't Just for December
Most people think of tax-loss harvesting as a year-end strategy, but Q1 often presents opportunities that get overlooked. If the market takes a dip early in the year, capturing those losses now gives you flexibility to offset gains throughout the rest of the year. We monitor portfolios regularly and take advantage of these opportunities when they arise, giving you more control over your tax situation
Tax planning isn't a one-time event. If something changes mid-year (a bonus, a new job, a major expense), we can revisit your withholding and contribution strategies to keep you on track. That's the advantage of having a partner who's looking at the big picture, not just reacting at tax time.
Keeping a Bird's Eye View on Your Taxes
Sometimes one action may result in a tax consequence you weren’t expecting. That's why we look at everything from a bird's eye view.
We recently advised a client to hold off on a big Roth conversion early in the year because we didn't yet know what his income would look like. Mid-year, he had an unexpected distribution from an alternative investment. Had we done the conversion in January, he would have paid more in taxes than necessary.
This is why we run projections, ask questions, and stay in regular communication. One gear turns another, and we want to make sure all the moving parts are working together, and in your favor. If something has changed in your life, like a new job, a windfall, or another major life event, don't wait to let us know. Reach out so we can revisit your plan together.
If you're not yet working with Affinity Wealth Management, Q1 is the perfect time to take a fresh look at your tax strategy. In our complimentary Connect Meeting, we'll help you understand exactly where you stand, identify opportunities to reduce your tax bill, and create a proactive plan that works for your unique situation. Let's start the conversation.
Key Takeaways:
Should I review my 401(k) contributions every year? Yes, especially in 2026 when new catch-up rules take effect for high earners over 50.
What's the benefit of increasing my withholding vs. making estimated payments? Withholding is counted evenly throughout the year, helping you avoid quarterly payment deadlines and potential penalties.
Can I still make retirement contributions for last year? Yes, you have until the tax filing deadline (typically April 15) to make prior-year Roth IRA contributions, and even longer for solo 401(k) contributions if you file an extension.