These balances rarely stem from routine contributions to broad index funds. Typically, they trace back to startup founders, venture capitalists and corporate insiders placing low-cost, early-stage equity into self-directed IRAs and watching valuations compound over decades inside a tax-shielded wrapper.

Building that level of wealth is a remarkable achievement. Protecting it across generations, however, presents an entirely different planning challenge.

Mega-retirement accounts face growing scrutiny in Washington. Legislative proposals in the past decade have sought to cap total retirement balances or enforce mandatory distributions once balances surpass $10 million.

In today's dynamic tax landscape, affluent families must ask: Is an IRA still the optimal vehicle for long-term growth assets?

The traditional IRA drag: Ordinary income vs capital gains

Traditional IRAs deliver upfront deductions and tax-deferred growth, but every distribution is taxed as ordinary income — up to 37% federally, plus state taxes.

For rapidly appreciating equity, this dynamic creates a significant tax drag. Gains that would otherwise qualify for long-term capital gains rates (capped at 20% plus the 3.8% net investment income tax) lose their tax character entirely inside a traditional IRA. Decades of growth convert into ordinary income upon withdrawal.

The ordinary income vs capital gains tradeoff deepens for heirs. Under the SECURE Act, most nonspouse beneficiaries must fully distribute an inherited IRA within 10 years. A $20 million traditional IRA forced out over a decade can push beneficiaries into top tax brackets every year, surrendering nearly half the account to tax obligations.

The Roth trap: Income tax free, estate tax exposed

Roth accounts offer tax-free distributions and no lifetime required minimum distributions (RMDs), making them a natural candidate for high-upside equities. Yet, an often-overlooked exposure remains: The full Roth balance remains inside the owner's gross taxable estate at death.

Consider an entrepreneur seeding a Roth account with early-stage equity that grows to $50 million. While heirs receive an income tax-free windfall, they might face a substantial estate tax bill on the balance above the federal exemption limit ($15 million per person).

Another strategy is to withdraw from mega-Roth accounts after age 59½ and gift those funds — either directly or via trust structures. This approach can rapidly exhaust lifetime gift tax exemptions, restricting broader estate options.

Estate planning alternatives: Irrevocable trusts

To insulate high-growth assets from systemic tax drag and estate expansion, families expecting their wealth to trend above the federal estate tax exemption amount often look beyond retirement accounts toward irrevocable trust structures.

One has the choice of paying the trust's taxes over time by using a grantor trust. Because the grantor pays the annual income tax on behalf of the trust, the assets inside compound tax-free without diminishing the trust, principally providing a tax-free gift to beneficiaries each year.

To avoid paying the taxes of the irrevocable trust, the grantor might use a non-grantor trust in which the trust pays its own taxes. The grantor might "turn off" the grantor's trust status to convert the trust into a non-grantor trust.

Grantor trusts can be structured to allow indirect access to trust funds in more than one way. An independent trustee can be granted discretion to make distributions to beneficiaries based on health, education, maintenance or support needs, offering flexibility without giving the grantor direct control.

For married grantors, a spousal lifetime access trust (SLAT) provides a more direct route: It permits actual distributions to a spouse, who might then informally share that benefit with the grantor.

A non-grantor variation, the SLANT, can achieve similar goals, often for state income tax purposes. Because retaining a swap power would convert the trust back to grantor status, SLANT distributions rely more heavily on independent trustee discretion, which calls for more careful drafting.

While legislative discussions periodically evaluate changes to grantor trust rules, these vehicles remain primary pillars for intergenerational wealth transfer when executed with careful legal oversight.

Strategic asset placement across vehicles

Optimizing a complex wealth structure requires matching specific asset classes to the appropriate legal and tax wrappers. Note that these are general frameworks; the right approach for any given family will depend on their specific asset profile, complexity and risk tolerance.

• Traditional IRAs. Often best allocated to steady, yield-generating assets such as private credit or real estate investment trusts (REITs), where ordinary income tax rates match the income profile of the asset.
• Roth IRAs. Highly effective for strong growth equities, provided total household wealth remains within long-term estate tax exemption thresholds.
• Irrevocable grantor trusts. Ideal for high-upside, early-stage positions once family wealth exceeds federal estate tax thresholds, shielding future growth from federal estate tax.
• Taxable portfolios. Well-suited for core appreciated assets intended for transfer at death, leveraging the step-up in basis to eliminate unrealized capital gains. For concentrated, highly appreciated positions held prior to death, structured hedging and derivative strategies can help manage concentration risk, while other diversification tools such as direct indexing can allow for a more gradual transition out of the position.

Preserving generational wealth requires thoughtful vehicle selection, proactive risk management and staying ahead of changing tax frameworks. As balances grow, revisiting where assets sit, and why, can be one of the more overlooked ways to preserve wealth across generations.

Related Content

• Why So Many Families Are Unprepared for the Great Wealth Transfer — and What You Can Do About It
• The Inheritance Dilemma: How to Pass Down Wealth Without Destroying Ambition
• Our Taxpaying 'Golden Hour' Won't Last: These 4 Urgent Moves Can Help Insulate Your Wealth Before It's Too Late
• How to Build Your Financial Fortress Before a Siege: Why Timing Is Everything in Asset Protection
• 3 Things That the Ultra-Rich Do to Protect Their Wealth That You Can Do, Too

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

The write-offs that shrink a tax bill also shrink the income a mortgage underwriter will count, and that gap can decide whether you get an approval on your mortgage application or a courteous no.

This touches a large and growing share of the country. Bureau of Labor Statistics data put roughly 16.8 million Americans, more than 10% of the workforce, in self-employment as of late 2025. Upwork's research counts about 64 million people, close to 38% of workers, doing some freelance work over the course of a year.

Plenty earn more than enough to carry a mortgage, yet a conventional lender's math can still say otherwise. There is a well-worn path around the problem, plus a few moves that measurably improve where you land.

How your deductions shrink your borrowing power on a conventional loan

When you apply for a conventional loan, the underwriter doesn't look at what your business earned. They begin with the net profit on your tax return, run it through a standardized cash-flow worksheet (Fannie Mae's Form 1084 is the common one), average it over about two years, and turn the result into a monthly figure that gets weighed against your debts.

A low monthly number means low borrowing power, even when far more cash moves through your accounts than the return shows.

Not every deduction counts against you equally, though, and that detail rarely surfaces before someone assumes conventional financing is out of reach. The Fannie Mae worksheet adds several noncash write-offs, among them depreciation, the home office deduction, depletion and amortization, so those don't lower your qualifying income even though they lowered your tax bill.

What does pull the number down are ordinary cash operating costs:

• Supplies
• Subcontractors
• Vehicle and mileage
• Insurance
• Fuel
• Travel

That difference tells you how wide your own gap really is. If your write-offs are mostly depreciation and a home office, you might qualify with figures much closer to your true earnings.

If you carry heavy equipment, labor and fuel costs, a large slice of your income vanishes before the lender ever counts it.

How a bank statement loan reads your real cash flow

A bank statement loan settles the income question with your deposits rather than your return. Instead of starting from net profit, the lender totals the money that landed in your accounts in the past 12 or 24 months, discounts it to reflect the cost of doing business and spreads what remains across those months to reach a qualifying income.

That discount is the expense factor. On business accounts, lenders commonly assume expenses consume about half of deposits and count roughly 50% as income. Personal accounts get treated differently, since money reaching them has usually already covered some costs. This is also a number you can influence.

An underwriter is not tallying every credit on the page. They want deposits that are steady and roughly consistent with the income you report, and they remove anything that is not recurring business revenue, such as a transfer, a loan or a tax refund.

Overdrafts and returned payments draw the wrong kind of attention. The aim is to reconstruct what your business dependably produces.

The trade-off is rate. As nonqualified mortgage products, these loans typically run about 0.5 to 1 percentage point above a comparable conventional loan, and some programs ask for a few months of reserves.

Set that against what qualifying the conventional way would cost you, which is the deductions that lower your tax bill every year.

For many self-employed borrowers, keeping those write-offs is worth a slightly higher rate, though a thin-margin business should still run the numbers.

What to do before you apply

Borrowers who keep business and personal banking separate start from a strong position: Clean, easy-to-total deposits that tie plainly to their work and give an underwriter little room to discount them.

If your accounts are commingled, though, that's no reason to wait. A mortgage broker specializing in bank statement loans can review your deposits now and tell you what already qualifies, including whether your business or personal account makes the stronger case.

Those deposits also need to read clearly. Cash is hard to trace and often excluded, so deposit it promptly and keep records linking it to invoices.

When a large or irregular deposit lands, be ready to explain it, because anything resembling a transfer or a loan gets stripped from the calculation.

If your real costs run well below what the lender assumes, a CPA-prepared expense statement can increase the income on which your loan is based. This is where the expense factor stops being a flat 50%.

Say you deposit $20,000 a month and the lender counts half, or $10,000. If a CPA documents that your true costs are closer to 25%, the lender might count $15,000 instead, raising your qualifying income by half with nothing changed about how you operate.

It's not required, and it helps low-overhead businesses most. Ask your loan officer first, since lenders typically want the letter prepared in a specific way.

Where the program lets you choose, match the window to your trajectory. A business whose income has climbed usually looks stronger over 12 months, since a 24-month pull averages that recent year against a leaner one behind it.

A seasonal or uneven business tends to do better over 24, where the slow stretches sit next to the busy ones. Run it both ways and go with the window that best reflects your current earning power.

Line up the real costs before you fall for a house, including a down payment, several months of reserves and a rate above conventional.

Whatever you're preapproved for, make sure your cash flow comfortably covers the monthly payment and carrying costs in an ordinary month, not just a busy one.

Ask your CPA about timing, too, since the deduction strategy that saves the most at tax time is not always the one that serves you in a year when you also want to buy.

Lenders don't all read your file the same way, so gather a few quotes and select a loan officer who lays out both paths instead of selling one.

The right loan depends on what you need most: Conventional often wins on rate when your deductions are mostly the paper kind that get added back, while a bank statement loan can win on loan size or speed.

That call is yours to make. Assemble your file early either way:

• 12 to 24 months of statements
• About two years of proof of self-employment
• Your CPA's expense letter
• A year-to-date profit and loss statement

The bottom line

A conventional turndown usually says more about the measuring stick than about you. Underwriting built for a W-2 world reads a healthy business as a low earner, and the very deductions that make you a savvy taxpayer are the ones that make you look small on paper.

As the workforce keeps shifting toward independent income, the financing has quietly caught up.

Your task is to know which door fits and to arrive prepared: Clean deposits, a documented expense ratio, reserves set aside and a lender who writes these loans routinely. Do that, and self-employment stops being the reason you can't buy.

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• 12 Tax Strategies Every Self-Employed Worker Needs in 2026
• Applying for a Mortgage Loan? Here's What to Expect
• 7 Overlooked Tax Deductions for the Self-Employed
• A Practical Guide to Credit and Loans

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

Over the past few years, technological advancements in the investment world have ushered in a new era of flexibility and control.

As a financial planner and owner of Alpha Planning, I find that direct indexing and tax-loss harvesting have become strategies that I'm discussing regularly — often with clients who have brokerage accounts over $250,000 and are keen on managing their retirement tax outcomes.

What is direct indexing — and why is it different?

Most investors have grown comfortable with index funds: Buy an S&P 500 ETF, and you get hundreds of companies with one click. But direct indexing lets us go one step further.

Instead of holding shares of a fund, we own the individual stocks that make up an index, opening up far more opportunities for customization and tax optimization.

To illustrate: Imagine your portfolio is like a chef's kitchen. Index funds are the meal kit — pre-packaged, efficient and predictable.

