Keep More, Give Intentionally, Pay Less with Smarter IRA Tax Planning

Your IRA or 401(k) might look like your most significant asset, but it’s also one of your most heavily taxed. Every dollar you take out is treated as ordinary income. And if you pass it on to your children, they’ll owe income tax too, often during their peak earning years when their tax brackets are already high.

That’s why tax planning around IRAs is no longer optional for high-income families. When done right, it can preserve six or seven figures in additional wealth, stretch tax liability across generations, and, if desired, shift dollars to charity instead of the IRS. The goal is simple: keep more of what you’ve earned and give with purpose, not by accident.

The IRA Tax Trap

Traditional IRAs and 401(k)s are tax-deferred, not tax-free. The IRS is just waiting to collect. When you withdraw the money, it’s taxed as ordinary income no matter what age you are. After age 73, required minimum distributions (RMDs) kick in, forcing you to start taking income whether you need it or not.

For high-net-worth individuals, RMDs can push your income up dramatically in retirement, increasing Medicare premiums, reducing Social Security tax advantages, and accelerating overall tax drag.

The Inheritance Problem

Before the SECURE Act, inherited IRAs could be stretched across a beneficiary’s lifetime. Now, most non-spouse beneficiaries must empty the account within 10 years. That means large tax bills for your kids right when they’re sending their own children to college or building businesses of their own.

Without proper planning, your million-dollar IRA could lose a third or more to income taxes before your family sees a dime.

Charity or the IRS

Here’s the part most people don’t realize: if you leave your IRA to your children, it will be taxed. If you leave it to a qualified charity, it won’t be. Charities can receive IRA assets income tax-free, and the rest of your estate can go to your family with fewer tax consequences.

This opens the door to more innovative estate planning strategies: use taxable and Roth assets for your children and reserve IRA dollars for charitable gifts. You preserve more wealth for your family and support causes that matter to you without giving more to the government than necessary.

Even Non-Charitable Families Use These Strategies

You don’t have to be a philanthropist to benefit. Many families who say they aren’t “charitable” still incorporate these strategies for one reason: they save money. These tools are about controlling the tax impact whether or not charity is your end goal.

For example, some families use charitable remainder trusts (CRTs) funded with IRA dollars to provide income to heirs for a period of time with the remainder going to charity. Others use direct qualified charitable distributions (QCDs) from IRAs to reduce RMDs and lower taxable income in retirement.

Stretching the Tax Bill Across Generations

If your goal is multigenerational wealth, IRA tax planning is essential. Without it, your children pay income tax immediately. With the proper structure, such as a carefully timed Roth conversion plan, trust planning, or charitable strategies, you can defer those taxes or reduce them significantly. In many cases, you can convert a taxable account into one that provides long-term value without the IRS taking a large cut.

Don’t Let the IRS Be Your Largest Beneficiary

Your IRA or 401(k) is the one part of your estate that will always come with a tax bill unless you plan ahead. Whether you care about supporting a cause, protecting your family, or just making sure your wealth goes where you want it to, tax planning around retirement accounts is one of the most powerful levers available.

At Strategic Wealth Legal Advisors, we help families use tax planning to make the most of their retirement assets whether your goal is giving, growing, or both. If you’re ready to build a smarter plan around your IRA or 401(k), we can help you make the most of every dollar. Contact us today to see how we can help you.