But direct indexing is the custom kitchen, stocked with individual ingredients that let you adjust every dish to your taste. You can swap one item for another, season to your preferences or craft a meal that's uniquely yours.

This flexibility is invaluable when managing taxes and making strategic choices.

And it's not just theoretical. Our team consistently averages 1% to 1.5% of tax alpha each year in nonqualified accounts simply by trading stocks strategically — that's above and beyond any market performance.

"Tax alpha" is a measure of how much additional money you keep by lowering your tax bill, and this alpha accumulates year after year, resulting in thousands of dollars in additional value for our clients over time.

The capital gains budget: A smarter, more strategic tax plan

One concept that has become the backbone of many retirement conversations is the capital gains budget. Think of it as an annual spending plan for your realized gains: How much can you afford to distribute before tipping into higher tax brackets or triggering additional Medicare IRMAA premiums?

Intentionally setting a capital gains budget creates room to coordinate other income strategies — like Roth conversions — without crossing those crucial thresholds.

Direct indexing allows for precise control of:

Tax-loss harvesting. By tracking individual positions, we can harvest losses throughout the year, offsetting gains and smoothing out your tax bill.

Roth conversions. Loss harvesting frees up "space" in your tax bracket so you can convert more IRA assets to Roth at preferable rates and accelerate tax-free growth without impacting IRMAA.

IRMAA management. Staying under IRMAA cutoffs means keeping your Medicare premiums as low as possible.

Flexible withdrawals. Harvested losses don't just help in a single year — they often carry forward, providing valuable flexibility for withdrawals in later retirement years. This can help ensure you're less likely to trigger excessive taxes when accessing your investment accounts for future needs, often when long-term care comes into view.

A case from my desk: Linda and Bob's retirement tax playbook

Earlier this year, I met with Linda and Bob, a couple who'd recently retired with $3 million in investable assets. Their challenge: To maximize after-tax retirement income, minimize surprises and plan for their family's future.

With direct indexing in their taxable account, we harvested $75,000 in losses over the first two years of the strategy.

This loss harvesting became essential to keeping their capital gains budget on track — allowing us to convert IRA dollars to Roth while staying under Medicare IRMAA thresholds and AGI limits.

It also provided the flexibility to help fund a second home purchase without affecting their IRMAA and Roth conversion strategy thanks to the carry-over losses we had helped accrue.

The payoff? Linda and Bob enjoyed predictable Medicare premiums, more tax-free growth, more flexibility for future withdrawals and an estate strategy ready for the next generation.

Their story is a perfect example of how intentional planning — not just reacting to market swings — translates into tangible, lasting benefits.

Who benefits most?

Direct indexing and a capital gains budget aren't only for ultra-high-net-worth investors. If you have a brokerage account over $250,000 and want to take control of your retirement tax plan, these strategies could be your missing link.

They offer proactive ways to personalize your financial plan, prepare for future legislative changes and put more money to work for you.

Key takeaways

• Direct indexing brings customized flexibility — think of it like a custom-made mutual fund — you have control over when to buy and sell, not the mutual fund or ETF
• Tax-loss harvesting is more powerful when you own individual stocks
• Setting a capital gains budget helps coordinate Roth conversions and manage Medicare costs
• Strategic trading generates tax alpha — on average 1% to 1.5% per year — which compounds into substantial long-term benefits
• Harvested losses create flexibility for withdrawals in future years, helping minimize taxes as retirement unfolds — especially when future needs like long-term care arise

Final thoughts

Retirement is about more than investment returns — it's about controlling what you can and planning with intention.

If you haven't reviewed your capital gains budget or explored direct indexing, now's a good time to sit down with your adviser and ask the tough questions.

In my experience, the confidence that comes from a well-structured, tax-smart retirement plan is the most valuable asset you can own.

Related Content

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• The 40-Year Retirement Rule: How to Prepare Your Taxes for a Longer Life

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

Congress used it last summer when it enacted the One Big Beautiful Bill Act (OBBBA), and every planning practice in the country quietly lost its sense of urgency in the days that followed.

The relief was understandable. For much of the preceding three years, the profession had operated under a deadline: The doubled estate exemption in the Tax Cuts and Jobs Act (TCJA) was scheduled to sunset at the end of 2025, and families with substantial wealth were counseled — correctly, under the law at the time — to compress years of transfer planning into a matter of months.

Then the deadline evaporated — and with it, for many families, the last practical motivation to reopen the estate binder.

The deadline that never came

On July 4, 2025, President Donald Trump signed the OBBBA into effect, setting the estate, gift and generation-skipping transfer tax exemption at $15 million per individual for 2026, or $30 million for married couples — up from $13.99 million and $27.98 million, respectively, in 2025.

It also provides for inflation adjustments beginning in 2027 using 2025 as the base year. The top federal rate remains 40%.

The 2026 annual gift exclusion for 2026 is $19,000.

Since the OBBBA took effect, for the great majority of Americans with substantial wealth — households with net worth between roughly $5 million and $30 million — the federal estate tax has effectively receded as a planning concern.

Why 'permanent' is a dangerous word

"Permanent," in tax legislation, is a term of art. It signals that Congress has chosen not to include a scheduled expiration in the statute — nothing more.

A future Congress remains free to revise the number at any time, and the historical record suggests it does so with regularity.

In 2001, the federal estate tax exemption stood at $675,000. By 2002, it had risen to $1 million. In 2009, it reached $3.5 million. In 2010, the estate tax was briefly repealed altogether, then reinstated at $5 million in 2011.

The TCJA doubled that figure to $11.18 million in 2018, and it drifted upward with inflation being lifted it to its current level.

Against that record, "permanent" is a description of legislative posture, not of statutory reality.

The behavioral response most families adopt on hearing the word — read the news, exhale, close the binder — is precisely the wrong one.

Four questions your documents need to address now

1. Does your existing plan still function when the exemption rises rather than falls?

Many trusts drafted during the preceding decade contain formula clauses — provisions that automatically allocate assets between a credit-shelter share and a marital share based on the exemption in effect at the first spouse's death.

A formula written to divide an estate at a $5 million or $7 million threshold behaves very differently at $15 million.

In some drafting patterns, the credit-shelter share now consumes nearly the entire estate and starves the surviving spouse's marital share. In others, the reverse occurs.

Neither outcome may reflect what the family intended when the documents were signed.

The remedy is unglamorous: Read the formula language, model the outcome under current law and amend or restate where the mechanics no longer serve the intent.

2. How should appreciated assets in your estate be handled?

This question inverts a decade of planning orthodoxy. Under the pre-OBBBA regime, the arithmetic favored removing appreciated assets from the estate — through gifts, sales to intentionally defective grantor trusts or grantor retained annuity trusts — to avoid a 40% estate tax that would otherwise apply.

That calculus was often correct. Under a permanent $30 million exemption, it frequently is not.

For families comfortably beneath the threshold, retaining appreciated assets in the estate captures the basis step-up permitted at death, which eliminates embedded capital gain from a lifetime of appreciation.

A 23.8% federal capital gains rate applied to decades of unrealized growth can now exceed the estate tax cost of holding the asset — often by a substantial margin.

The old default of "give it away" deserves a fresh calculation.

3. What impact will state estate or inheritance taxes have?

Several states levy their own estate tax at thresholds far below the federal exemptions, and additional jurisdictions impose inheritance tax on the recipient rather than the estate.

• Oregon begins taxation at $1 million
• Massachusetts at $2 million
• Washington at approximately $3 million
• New York at $7.35 million, with a distinctive cliff at 105% of exemption above which the entire estate becomes taxable from the first dollar

Our practice, Palmer Wealth Group, (I am the CEO), is based in Texas, which imposes no state estate tax, a genuine planning advantage for its residents.

But the analysis rarely stays clean. Property held in another state, family members domiciled elsewhere or a beneficiary residing in an inheritance tax jurisdiction can each trigger exposure the federal calculation misses entirely.

State thresholds change more frequently than federal, and several states index their exemptions annually. What was safe last year may not be safe this year.

4. Which trust strategies are the most tax-efficient?

This one addresses what existing trusts have quietly become. When federal estate tax was the binding constraint, the goal of an irrevocable trust was often to remove assets from the grantor's estate as efficiently as possible. Income taxation was a secondary concern. It is no longer.

Now, a trust reaches the top 37% federal income tax bracket at $16,000 of undistributed income in 2026 — a threshold a single individual does not encounter until $640,600 of taxable income.

For a trust with meaningful investment assets, the compression is severe.

Distributable net income planning, grantor-trust elections, situs selection and the choice between distributing and accumulating income each become materially more important once the estate tax rationale no longer overwhelms every other consideration.

What this review actually looks like

Taken together, these four questions form the shape of an estate plan review that has these components:

• Documentary. Retrieve the current trust and will documents and read the formula clauses aloud. The exercise is more revealing than most families expect.
• Arithmetic. Re-inventory the estate against the new estate tax threshold, separating what remains a candidate for lifetime transfer from what has quietly become a candidate for basis step-up.
• Geographic. identify every state in which the family owns real property, maintains a domicile or has significant beneficiaries and map the exposure against current state statutes.

The fourth component is coordinative — and, in some respects, it's the most difficult because estate planning, tax planning and investment management sit on three separate professional desks, plus a personal one:

• The attorney drafts the documents
• The accountant computes the return
• The adviser manages the assets
• The family too often serves as the unpaid coordinator among them

In our practice, the review typically begins with the attorney reading the formula clauses in the family's presence and ends with the accountant and the investment adviser at the same table, working from the same current inventory.

The mechanics are ordinary; the coordination is not. Its absence — not the tax code — is what most often causes an updated plan to remain uncompleted after the review begins.

Nothing in the current law prevents a future Congress from changing the exemption again. The 40% rate, the state estate tax landscape and the compressed income tax brackets that apply to trusts all remain what they were before OBBBA.

What has changed is the immediacy of the pressure to act. That change is welcome, but it should not be mistaken for a change in the underlying discipline.

Estate planning is not the practice of racing deadlines. It is the practice of building a plan that survives whatever the rules become next.

Related Content

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• The Illinois 'Cliff Tax': A Single Dollar Could Cost Families Hundreds of Thousands
• Inherited Money or Property? What You Need to Know Before Filing Your Taxes
• Estate Tax vs Inheritance Tax: Who Actually Pays the Bill?
• Which Trust Type Saves Your Kids The Most Money?

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

They study video to discern strengths and weaknesses in their team and the upcoming opponent. They identify opportunities, assess risks and make adjustments before the next game.

Retirement planning deserves the same approach.

Most people know how much they have saved for retirement. They may know their investment returns, their 401(k) balance or the value of their IRA. But those numbers alone don't answer the most important question: Are you actually prepared for the retirement you want?

A strong retirement plan should be evaluated from several different angles. A retirement scorecard can help identify where a plan is strong, where it may have vulnerabilities and where adjustments could make a meaningful difference.

Here are five areas worth keeping score on.

1. Secure income: How much of your retirement income can you count on?

One of the first questions retirees should ask is not how much money they have, but how much reliable income they will have.

Social Security may provide an important foundation. Pensions can provide another source of dependable income. Some retirees may also use annuities or other strategies designed to create guaranteed income.

The next step is to compare that dependable income with the expenses that must be paid regardless of what the financial markets are doing.

Consider:

• Essential living expenses
• Healthcare costs
• Mortgage or housing expenses
• Other recurring obligations

The objective isn't necessarily to have every dollar of expenses covered by guaranteed income. Rather, it's important to understand how much of your essential lifestyle depends on your investment portfolio's performance.

A retiree with $2 million invested and $100,000 of dependable annual income may have a very different retirement outlook than someone with the same $2 million portfolio but only $40,000 of dependable income. The account balances are identical; the retirement plans are not.

2. Retirement confidence: How well does your plan hold up when things change?

Retirement rarely unfolds exactly as expected. Markets rise and fall. Inflation changes. Tax laws evolve. Healthcare expenses can be unpredictable. And people may live longer than they anticipated.

That's why a retirement plan should be tested against more than one possible future.

One way to do that is through Monte Carlo analysis, which can test a retirement plan across thousands of potential market and economic environments.

A retirement plan can be tested against periods of strong markets, declining markets, sideways markets, different inflation rates and changing tax environments.

The purpose isn't to predict exactly what the future will look like. It's to determine how resilient the plan is when the future doesn't cooperate.

A plan that works only when investment returns are strong may look successful on paper but provide less confidence in the real world. A stronger plan is one that has enough flexibility to withstand adversity without requiring the retiree to completely change course.

3. Retirement taxes: How much of your money will you get to keep?

A retirement account balance isn't necessarily the same thing as retirement wealth.

Taxes matter. A retiree may have money in traditional IRAs, 401(k)s, Roth accounts, taxable investment accounts and other sources. Each account can have different tax consequences when money is withdrawn.

That means retirement planning shouldn't simply ask, "How much can I withdraw?" It should also ask, "Which account should the money come from, and when?"

For example, a retiree might consider whether to:

• Convert some traditional IRA assets to a Roth IRA
• Realize capital gains in a lower tax year
• Coordinate IRA withdrawals with Social Security
• Manage income to avoid unnecessarily higher tax brackets
• Consider the effect of additional income on Medicare premiums
• Determine which investments should be sold to fund retirement expenses

These decisions can look relatively small when viewed individually. Over a 20- or 30-year retirement, though, the cumulative tax impact can be significant. That's why a retirement scorecard shouldn't measure only investment performance; it should also measure how efficiently the plan converts wealth into after-tax retirement income.

4. Retirement risk: What could knock the plan off course?

Risk in retirement is about much more than whether the stock market goes down.

A comprehensive risk assessment should consider several factors, including:

• Expected investment return
• Retirement time horizon
• Target portfolio withdrawals
• Market volatility
• Inflation
• Longevity
• Healthcare costs
• Liquidity needs
• Personal comfort with investment risk

One retiree may be comfortable with a portfolio that another would find difficult to stick to during a market downturn. A theoretically optimal portfolio isn't necessarily a successful portfolio if the investor can't remain committed to it during a difficult market.

The goal isn't to eliminate risk. That's impossible. The goal is to understand the risks you're taking and determine whether they're appropriate for the retirement you're trying to create.

5. Estate efficiency: What happens to the money you don't spend?

Retirement planning doesn't end when you determine that you have enough money to live comfortably. There is another question: What happens to the money that remains?

For many retirees, leaving assets to children, grandchildren or charitable organizations is an important part of the overall plan. That means estate planning should be considered alongside retirement planning rather than treated as a separate exercise.

The type of account, beneficiary designations, potential taxes, fees and the way assets are transferred can all influence how much reaches the intended beneficiaries.

The goal is about more than accumulating wealth; it's also about determining how efficiently that wealth can accomplish what you want it to accomplish — during your lifetime and afterward.

Keep evaluating your scorecard throughout retirement

A scorecard isn't valuable because it produces a number, but because it starts a conversation. A retirement plan might have excellent investment performance but a weak tax strategy.

It might have substantial assets but insufficient guaranteed income.

It might have a strong probability of success but too little liquidity for the retiree's comfort. Or it might provide plenty of income today while creating unnecessary tax or estate planning problems later. That's why the numbers need to be viewed together.

The purpose of a retirement scorecard is to identify what needs attention now. Great coaches evaluate throughout the season. They recognize what is working, identify what isn't and make adjustments when circumstances change. Retirement is a long season and deserves the same discipline.

The goal isn't to achieve a perfect score and put the plan on a shelf; it's to understand where you stand today and identify what may need to change as your circumstances, markets and priorities evolve. A strong retirement plan is evaluated, adjusted and improved throughout the retirement journey.

Great coaches don't wait until the final game of the season to make adjustments; they keep evaluating the scoreboard along the way. Retirement is a long season and deserves the same discipline.

Dan Dunkin contributed to this article.

The appearances in Kiplinger were obtained through a PR program. The columnist received assistance from a public relations firm in preparing this piece for submission to Kiplinger.com. Kiplinger was not compensated in any way.

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This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

Delaware statutory trust (DST) investors sometimes ask, "Why am I paying taxes on more income than I actually received in cash?"

At first glance, it may seem confusing. However, this is not unique to DST investing — it is the same concept that has applied to direct real estate ownership for decades.

This is how we explain it at Kay Properties and Investments, which has been helping thousands of DST investors for nearly 20 years, and where I'm the CEO.

A simple example

For decades — indeed, for generations — real estate owners and landlords have followed the same basic financial principle: Not every dollar of rental income should be distributed immediately. A prudent owner plans ahead by setting aside reserves for future expenses that potentially protect and preserve the property's value.

Imagine you personally own a commercial building that generates $200,000 in annual rental income. During the year, you discover the roof has reached the end of its useful life and will need to be replaced in the near future. Rather than distributing every dollar of rental income to yourself, you wisely retain a portion of the cash flow each month to build a reserve fund for the future roof replacement.

At year-end, you may have only withdrawn $150,000 in cash, with the remaining $50,000 held in the property's bank account as reserves.

Even though you didn't receive that $50,000 personally, it is still income generated by your property. Under IRS tax rules, you generally report the property's taxable income — not simply the cash you chose to distribute to yourself.

At first, this may result in you paying tax on income that remained in the property's reserve account.

However, when those reserve dollars are ultimately used to replace the roof (or any other type of repair or investment in the property, such as resurfacing the parking lot, renovating space for a new tenant or completing other improvements), those expenditures become investments back into the property.

As those costs are recognized for tax purposes over time — major improvements are generally depreciated over their recovery periods rather than deducted all at once — they generally provide write-offs, expenses and future tax benefits to the property's owners, making the earlier timing difference largely a matter of when the expense and tax benefit is realized rather than whether it is realized.

This has been standard practice among real estate owners for decades and is simply part of responsible property ownership and long-term asset management.

How rental income is reported in a DST

Just as with direct real estate ownership, a DST property receives rental income from its tenants throughout the year.

Business tenants that pay rent in the course of their trade or business generally report the rent paid to the property on IRS Form 1099. The DST asset manager receives these forms on behalf of the investors and typically prepares a Nominee 1099 allocating each investor's proportional share of the property's gross rental income.

The Nominee 1099 is primarily an informational reporting document that helps reconcile the rental income reported to the IRS. It is not the document used to calculate an investor's taxable income. Instead, it serves as a record-keeping tool that ties together the gross rents reported by tenants with each investor's ownership interest in the DST.

In addition, DST investors receive a calendar-year balance sheet and income statement for the property. These financial statements reflect the full year of property operations and are prepared by the DST sponsor.

This financial information breaks down the entire DST property's financial information as well as further details of each individual investor's percentage ownership of the DST and their corresponding pro rata numbers. Typical DST financial information at year-end will include the property's gross rental income, operating expenses, net income and balance sheet.

The net income based on your pro rata percentage interest in the DST is an important starting point, but your CPA or tax preparer will adjust it — most notably for depreciation — when preparing your tax return, generally relying on the tax reporting package (often a grantor letter) provided by the sponsor rather than the operating statement alone. (Read on for why cash-basis net income and taxable income are not the same figure.)

Why cash distributions and taxable income may be different

DST investors may have questions if the amount of cash distributions they receive during the year is less than the taxable income reported by the DST property.

This difference is completely normal in commercial real estate whether the investor owns the property outright or a percentage of a DST.

One of the primary reasons is that prudent property management often requires retaining cash to build reserves for future property needs rather than distributing every available dollar to investors.

Those reserves may be accumulated for:

• Tenant improvements for lease renewals or new tenants
• Leasing commissions to secure a new tenant
• Roof replacements
• Parking lot resurfacing
• HVAC replacements
• Landscaping and exterior improvements
• Other major capital expenditures that preserve and improve the property

Although these reserve dollars may temporarily reduce current cash distributions, they remain assets of the property and continue to belong to the DST investors collectively based on their proportional ownership interests.

The reserves are not owned by the DST sponsor or asset manager — they are investor-owned funds being held at the property level for future capital needs. If reserve funds ultimately are not needed for their intended purpose, those funds remain property assets and will be distributed back to investors on a pro rata basis upon the sale or disposition of the property, consistent with the governing DST documents.

Two other reasons taxable income can differ from cash distributions received

Depreciation. One of the most significant tax features of real estate is depreciation. Each year the tax law allows the property's owners to deduct a portion of the building's cost, even though no cash is actually spent.

In the early years of a DST hold, depreciation often shelters a substantial portion of the property's net income — which is why many investors initially report taxable income that is lower than the cash they receive.

As those depreciation deductions decline over the hold period, taxable income tends to rise relative to cash flow.

Mortgage principal. In a leveraged DST, repaying mortgage principal uses the property's cash but is not tax-deductible. As depreciation deductions decline and a growing share of each mortgage payment is applied to principal, an investor may report taxable income that exceeds the cash actually distributed.

This effect — sometimes called "phantom income" — is a normal feature of leveraged real estate, whether owned directly or through a DST, and works alongside the reserve timing difference described in the main article.

The real estate ownership timing difference: Taxes today, tax benefits tomorrow

One point that is often overlooked is that reserve building generally creates a timing difference, not necessarily a permanent tax cost.

During the period reserves are being accumulated, an investor may report more taxable income than the amount of cash actually distributed because some of the property's cash flow has been retained for future capital needs.

However, when those reserve dollars are eventually used — to replace a roof, resurface a parking lot, install HVAC systems and so on — the property incurs those expenditures on behalf of its owners. Because each DST investor owns a beneficial interest in the property, each investor will receive their proportional share of the expenses and write offs associated with those capital expenditures.

As those reserve dollars are invested back into the property, the related expenses and write-offs are passed through to investors based on their ownership interests, helping offset taxable income over time. Because most of these items are capital in nature, the related deductions are generally realized gradually through depreciation and amortization rather than entirely in the year the reserves are spent.

In other words, while a DST investor may have paid tax earlier because reserves were accumulated instead of distributed (the same way as when they directly owned real estate and built reserves), those future expenses will help offset taxable income in later years.

What initially appears to be paying tax on "income you didn't receive" is often simply a matter of tax timing rather than an additional permanent tax burden. This is the case whether you own an interest in a DST or own a property outright.

Example timeline: How a reserve timing difference works

Imagine you own a 1% interest in a DST.

Year 1

• Rental income allocated to you: $100,000
• Cash distributed to you: $95,000
• Reserved by the property for future capital improvements: $5,000

Although you received only $95,000 in cash, the property earned $100,000, so you may report taxable income based on the property's operations rather than simply the cash distributed. (This illustration is simplified; your actual taxable income would reflect operating expenses, mortgage interest (if it were a leveraged DST but not if it was a debt free DST) and depreciation.)

The $5,000 was not paid to the sponsor — it remained your money as part of the property's reserve account, along with the reserves attributable to the other DST investors.

Year 2

The property uses the reserve funds to:

• Replace the roof
• Resurface the parking lot
• Complete tenant improvements for a new lease
• Pay leasing commissions to secure a new tenant

Because you are a beneficial owner of the DST property, your proportional share of those capital expenditures is reflected in the property's tax reporting. Those expenditures generally create future tax benefits that help offset taxable income in later years, generally realized through depreciation and amortization over the assets' recovery periods.

The result: Although you may have paid tax on the additional $5,000 in Year 1 because it remained in reserves, those reserve dollars were ultimately invested back into the property for your benefit.

The associated future expenses help offset taxable income over time, making the difference between taxable income and cash distributions a matter of timing rather than a permanent additional tax burden.

The bottom line

The difference between DST cash distributions and taxable income is often misunderstood, but it is simply a reflection of how commercial real estate ownership has worked for decades regardless of if it is owned outright by the investor or by a DST.

Think back to the example of the landlord who owned a building and prudently retained a portion of rental income to build reserves for a future roof replacement. Although that owner received less cash in hand during the year, the reserve funds still belonged to the owner, remained invested in the property, and were ultimately used to preserve and enhance the value of the real estate.

Those expenditures ultimately generated expenses associated with those improvements, helping offset taxable income over time.

A DST simply follows that same long-established and widely accepted real estate ownership practice through a professionally managed ownership structure.

As always, because every investor's tax situation is unique, investors should consult their CPA or qualified tax adviser regarding the tax treatment of their individual DST investment.

Related Content

• What a Delaware Statutory Trust Can Do for Your Kids That Your Will Can't
• Six Risks of Delaware Statutory Trusts in 1031 Exchanges
• DST Exit Strategies: An Expert Guide to What Happens When the Trust Sells
• How to Use DSTs and 1031 Exchanges for Diversification
• How Do You Step Away From Your Real Estate Empire Without Facing a Giant Tax Bill?

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

You might have heard the statistic: Roughly 80% of retirees pay no federal income taxes. If you have a pension and a million dollars or more saved for retirement, you might read that statistic and think, "There's no way that applies to me."

You're probably right.

As a CERTIFIED FINANCIAL PLANNER® and the founder and CEO of Peak Retirement Planning, we work primarily with what we call the 2% Club — people who have pensions and $1 million or more saved (I wrote a book about this group — you can request it for free here).

We see a pattern that runs counter to the retirement advice many of us have heard throughout our working years. We were told that we would be in a lower tax bracket once we stopped working, but for retirees with substantial pensions and significant tax-deferred savings, that outcome isn't guaranteed.

In fact, you might find yourself in the same or an even higher tax bracket.

The good news is that having to pay taxes in retirement is hardly a bad problem to have. It means you have income and assets that many retirees don't.

However, I don't believe you should pay a penny more than necessary, and the key is understanding why most retirees can avoid federal income taxes and why your situation may require a different strategy.

You can watch my video on this topic:

Why so many retirees pay no federal income tax

The primary reason is the standard deduction. The standard deduction allows taxpayers to exclude a certain amount of income from federal taxation. For retirees with relatively modest income, that deduction can eliminate much or all of their taxable income.

Consider a hypothetical retiree with $500,000 in an IRA, no pension and Social Security as their primary source of income. At age 73, that person would begin taking required minimum distributions (RMDs). A roughly 4% withdrawal from a $500,000 account would generate about $20,000 of taxable income.

That isn't a particularly large amount of income when compared with the standard deduction, especially when additional deductions available to older taxpayers are considered.

Social Security also isn't necessarily fully taxable, as the amount of Social Security benefits included in taxable income depends on a retiree's overall income, and in this case, little or none of their benefits will be taxable.

That's how you can arrive at a retiree with retirement income who still owes little or even $0 in federal income taxes.

Now let's change the equation.

A pension can change everything

A pension is one of the greatest retirement benefits you can have. It provides something that millions of Americans don't have, which is a predictable income for life.

But from a tax-planning perspective, that guaranteed income often creates a challenge. Instead of starting retirement with relatively little taxable income, a pension holder frequently has three significant sources of retirement income:

• A pension
• Social Security
• Withdrawals from tax-deferred accounts such as 401(k)s, IRAs, TSPs or 403(b)s

I call this the three-legged stool of retirement income. It can provide tremendous financial security, but it can also create a substantial tax bill.

If your pension alone provides $50,000, $100,000 or even several hundred thousand dollars annually, you have already moved well beyond the situation facing the retiree with $500,000 saved and no pension.

Then add Social Security and eventually RMDs, and your taxable income can climb even higher. That's why I tell pension holders to stop comparing their tax situation with the average retiree. Your retirement income strategy needs to be built around your specific numbers.

Your Social Security could become taxable, too

Social Security taxation is another reason pension holders can find themselves paying more than expected. Depending on your income, up to 85% of your Social Security benefits can be included in taxable income.

For many of the clients we work with, that full 85% is taxable because their pension and other income push them above the relevant thresholds.

This can create a compounding effect. Your pension generates taxable income, which can cause more of your Social Security to become taxable, which then increases your overall taxable income.

And that's before we even get to your retirement accounts.

RMDs can become a bigger problem over time

One of the biggest mistakes I see is treating RMDs as if they're a problem for someone else. They're not. If you have substantial tax-deferred savings, you need to think about what those accounts could look like when RMDs begin.

Let's say you're 60 years old with $1 million in tax-deferred retirement accounts. If those assets grow significantly over the next decade or more, you could reach your RMD years with substantially more than $1 million.

This creates a very different tax problem. The percentage you are required to withdraw increases as you age, and you have to take those distributions regardless of whether you actually need the money for spending.

This could leave you in a situation where your pension and Social Security already provide enough income to live comfortably, yet the government requires you to withdraw additional money from your IRA. This additional income can push you into higher tax brackets and affect other parts of your retirement plan.

Medicare adds another layer

Your income doesn't just determine your federal income tax bill; it can also affect your Medicare premiums through the income-related monthly adjustment amount, or IRMAA.

If your income increases enough, you will find yourself paying more in premiums for Medicare Part B and D for the exact same coverage as someone with a lower income.

This is one reason I don't think retirement tax planning should focus solely on the federal tax bracket you're in. The real question is: What is your all-in cost?

This includes federal income taxes, Social Security taxation, Medicare premiums, capital gains and, depending on where you live, state income taxes.

Tax diversification can give you more control

Most diligent savers we work with did exactly what they were told to do throughout their careers: They put money into their 401(k), IRA, TSP or other tax-deferred accounts, received the tax deduction and kept saving.

That's a great way to build wealth, but there's a potential downside when you reach retirement: You could have too much of your wealth sitting in one tax bucket.

If nearly all of your retirement savings are tax-deferred, you don't have complete control over your future tax bill, and when you need additional income, you typically have one option: To recognize more taxable income.

That's why I like the concept of tax diversification. Instead of having all your money in tax-deferred accounts, consider building a combination of:

• Tax-deferred accounts. Traditional IRAs, 401(k)s, TSPs and similar accounts
• Tax-free accounts. Roth IRAs and Roth 401(k)s
• Taxable accounts. Brokerage and other investment accounts

The goal isn't necessarily to maximize one category but to create flexibility. If tax rates are high, having money in a Roth account could give you a source of retirement income without creating additional taxable income, and if tax rates are lower, you could draw from tax-deferred accounts instead.

You can't predict exactly what tax laws will look like 10, 20 or 30 years from now, but you can build a portfolio that gives you choices.

Roth conversions could be especially valuable for pension holders

This is where Roth conversions enter the conversation. A Roth conversion allows you to move money from a tax-deferred account into a Roth IRA, paying the applicable taxes on the converted amount today. Once the money is in the Roth, qualified withdrawals are tax-free, and Roth IRAs don't have RMDs during the original owner's lifetime.

For a pension holder with substantial tax-deferred savings, this can be a powerful planning tool, but I don't recommend converting money simply because someone says, "Roth is tax-free."

The question is more nuanced: What tax rate are you paying today compared with the tax rate you could face later?

If you have a large pension, substantial retirement savings and years before RMDs begin, you could have an opportunity to gradually move money into the Roth while managing your tax bracket.

For example, someone with a $100,000 pension has a very different future tax picture from someone with no pension. Add $1 million or more in tax-deferred accounts, and future RMDs could become significant.

A Roth conversion could reduce the size of those future RMDs while also creating a pool of money that grows without future RMDs for you.

But there's an important caveat: Don't convert blindly. Converting too much may push you into a higher tax bracket, increase your Medicare premiums or create other unintended consequences.

Converting too little might leave valuable lower tax brackets unused. The objective is to find the right amount, not simply the biggest amount.

Don't forget about the widow's penalty

There's another tax issue that married couples need to consider long before it happens: The so-called widow's penalty. While you're married, you generally file a joint return and benefit from married-filing-jointly tax brackets and deductions. When one spouse dies, the surviving spouse eventually files as a single taxpayer.

At the same time, the surviving spouse could lose one Social Security benefit while continuing to have pension income and retirement assets. In other words, income declines while the tax brackets become less favorable.

That's why I encourage couples to plan for both spouses, not just the tax situation they have today.

One strategy could be taking larger withdrawals or completing Roth conversions during the years when both spouses are filing jointly. Doing so could reduce the amount of tax-deferred money that remains for the surviving spouse. It's essentially risk management for your tax plan.

Your retirement goal matters, too

Tax planning isn't only about minimizing taxes; it's about aligning your tax strategy with what you actually want to do with your money.

If your goal is to spend your savings during retirement, it could make sense to take advantage of the earlier years of retirement, when you're healthy enough to travel, pursue hobbies and enjoy the wealth you've accumulated. I call these the "go-go years."

If your goal is to leave a significant legacy, the strategy could look different. A Roth conversion could turn tax-deferred assets into a potentially tax-free legacy for your heirs while also eliminating lifetime RMDs on the converted Roth assets.
Either way, your retirement tax strategy should start with your goals, not simply a desire to pay the lowest possible tax bill this year.

You might not be able to join the 80%, but you can still pay less

If you have a pension and substantial savings, you probably aren't going to replicate the tax situation of a retiree with modest income and no pension. And that's OK. I'd rather have a large pension and substantial retirement savings and pay some taxes than have no taxable income because I didn't save enough.

But there's a big difference between paying taxes because you have significant income and paying more taxes than necessary because you didn't plan ahead. If you're a pension holder with significant retirement savings, start by asking yourself some questions:

• How much taxable income will my pension create?
• How much of my Social Security will be taxable?
• What will my RMDs look like at 73, 75 and beyond?
• Could my RMDs push me into a higher tax bracket?
• Could my income increase my Medicare premiums?
• How much of my retirement savings is tax-deferred vs tax-free?
• Would Roth conversions make sense while I'm still working or early in retirement?
• What happens to my spouse's tax situation if I die first?
• What happens to my heirs if I leave them a large tax-deferred account?
• Where will I live in retirement, and how will state taxes affect the equation?

You might not be able to eliminate your retirement tax bill. But with the right planning, you can potentially reduce it, spread it out and gain more control over where and when you pay it.

That's the goal we have for our clients: Pay your fair share, but not a penny more.

Related Content

• 8 Retirement Tax Strategies Your CPA Won't Tell You
• When Is a Roth Conversion a Bad Idea? 6 Situations Retirees Should Consider Carefully
• Why a Roth Conversion Is Wrong for Most People But Often Right for Pension Holders
• 13 Things to Know About How Your Pension Affects Your Taxes in Retirement
• Many Retirees With a Pension and $1 Million-Plus Do These 7 Things (and Regret It Later)

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

Some ripples fade quickly. Others reshape the entire retirement landscape. Understanding those ripples is key to building a retirement plan that is resilient, flexible and sustainable.

Every decision has an outcome or a consequence. Every financial decision does, too. Your experience is what clients need to navigate them.

Here's how we use the lake metaphor at Wealthcare Advisors.

Lifetime savings: The first major ripple

Lifetime savings form the depth of the lake — the reservoir that determines how much flexibility your retiree or soon-to-be retiree client has when making major decisions later. Choices made during the accumulation years shape their entire retirement.

Key drivers include:

• Savings behavior. Consistency, contribution levels and discipline
• Asset location. Taxable, tax‑deferred and tax‑free positioning
• Liquidity reserves. Cash availability for large purchases
• Volatility exposure. How much risk the portfolio carries into and through retirement

These choices determine how disruptive a major expense will be later in life. A deep lake absorbs ripples. The second ripple, tax planning, magnifies them.

Tax planning: The second major ripple

Tax planning is the bridge between accumulation and distribution. It determines how efficiently your client can access their savings and how long those savings will last. Important tax ripples include:

• RMD exposure
• Roth conversion windows
• Withdrawal sequencing
• IRMAA thresholds

This is where real‑world decisions, such as buying a car or a home, become powerful teaching moments.

Imagine your clients decide to buy a $50,000 car at age 70. That single decision creates a cascade of ripples across their "retirement lake." We would frame it like this:

Ripple one: Liquidity shock. The source of the $50,000 determines the size of this ripple.

Should the clients decide to make a tax‑deferred withdrawal, that may lead them into a higher tax bracket, IRMAA penalty risk and reduced Roth conversion space.

Using assets within their taxable account may lead to additional capital gains and reduced future income‑producing asset base.

If the decision is to use some of their cash reserves, they may be concerned about lower emergency liquidity and higher portfolio withdrawal pressure.

A combination of two or all three of these sources may solve the issue.

Ripple two: 18-24 month spending impact. A $50,000 purchase will often reduce discretionary spending for 18 to 24 months. Here are just a few decisions that may be affected:

• Planned travel may be delayed and home projects postponed
• Gifts to family or charitable giving are reduced
• The clients may have to lean harder on the assets you manage as portfolio withdrawals may also need to be increased

This is the ripple clients feel most immediately — the stone hitting the water.

Lifetime income planning: The third major ripple

This is where all prior ripples converge. Lifetime income planning (LIP) is the art of turning savings, tax strategy and spending decisions into a coordinated, predictable income stream. And LIP is the most crucial and difficult of these tasks.

At Wealthcare Advisors, we explain it this way. Clients will have assets they "lean on," assets they "live on" and a legacy they will "leave behind." LIP is the successful combination of our first two. Key components include:

• Sustainable withdrawal strategies
• Bucket or time‑segmented planning
• Guaranteed income tools
• Longevity protection
• Sequence‑of‑returns mitigation

Using our prior example, a $50,000 car purchase becomes part of the client's income plan — not an isolated event. That may require adjusting withdrawal rates, rebalancing accounts or shifting guaranteed income sources to maintain stability.

Social Security claiming: The last major ripple

Once spending, taxes and lifetime income have been coordinated, the final major planning decision is often Social Security claiming strategy.

Social Security can either calm the lake or amplify the waves. It interacts directly with spending decisions, tax strategy and income planning and gives us several scenarios to consider:

• A major purchase may influence whether delaying benefits is still optimal
• Claiming now may reduce portfolio withdrawals in the future
• If planning for a couple's lifetime, how do survivor benefits fit into the plan?

Finally, we need to scope out exactly how Social Security interacts with other taxable income and IRMAA.

For example, if a client had planned to delay claiming to age 70 but now needs cash flow, claiming earlier may reduce strain on the portfolio but permanently reduces lifetime benefits. This is why Social Security must be evaluated after lifetime income planning, not before.

The question is more complex than, "When should I/we claim?" It's "How do I/we design the income bridge so delaying benefits becomes sustainable in practice, not just on paper?"

Why the lake metaphor works

Clients instantly understand:

• The stone = the decision
• The ripples = the consequences and trade-offs
• The shoreline = long‑term impact and outcomes

It is intuitive, visual and memorable. And it reinforces your core message: The ripples never stop.

Retirement planning is not a series of independent decisions. It is an interconnected process where every choice influences the next. A withdrawal affects taxes. Taxes affect income. Income affects Social Security strategies. And together, these decisions shape a retiree's long-term financial security.

Like a stone cast into a lake, every financial decision creates ripples. Some are small and short-lived. Others travel far beyond the initial event and can impact a client's lifestyle, legacy and confidence for years to come.

The advisor's role is not simply to react to the ripples, but to anticipate them and help clients understand their potential consequences.

When savings, tax planning, lifetime income planning and Social Security claiming are coordinated through a thoughtful process, clients are better positioned to allocate assets according to their goals and priorities.

They gain the confidence to spend what they have worked so hard to accumulate, support the people and causes they care about, and enjoy a retirement that is meaningful, secure and dignified.

At Wealthcare, we believe that understanding the ripple effect of every retirement decision helps advisors deliver more than a financial plan. It helps them provide clarity, confidence and a road map for lasting retirement success.

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• Your Legacy Is More Than Your Money: How to Plan for Values, Not Just Valuables
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This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

• You fixed the toilets
• You took the 2 a.m. calls about a burst pipe and a tenant locked out in the rain
• You handled the showings yourself
• You chased down rent when it didn't show up the first time

The sale closes. The proceeds land with a qualified intermediary. Now someone hands you a shiny brochure for something called a Delaware statutory trust (DST) and tells you it can be your replacement property.

Before you look at the yield, the sponsor, or the real estate, you need to know one thing: What are you actually buying?

A DST is not a fund, not a real estate investment trust (REIT) and not a partnership. The trust owns either a single property or a portfolio of properties. You buy a fractional beneficial interest in that trust. It's real estate. You just don't run it anymore.

The DST interest is a security, but when it's properly structured, the IRS will treat you as if you own the real estate directly, at least for tax purposes. That's what lets it serve as replacement property in a 1031 exchange.

The framework comes from IRS Revenue Ruling 2004-86. That doesn't make every DST automatically eligible. The trust and your exchange still must follow the rules.

What your $1 million buys

Take a $100 million multifamily property with no debt. Invest $1 million, and you own a 1% beneficial interest in the trust. It's simple enough.

Now put a $50 million mortgage on that same property. It's still worth $100 million, but the equity underneath it just dropped to $50 million. Your $1 million now buys 2% of that equity, and you're also allocated about 2% of the mortgage, roughly $1 million of debt, for tax purposes.

Add it up: Your $1 million investment plus $1 million of allocated debt gives you about $2 million of replacement-property value.

You don't sign for that mortgage. You don't personally guarantee it. The debt is nonrecourse to you, so if the property fails, the lender's claim generally runs only against the property itself, not your bank account, not your other real estate, not your retirement savings.

But don't mistake nonrecourse for harmless. Interest expense still eats into cash flow. Loan terms still shape when the sponsor can sell. If the property loses value, your equity takes the hit before the lender does.

How the exchange works

Your exchange funds move from the qualified intermediary straight into the DST. You identify the DST interest as replacement property and close inside the same windows that apply to any deferred exchange.

The IRS explains that replacement property generally must be identified within 45 days and closed within 180 days, or by your tax filing deadline if that comes first, extensions included.

The tax is deferred, not erased. Take cash out, or replace less property value or debt, and part of the gain might become taxable.

How the income gets to you

The property collects rent. It pays its bills: operating expenses, debt service, reserves. What's left might be distributed to you, usually every month, like a landlord's check without the phone call that used to come with it.

If the DST pays a 5% annual distribution, a $1 million investment would receive $50,000 a year, if the distribution is paid as projected. That 5% is a target rate, not a guarantee, and not the same thing as total return.

You'll also get tax reporting for your share of the property's income, expenses and depreciation. What lands in your account and what you report to the IRS won't always be the same number.

What you gain

No more toilets. No more 2 a.m. phone calls. No more showings, no chasing rent, no standing in a hardware store aisle on a Friday evening because a tenant just called. A sponsor and a professional asset manager run the building now, not you.

Your $1 million also buys a stake in a $100 million property, the kind you probably couldn't purchase or manage on your own. You don't have to scramble to find your own replacement property inside a 45-day window either. The property is already bought, financed and running. You just have to identify it and close, often in days, not weeks.

Spread across more than one DST, that same $1 million can put you into different property types and different parts of the country, instead of riding on the one building you used to own.

You give up control

The sponsor decides who leases the space, how it's financed, what goes into reserves and when the building finally sells. You don't get a vote. That is not a footnote. That's the deal. You traded the decisions for freedom from having to make them.

That lack of control goes beyond voting. The sponsor's options are limited, too. If the building needs a new roof or the loan comes due at the worst possible time, there might be less room to maneuver than there would be in a property you own directly.

How you get out

A DST interest is illiquid. There's no market on which you list it on a Tuesday and sell it by Friday. A secondary sale, if you can find one, might come at a real discount. Most investors get their money back only when the sponsor sells the property — on the sponsor's timeline, not yours.

When that sale happens, you get your share of the proceeds. The gain you deferred can become taxable unless you 1031-exchange it into another qualifying property.

What a DST is in plain English

Go back to today. The building is sold, the toilets and the 2 a.m. calls behind you. In its place: a fractional beneficial interest in a trust that owns real estate, carries its own debt and might pay you income while someone else runs it.

That doesn't tell you whether this particular DST is good, bad or suitable. It tells you what you're buying. Whether a DST fits you is a separate decision, but you shouldn't judge the sales pitch until you understand the mechanics.

If you're planning a 1031 exchange and want help comparing the structure, leverage and exit terms, a fee-only DST adviser can help you evaluate available options without commission incentives.

Related Content

• DST Inventory Just Hit a Record $3.9 Billion: What 1031 Exchange Investors Should Do Next
• DST Exit Strategies: An Expert Guide to What Happens When the Trust Sells
• The 1031 Exchange 45-Day Trap: How to Avoid Mistakes When You're Racing the Clock
• Is a Delaware Statutory Trust Right for You? 5 Questions to Ask Before You Invest
• A 1031 Exchange May Look Great for You on Paper, But It's Not Just About Taxes

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

They'd hit their "retirement number" and had almost $2 million saved, much of it within traditional IRAs and 401(k)s. Required minimum distributions (RMDs) from these accounts were still more than a decade away.

Their initial plan was to live off their savings as well as withdrawals from their brokerage accounts until they took their Social Security benefits at the maximum amount at age 70.

So, when Mike and Liz came into my office for our quarterly meeting, they were quite surprised when I suggested that they make a sizable, taxable Roth conversion from their traditional IRA.

Liz asked, "Why would we voluntarily pay more taxes right now when our income is finally so low?"

I answered, "Because this may be the lowest tax rate you see for the rest of your retirement. It could be a once-in-a-lifetime planning opportunity."

Mike and Liz are in their "golden tax planning window" — the time between when you retire and when your RMDs start at 73 (or 75).

This is when the tax planning focus should shift from, "How do I enjoy a low tax rate today?" to, "How do I use this low-tax-year opportunity to create a strategy that could lower my lifetime taxes?'

What is the golden tax planning window?

The golden tax planning window is usually the period between when you stop receiving a paycheck and when you start receiving significant taxable retirement income.

For many retirees, this starts the year they retire and ends when they start taking Social Security, collecting a pension, or reach RMD age.

Not everyone has the same window, and you can't time it around your age alone. Some retirees might only have one or two years before a taxable income source kicks in. Others might have five to 10 years.

And if you have a large pension, deferred compensation payouts, passive income from owning a business or renting a property, or significant capital gains, you might not get a golden window at all.

Why Roth conversions are often recommended

While they were working, Mike and Liz were focused on lowering their current year's taxes through contributions to traditional IRAs and 401(k)s.

Entering retirement, they heard of Roth conversions but initially dismissed them because of two thoughts they had that many of their fellow retirees share:

• "I can't Roth convert. I don't have any income."
• "My account balances are so large. The conversion tax bill would be huge."

Yes, once you stop working, you may no longer have the taxable compensation needed to make a regular Roth IRA contribution. But you can still convert traditional IRA money to a Roth IRA, without earned income or contribution limits.

And Roth conversions don't involve the entire account. You can choose the amount you'd like to convert — from one penny up to the maximum amount within the account that's eligible to convert.

Which is why I believe the golden rule of Roth conversions is:

Choose the right year and the right amount of Roth conversions.

Roth conversions are often recommended when the tax rate you expect to pay on a conversion today is lower than the projected tax rate on traditional retirement account withdrawals in the future.

Your golden window helps you identify the right years to make the conversion and the right amount to convert in each of those years.

How to identify your golden tax planning window

Once you stop working, your monthly paycheck disappears. Your annual bonuses or stock compensation goes away.

That drop in income often creates an opening in the lower tax brackets to convert money from your traditional retirement accounts into a Roth IRA at a low tax rate.

You have the opportunity to report income from your traditional retirement accounts, during this time frame, at a current rate that may be lower than your projected future withdrawal tax rates.

This opportunity doesn't last forever. As your expected retirement income sources like pensions and Social Security start, your tax planning window starts to close.

If you're still in a relatively low tax bracket when you reach RMD age, this often signals the end of your golden tax planning window. The added taxable income from RMDs can often make more of your Social Security taxable, creating a higher tax cost than expected.

Another life transition that often signals the end of the golden tax planning window is the death of a spouse.

When the first person dies, the surviving spouse moves from the wider "married filing jointly" tax brackets to the much narrower "single filer" tax brackets. But the household's annual taxable income doesn't usually get cut in half like the brackets and standard deductions do.

Within the narrower single filer category, the widow's income can more easily reach the higher tax brackets, creating a tax hit called the "widow's penalty." While unpleasant to think about, this change in tax situation should be a key piece of proactive planning.

Finding the right Roth conversion amount

Once I'd explained to Mike and Liz the scale of the opportunity in front of them, they agreed that they should take advantage of their golden window.

"Let's do it! Should we convert our whole nest egg right now?" asked Mike.

"Not yet," I told them. "We need to look at each part of your retirement planning first, not just your tax picture."

Taxes are an important part of your retirement planning — but they are just a part of the whole picture. You need to coordinate your decisions on how much to spend in retirement, how to take Social Security and pensions, how to plan your taxes, how to invest and how to set up your estate plan.

I call the process of coordinating your retirement decisions your Retirement Master Plan. I share how to follow this process in five simple steps in my book Retire Today.

For Mike and Liz, we decided together when each of them would take Social Security. Then we mapped out their future tax situations in each year of their expected 30-year retirement.

Once they could see their projected tax rates each year, they could find the years when their tax rates were expected to be higher and lower.

For them, their marginal tax rates were projected to increase when they started their RMDs. They saw the rates projecting lower in the years before they were both claiming Social Security.

They were then able to determine how much to target for Roth conversions, when to do them and how best to pay the tax withholding for each year.

How to take advantage of your golden tax planning window

Mike and Liz spent decades planning how much they could put into their retirement accounts every month.

When they hit retirement, they thought the hard work had ended.

Thankfully, they discovered in time that the beginning of retirement is often the beginning of a golden tax planning window.

It's the time to think ahead and decide how you can intentionally pay taxes, through Roth conversions, to potentially manage your projected lifetime tax liability.

When you hit retirement, don't just push off your tax decisions until RMD time.

Project your taxes now and at each big change in your financial situation, such as starting Social Security, starting a pension and starting your RMDs.

Find out whether your golden tax planning window is open, how long it may stay open and how much of it you could use for Roth conversions each year — before that opportunity closes.

Related Content

• 8 Retirement Tax Strategies Your CPA Won't Tell You
• I'm a Financial Planner: If You're Converting to a Roth IRA, Don't Do It Like This
• Claiming Social Security Soon? 5 Smart Moves to Make Before You File
• Retiring in the Next 12 Months? Answer These 3 Questions Before Your Paycheck Stops
• 5 RMD Mistakes That Could Cost You Big-Time: Even Seasoned Retirees Slip Up

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

That's the mistake. A 15% return isn't a 15% return if you hand half of it back in taxes. The number that matters is the net-net, meaning what actually lands in your account after every layer of tax, and almost nobody runs it on their own portfolio.

I've spent two decades in private markets, and the biggest shift I watch investors go through isn't learning a new strategy. It's changing what number they look at. Once you start thinking in after-tax terms, a lot of things you were taught to chase stop making sense, and a lot of things you were taught to ignore start to make perfect sense.

This article isn't a set of moves to go execute. It's a way of thinking. The tax treatment built into different investments isn't a loophole or an aggressive play; it's a set of legal, widely used mechanisms most investors were simply never taught to look for.

The value isn't in memorizing them. It's in changing the lens through which you evaluate every opportunity.

The number nobody calculates

When you own a public stock or fund and it returns 15%, and you're a high earner, a large share of that gain can be taxed away, potentially cutting your realized return close to half depending on your income tax bracket, your state and how long you held it. You did the work of earning 15%.

You kept far less, and you probably never did the arithmetic to see it.

Now imagine the same headline return inside a structure built to be tax efficient. If some of that return arrives as long-term capital gains instead of ordinary income, or is offset by deductions that flow through to you, or comes back as return of capital rather than a taxable gain, the amount you actually keep can be dramatically higher, even when the gross return is identical.

Here's the part most people miss. Improving your after-tax return this way doesn't require taking on more investment risk. Normally, reaching for a higher return means accepting more risk — that's the basic trade every investor makes.

Tax efficiency is different. It improves what you keep by changing how the return is taxed, not by changing what you own. For someone in a high bracket, that difference can be worth the equivalent of a meaningful chunk of additional net return, without adding a single unit of risk to the underlying position.

That's the whole mindset shift. Stop asking only, "What will this return?" and start asking, "What will I keep, and how hard will I have to work to keep it?"

Short-term thinking gets taxed like a job

Think back to when fix-and-flips were the thing everyone was doing. People bragged constantly about clearing five or six figures on a single flip. What almost none of them mentioned was the tax bill or the labor.

A property you buy and sell inside a year is a short-term gain, taxed at ordinary income rates, which for a high earner can run north of 50% once you include federal and state taxes.

So, take the person bragging about a $100,000 flip and cut it roughly in half for taxes. Then divide what's left by the genuinely enormous number of hours they poured into demo, permits, contractors, financing and showings.

I used to joke that I wouldn't work that hard for two bucks an hour after taxes, and I wasn't really joking.

That's short-term thinking, and the tax code punishes it on purpose. Short holds mean frequent taxable events at the worst rates. The whole structure rewards churn and speed, and speed is exactly what gets you taxed like you're clocking in for a shift.

Long-term thinking flips the math. Assets held longer than a year can qualify for long-term capital gains treatment, which is meaningfully lower than ordinary income rates. Patience isn't just a temperament.

In the tax code, it's the difference between keeping most of your return and keeping half of it. The investor who holds for years and exits when it makes sense isn't just being disciplined — they're being taxed at a fundamentally better rate than the one flipping every few months.

Passive vs active, and why it matters more than people think

The flip example carries a second lesson that runs even deeper than the holding period. It's the difference between passive and active participation, meaning whether your money is working or you are.

An active investment is one where you supply the labor. You're the one managing the renovation, running the business, doing the work. Your return is real, but it's stapled to your hours, and it's often taxed at the least favorable rate on top of that.

You're essentially a highly paid employee of your own deal, and the government treats you like one.

A passive investment is one where you contribute capital and someone else runs the asset. You're not trading your hours for the return. And in the right structures, passive ownership is where a lot of the tax advantages actually live, because the assets that generate pass-through deductions and long-term gains tend to be ones you hold rather than ones you personally operate.

This is the shift I most want investors to sit with. Somewhere along the way, a lot of people absorbed the idea that a return only counts if they bled for it. That working harder is the same as investing better. It isn't.

The wealthiest investors I know spend very little of their own time on the assets producing their best after-tax returns. Their capital is doing the work, inside structures designed so the tax treatment works in their favor while they do something else with their life.

Whether any of that fits your situation depends on your own circumstances and the specific rules around passive activity, which is a conversation for a qualified adviser, but the mindset is available to anyone: Stop measuring an investment only by what it returns, and start measuring it by what it returns, after tax, per hour of your life it consumes.

Different assets, different tax character

Once you're thinking this way, you start to notice that no two asset types are taxed alike, and that the mix itself is worth paying attention to.

Some private assets, energy and manufacturing among them, can generate depreciation deductions, meaning the tax code lets the business deduct a large share of an asset's cost in its early years. In the right structure, that deduction can flow through to the investors rather than staying at the entity level.

Real estate carries its own version through cost segregation and bonus depreciation, which can create paper losses. Other assets deliver most of their return as long-term capital gains, and some distributions come back as return of capital, meaning your own contributed capital is handed back to you rather than a taxable gain.

You don't need to master any of that. The point is only that a thoughtful portfolio has a blended tax character, and that character is something most investors never look at because no one ever told them it was a variable they could think about.

Whether any specific deduction or treatment is usable by you depends on rules such as passive activity limitations and your own tax position, which is exactly why this merits a conversation with a professional.

How to have this conversation, and what to do if you can't

None of this works as a solo project. The real move isn't to go chase any of these structures yourself — it's to be able to have an intelligent conversation about them with someone qualified to guide you.

So, here's the conversation to have with your adviser:

• Ask them what your portfolio's after-tax return actually is, not the gross number on the statement
• Ask whether the tax character of your holdings is something they actively think about, or something they've never raised with you
• Ask how short-term vs long-term treatment is showing up in your returns, and whether any of your capital could be working passively in more tax-efficient structures instead of grinding through taxable events

Then pay attention to how they respond. An adviser who's fluent in this will meet you with real answers and better questions. An adviser who's never thought about it, or who waves it off as a detail, has just told you something important about the ceiling of the advice you're getting.

And if you don't have an adviser who can talk about any of this, that's not a dead end — it's a signal to find one. The right professional exists — they just tend to work with investors who know to ask.

Look for advisers who work with private markets and alternative assets specifically, who talk about after-tax outcomes without being prompted, and who are comfortable coordinating with your CPA or tax attorney rather than treating tax as someone else's department.

You are allowed to interview several. You are allowed to leave one who can't have this conversation. The cost of staying with an adviser who only thinks in gross returns is paid, quietly, every April.

Stop evaluating your portfolio on gross return alone. Run the net-net, the number you actually keep after every layer of tax and every hour of your own labor, because that's the number that pays for your life.

Private markets carry real tax mechanisms that can move that number, often without adding risk and without demanding your time. Whether any of them make sense for you depends entirely on your own circumstances, and that determination should always be made with qualified tax and legal counsel.

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This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

But it could be a costly mistake not to take some time to figure out how each life milestone could impact your life savings.

I'm not suggesting leaving the party early. But afterward, find out what, if anything, you should do as a result of having a teenager, getting married or turning another year older.

Here are 11 significant life events and financial considerations for each, coming to you from the vantage point of an experienced senior wealth adviser at Carnegie Private Wealth.

1. When your child turns 13

There's no need to throw cold water on your new teen's celebration but having a 13-year-old means that your Child and Dependent Care Credit expires on the big day.

You'll need to adjust your tax withholdings, stop using pretax Dependent Care Flexible Spending Account (DCFSA) funds for that child's care (any expenses incurred on or after the 13th birthday are ineligible) and prepare for higher out-of-pocket costs for such things as after-school care and summer camp.

Thirteen is when your child becomes eligible for teen-specific bank accounts, which is convenient, since it's also when they can start earning independent income. That's an opportunity to drive home the money lessons you've been teaching up to now.

Money in a piggy bank isn't earning interest. Money in a real bank can. If you want to get serious about saving, consider a brokerage account for your teen.

2. Graduating from high school/turning 18

This is when parents can transfer full control of custodial accounts to their (now adult) child.

At 18, you have the legal right to sign independent financial contracts, open standard bank accounts and apply for credit cards without a co-signer.

Your 18-year-old should already understand the value of saving and the slippery slope credit card debt can be. Does your young adult understand how credit cards affect their credit and the importance of paying off the balance each month?

Before they head to the bank to apply for what might look like "easy money," impress upon them what an 18% to 22% interest rate means — and that building a good credit history is going to make life a lot easier.

3. Graduating from college/starting a first job

You'll need a budget that includes an emergency fund. Saving for long-term goals is important, too, but don't lose sight of the immediate future. A flat tire, a visit to urgent care, reduced work hours or a layoff are all reasons to keep some of your savings readily accessible.

Continue building a solid credit history. If you took out student loans, paying them back should be a priority.

4. Getting married

First, have honest discussions about your current financial standing. Discuss attitudes toward debt. It's very important to sign a prenup.

Becoming a two-income household means it's time to update your budget.

• Maximize your savings
• Decide if you'll have a joint account or separate
• Determine who's paying the bills
• Start a financial organizational system so passwords and account information are safely stored but accessible to you both

Either of you should be able to step in and handle the other's financial "job" if necessary.

5. Having a baby

Along with sleepless nights, you're about to encounter sticker shock over the price of diapers, formula, baby food and everything else little humans require.

But you'll be so enamored with your baby, you'll hardly notice. Now's the time to:

• Open a 529 college savings plan
• Add Junior to your health insurance
• Consider buying life and disability insurance
• Update your will — or get one, if you haven't yet

6. Buying a first house

Time for another new budget. While you're building equity as you pay down your mortgage, you'll also want more cash on hand for the inevitable home repair — because when the HVAC goes out, there's no landlord to call.

Set aside money for maintenance and repairs so an expensive surprise doesn't have to go on a credit card.

7. Turning 50

In my experience, that's when people really start to get serious about firming up retirement planning. It's a good time to evaluate: Do I have enough? And if I don't have enough, what do I need to do to catch up? There's still plenty of time.

8. Turning 65

The Medicare birthday is a big one. You can stop worrying so much about the health insurance burden and shift your thinking to long-term care. Talk to your financial adviser about where to invest the money, you're suddenly not having to spend on health insurance premiums.

9. Turning 75

Depending on when you were born, you might already be taking required minimum distributions (RMDs) from tax-deferred retirement accounts. RMDs generally begin at 73, but the starting age rises to 75 for people born in 1960 or later.

The government eventually requires you to start taking money out of most tax-deferred retirement accounts, and those withdrawals generally count as taxable income.

Talk with your financial and tax professionals about what you're required to withdraw and what to do with money you don't need for living expenses. If charitable giving is important to you, ask whether qualified charitable distributions make sense.

Between 75 and 80 is also when seniors — and their adult children — need to think about quality of life. Community is important as we age. I believe what keeps people excited about life is having friends and something to look forward to.

Loneliness and isolation are devastating to health and well-being. If you don't have people you enjoy spending time with, all the money you set aside for retirement is going to waste.

• Try a new hobby
• Get outside
• Make time for old friends and cultivate new ones

Your longevity depends on it.

10. When you become a grandparent

If you're able to help pay for a grandchild's education, a 529 plan is often a great place to start. The money can grow tax-free, and withdrawals are generally tax-free when used for qualified education expenses.

Before you start writing checks, think about your family as a whole. If one adult child has children and another doesn't, consider whether your giving creates an imbalance you didn't intend. Fair doesn't always have to mean equal, but it should be intentional.

11. Death of parents/inheritance

Receiving an inheritance can be emotional as well as financially complicated, so resist the urge to make major decisions immediately. Start by understanding exactly what you inherited — cash, taxable investments, retirement accounts, real estate or other assets — because different assets come with different tax rules.

You'll want to work with a CPA and your financial adviser before selling, moving or withdrawing inherited assets.

For example, inherited property generally receives a new cost basis based on its fair market value at the owner's death, while many non-spouse beneficiaries of inherited retirement accounts must empty those accounts within 10 years and might have distribution requirements along the way.

Before spending an inheritance, consider how it could strengthen your own financial future.

Life's milestones are worth celebrating. Just remember that once the bubbly is gone and the cake is eaten, a little financial planning can help you focus on what matters and make the most of what comes next.

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This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

Ray is 65 and Diane is 63. Both are working and earning well, but they plan to retire soon. They live in California, and they are uneasy about how much of their portfolio rides on one stock. So they asked their adviser how to diversify out of it without losing a third of the value in capital gains tax.

She told them what most advisers would. A large gain can be trimmed at the edges, harvested against losses or spread across tax years, but each leaves you still owning the gain. Only two things eliminate it: Hold the asset until you die, so your heirs inherit it with a stepped-up basis, or give the asset to charity.

Neither one fit. Waiting decades for the step-up meant holding one undiversified position, and giving away a million dollars was not an option. So: Sell, pay the tax, reinvest the rest.

What nobody asked was how long the Kesslers were likely to live.

The IRS thinks you're average

There is a third option. You transfer the shares into an irrevocable trust, called a charitable remainder unitrust (CRUT), and the trust sells them. Because the trust is tax-exempt, no capital gains tax is due on the sale, so the whole amount stays invested and diversified at once.

The trust then pays you a set percentage of its value, recalculated each year, for life, for both lives or for a term of years. Whatever remains goes to the charity you named, and you take an income tax deduction up front for the calculated value of that future gift.

The IRS determines that gift value on the day of funding, using actuarial tables built from census data, currently Table 2010CM. Those tables describe the general population.

But the people who fund these trusts, like the Kesslers, are affluent, insured and longer-lived than average. Insurance companies know this and price annuities off a separate annuitant table.

The IRS assumes you will live as long as the average American. If you live longer than that, the trust runs longer than the deduction was calculated for, and every extra year compounds.

Why the mismatch pays

Both the deduction and your maximum payout are fixed on the day of funding. The trust runs on your actual life.

If the Kesslers sell, they realize a $998,500 gain and pay 33.1% in combined federal and California tax, leaving $669,496 to reinvest. In a CRUT, the full $1 million stays invested. At a 6% payout, that is $60,000 in the first year against $40,170 from an equal draw on the reinvested proceeds.

The trust doesn't make the tax disappear. The payments are taxable, and in year one both paths deliver similar after-tax spending money. What differs is that the tax is spread across decades while a larger base compounds.

Better than what, exactly?

A trust isn't good or bad on its own, only better or worse than what you would otherwise have done. There are three realistic alternatives:

• Sell and reinvest. Pay the tax now, rebuild in a diversified portfolio.
• Hold and leave it. Keep the stock, live on other money, pass it to the children with a stepped-up basis.
• Hold and live on it. Keep the stock and draw the same 6% from it.

In research published in the August 2026 Journal of Financial Planning, I tested a trust against all three, simulating 10,000 market futures and running the same family down both paths in each one. A "win" means the family finished that future with more spendable wealth, in today's dollars, from the trust. So a 66% win rate doesn't mean 66% more money. It means the trust came out ahead in about two thirds of the futures tested.

What longevity does to the numbers

The third alternative is the hardest for the trust to beat: It pays identical income and still passes a stepped-up estate to the children. Under IRS life expectancy, a couple aged 63 and 65 beats it with a trust 28.2% of the time.

However, give that couple seven more years and the number is 96.4%.

No other variable came close. The deduction was locked at the start on an average life. The years the trust actually ran were not.

Where this doesn't work

All of this assumes you have no charitable motive and are measuring nothing but dollars. If you do want to give, any asset at any basis will do.

For everyone else, basis moves the answer more than longevity does. The trust beats all three alternatives when basis is under roughly 11% of current value and loses to all three above 25%. Long life improves those odds without reversing them. The Kesslers sit at 0.15%.

Across 500 randomly drawn household situations, varying age, basis, payout and home state, the trust was the better choice in about a third of them. That is not a coin you have to call blind. Every one of those variables is knowable before anything is signed.

The up-front deduction is what most people ask about first, and it matters least. Tax legislation in 2026 added a 0.5%-of-AGI floor and capped top-bracket filers at 35 cents per dollar. Over a long trust, the tax on the payments takes back much of what the deduction gives.

Outcome

The Kesslers funded a two-life trust in November, with the full million still invested. Buy an annuity and the insurer prices your health. Fund a CRUT and the government prices it off a table that assumes you are average. Few advisers will raise it on their own, because it is filed under charity. Ask.

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This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

But somewhere along the way, "conversions can be smart" curdled into "conversions are always smart," and that's where I start to worry.

A Roth conversion is a tool, not a virtue. There are specific situations where they're the wrong move — and sometimes an expensive one. Knowing when to hold off is just as valuable as knowing when to act.

Here are five times a Roth conversion usually doesn't make sense.

1. You're in a high-income year

The entire logic of a conversion rests on paying tax now, at today's rate, to avoid tax later. That only works in your favor if today's rate is lower than the rate you expect to face down the road.

Convert during a peak earning year, when your income is already pushing the top of a bracket, and you're doing the opposite: Paying tax at one of the highest rates you'll ever see.

If you're still working and at the height of your career, or you had an unusually large income event this year, that's generally the worst possible time to stack a conversion on top.

The better move is often to wait for a lower-income year, which for many people arrives after they stop working but before required minimum distributions begin at age 73.

2. You'd have to use the IRA itself to pay the tax

This one is a quiet deal-breaker that people miss. A conversion works far better when you can pay the resulting tax bill from outside funds in a taxable brokerage or savings account.

If the only way to cover the tax is to pull extra from the IRA you're converting, you erode the whole benefit. You're shrinking the amount that actually makes it into the Roth, and if you are under 59½, the portion withheld for taxes could itself trigger a penalty.

Picture converting $100,000 and needing roughly a quarter of it to pay the tax. If that quarter comes out of the IRA rather than a separate account, only three-quarters of the money reaches the Roth, and you've lost years of potential growth that qualified Roth withdrawals would have delivered tax-free.

When there's no outside cash to pay the tax, a conversion frequently doesn't make sense. The answer is to wait until you have the liquidity to do it right, or to convert a smaller amount you can actually afford to cover.

3. You expect your tax rate to fall in retirement

Not everyone faces higher taxes later. Plenty of people will drop into a lower bracket once the paychecks stop, especially if they don't have enormous traditional balances generating large future RMDs.

If you genuinely expect your retirement tax rate to be lower than it is today, converting now means voluntarily paying a higher rate to avoid a lower one. That is backward. The conversion crowd sometimes assumes everyone's taxes are headed up, but that is an assumption, not a fact, and it deserves to be tested against your actual projected income.

For some people, simply taking ordinary distributions in retirement at a modest rate beats prepaying tax today. The only way to know is to project your retirement income honestly, including Social Security and any pension, rather than assuming the worst about future rates.

4. The money will pass to heirs who get a step-up anyway

Estate considerations can flip the entire calculation. Consider someone late in life with a serious health situation, whose assets are likely to pass to heirs before long.

Traditional IRA dollars left to heirs are taxed as those heirs withdraw them, which is a real consideration. But other assets, like appreciated stock in a taxable account, generally receive a step-up in cost basis at death, which can wipe out the embedded capital gains for the heirs.

In a case like that, spending energy and tax dollars converting a traditional IRA may make less sense than simply leaving the accounts as they are and letting the estate planning rules do the work.

This is exactly the kind of situation where a reflexive "always convert" instinct can cost a family money rather than save it. It is worth coordinating with an estate planning attorney before acting.

5. State taxes erase the federal benefit

Federal brackets get all the attention, but your state often wants a cut of a conversion, too. If you live in a high-tax state today and realistically plan to retire somewhere with low or no income tax, converting now can mean paying state tax you could have sidestepped entirely by simply waiting until after you move.

The federal math might look fine in isolation, but once you layer your current state's tax on top of the conversion, the case can fall apart.

The decision and your geography are tied together, and analyzing the conversion without your specific state in the picture can lead you somewhere you wouldn't choose if you saw the full bill.

The pattern worth noticing

Look at these five situations and a theme emerges. A Roth conversion isn't good or bad on its own. It's good or bad relative to your specific circumstances:

• Your current bracket vs your expected future bracket
• Whether you have outside cash to pay the tax
• Your estate plans
• Your state

Strip away those specifics and "always convert" is just a slogan. What makes the slogan dangerous is that it sounds responsible. It carries the glow of disciplined, forward-thinking planning, which is exactly why people follow it without checking whether it fits their own numbers.

I'm not arguing against conversions. Used in the right years, with the tax paid from the right place, they remain one of the more useful planning tools available to people heading into retirement.

I am arguing against treating them as automatic. The same move that helps one person in a low-income gap year can hurt another who is at peak earnings, short on outside cash or about to relocate to a no-tax state.

Before you convert, the honest question isn't "Should everyone do this?" It's "Does this make sense for me, this year, given everything else?"

Sometimes the answer is an enthusiastic yes. Sometimes the most valuable thing a conversion analysis produces is the decision to wait.

Both are wins, and knowing the difference is what separates a real strategy from a popular one.

A Roth IRA offers tax deferral on any earnings in the account. Qualified withdrawals of earnings from the account are tax-free. Withdrawals of earnings prior to age 59½ or prior to the account being opened for five years, whichever is later, may result in a 10% IRS penalty tax. Limitations and restrictions may apply.

Traditional IRA account owners have considerations to make before performing a Roth IRA conversion. These primarily include income tax consequences on the converted amount in the year of conversion, withdrawal limitations from a Roth IRA, and income limitations for future contributions to a Roth IRA. In addition, if you are required to take a required minimum distribution (RMD) in the year you convert, you must do so before converting to a Roth IRA.

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This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

There's a reason that framework has lasted. Stocks and bonds remain important building blocks for many investors.

But today, investors have more choices than they did a generation ago.

High-net-worth investors, family offices and advisers increasingly have access to private credit, real estate, private equity, infrastructure and direct energy investments that can provide exposure to assets and economic drivers outside the traditional public markets.

That doesn't mean the 60/40 portfolio has stopped working.

It means investors now have the opportunity to ask a broader question: What other assets may complement it?

Diversification: What drives the investment?

Owning multiple funds doesn't always mean a portfolio is truly diversified.

Stocks and bonds can respond to many of the same forces, including interest rates, inflation, economic expectations and broader market sentiment. In 2022, for example, investors were reminded that stocks and bonds can decline at the same time.

That's why I believe diversification should be viewed not simply in terms of how many investments someone owns, but in terms of what actually drives their value.

Alternative investments can introduce different sources of potential return.

Real estate may be driven by rents and property values. Private credit may be driven by contractual interest payments. Infrastructure may benefit from long-term demand for essential services.

Direct oil and gas investments can be tied to something different again: The development, production and sale of energy.

Where direct oil and gas can fit

I've spent most of my career in oil and gas, and one of the things I believe investors should understand is how different direct energy ownership can be from simply purchasing shares of a publicly traded energy company.

A public oil and gas stock is still a stock. Its price can be influenced by the broader market, investor sentiment, analyst expectations, interest rates and company-specific events.

A direct oil and gas investment can provide exposure much closer to the underlying assets themselves.

Depending on the structure, investor capital may be used to acquire acreage, drill and complete wells, bring production online and develop reserves.

That distinction matters.

When an operator deploys capital into drilling, the goal is to turn dollars invested today into producing energy assets tomorrow.

A successful well can potentially create several layers of value, including current or future oil and natural gas production, potential monthly cash flow, additional proved or undeveloped reserves, potential value from continued development and potential value if producing assets are ultimately sold or otherwise monetized.

That's one reason I believe direct energy deserves a place in the broader diversification conversation.

Instead of investing solely in financial instruments, investors can potentially participate in the development of tangible assets producing commodities the global economy uses every day.

Capital goes to work in the ground

This is an important distinction in the way I think about oil and gas investing.

When we raise capital for a drilling program, the objective is not simply to hold acreage and hope it appreciates.

The capital has a job. It can be deployed to drill wells, complete wells and move assets from undeveloped potential toward production. Each stage can potentially add information and value to the asset.

Before a well is drilled, much of its value may be based on geology, engineering and nearby production. Once it is drilled and completed, the operator has additional data. Once it begins producing, there is another layer of information: Actual production performance.

That production history can help engineers evaluate reserves and can give lenders, potential buyers and other market participants more information with which to assess the asset. In other words, drilling can be a value-creation process, not simply an expense.

That's the model I find particularly compelling: Putting capital to work with the objective of creating producing assets and building value through development.

Energy demand isn't theoretical

There's also a fundamental reason oil and gas remains relevant. The world continues to require enormous amounts of energy.

Transportation, manufacturing, agriculture, petrochemicals, electricity generation, data centers and countless parts of the modern economy depend on reliable energy supplies.

At the same time, oil and gas production is naturally depleting. Existing wells decline, which means new capital and new drilling are continually required simply to replace lost production. That creates an interesting dynamic for investors.

Energy is both an essential commodity and a capital-intensive business. The industry needs investment to find, develop and produce the resources the economy continues to consume.

For investors who understand the risks and have the appropriate time horizon, participating directly in that development can provide exposure to a very different part of the economy than a traditional stock-and-bond portfolio.

The tax treatment can be meaningful

Direct oil and gas can also offer potential tax characteristics that are different from many traditional investments.

Depending on the structure of the investment and an investor's individual tax circumstances, certain drilling and development expenses may qualify for deductions, including potential intangible drilling cost deductions.

Producing oil and gas properties may also qualify for depletion deductions over time. For certain high-income investors, these potential tax benefits can materially affect the overall economics of an investment.

I don't believe anyone should make an investment solely for a tax deduction. The underlying assets, operator, development plan and economics must make sense first.

But when a fundamentally attractive investment also offers potential tax advantages, those benefits can become an important part of the overall investment consideration.

Because the rules can be complex and investor circumstances vary, individuals should always consult their own tax professionals regarding how those provisions may apply.

Start with the asset

When evaluating an oil and gas opportunity, I've always preferred to start with the asset rather than the spreadsheet.

Projections matter, but they're only as good as the assumptions behind them.

I want to know what exists in the ground and what we know about the surrounding area. I ask if there is existing production, if nearby wells have successfully produced from the same formations, what the geology tells us, what the development plan looks like, and what the capital will be used for. I also want to know how experienced the operator is at drilling, producing and selling oil and gas.

These types of questions tell me far more than an attractive projected return by itself.

In our business, the objective is to acquire and develop assets where we believe operational execution can create additional value.

That means deploying capital into drilling and development, gathering real production data, building reserves and continually evaluating the best way to maximize the value of those assets.

The operator matters

Oil and gas isn't a passive business from the operator's perspective. Execution, drilling decisions, completion design, cost control, land and title work, production operations, commodity marketing and timing: These all matter.

That's why I believe investors evaluating direct energy should spend as much time evaluating the operator as they do evaluating the projected economics.

An experienced operator should be able to explain where investor capital is going, what milestones are expected, what can create additional value and how the assets may ultimately be monetized.

The investment isn't just in a commodity. It's also an investment in the operator's ability to execute a development strategy.

Private investments require patient capital

Direct oil and gas investments are generally private investments, which means they should be viewed differently from publicly traded securities.

An investor may not be able to sell an interest with the click of a button. Timing and patience are important.

Patient capital can allow an operator to execute a multi-stage development strategy: Acquire the asset, drill wells, establish production, build reserves and pursue opportunities to create additional value over time.

For investors who have sufficient liquidity elsewhere in their portfolios, that longer-term approach may fit well alongside more liquid public-market investments.

Is 60/40 enough?

For many investors, it may be.

There's nothing inherently wrong with keeping a portfolio simple.

But for investors with significant assets, longer investment horizons and the ability to accept the risks and illiquidity associated with private investments, alternatives can broaden the opportunity set.

I don't view direct oil and gas as a replacement for stocks or bonds. I view it as something fundamentally different. Stocks provide ownership in companies. Bonds provide contractual debt exposure.

Direct oil and gas can provide qualified investors with the opportunity to participate in the acquisition, drilling, development and production of real energy assets.

That is an important distinction.

The question shouldn't be whether every investor needs alternatives.

The better question is whether adding assets driven by different fundamentals can make sense within the investor's overall strategy.

For the right investor, I believe direct energy deserves to be part of that conversation. At the end of the day, diversification isn't about making a portfolio more complicated.

It's about putting capital into assets that have a clear purpose, a clear economic rationale and the potential to create value in different ways.

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• What the Oil Market Is Telling Us Right Now About Energy and Gas Prices

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

Countless articles, videos and financial discussions warn retirees to stay below the next Medicare premium threshold. But what if avoiding an IRMAA surcharge causes you to pay more over the course of retirement?

In many cases, that's what can happen when annual tax planning takes priority over lifetime tax planning.

The income-related monthly adjustment amount (IRMAA) is the Medicare surcharge higher-income beneficiaries might pay for Medicare Part B and Part D coverage.

Because IRMAA is based on your modified adjusted gross income (MAGI) from two years earlier, many retirees become intensely focused on staying below the next surcharge threshold.

That focus is understandable — but it can also be expensive.

Many retirees reject Roth conversion strategies or other tax-planning opportunities solely because they might temporarily increase Medicare premiums. In some cases, avoiding an IRMAA surcharge can ultimately result in paying significantly more in lifetime taxes.

• The better question isn't: "How can I avoid IRMAA this year?"
• Instead, ask: "How can I minimize the total taxes and costs my family is likely to pay over the course of retirement?"

Those are two very different objectives.

Think beyond this year's tax return

Traditional tax planning often centers on reducing this year's tax liability.

Lifetime tax planning takes a broader view by evaluating how today's decisions affect taxes, retirement income and wealth in the next 20 to 30 years.

That distinction matters because strategies that intentionally increase taxable income today — such as Roth conversions — can sometimes reduce taxes substantially later.

Depending on the circumstances, converting part of a traditional IRA to a Roth IRA could:

• Reduce future required minimum distributions (RMDs)
• Lower taxable income later in retirement
• Reduce the taxation of Social Security benefits
• Provide additional tax-free assets for future spending
• Improve tax flexibility throughout retirement
• Reduce taxes for a surviving spouse
• Leave heirs with more tax-efficient inheritances

None of those benefits can be evaluated by looking at only one tax year.

Focus on the right goal

Key takeaway: IRMAA is an important planning variable — but it should rarely outweigh a well-supported strategy that meaningfully reduces lifetime taxes.

Understanding the tax valley

Many retirees experience a period after they stop working but before claiming Social Security and before required minimum distributions begin.

During these years, taxable income might be temporarily lower than it will be later in retirement.

Financial planners often refer to this as a tax valley — a window that might present an opportunity to recognize income at relatively favorable tax rates.

Consider a hypothetical married couple, both age 63, with $2 million in traditional IRAs.

Because they recently retired, they temporarily find themselves in the 24% federal income tax bracket. Their retirement income plan projects substantially higher taxable income once Social Security benefits begin and required minimum distributions become mandatory.

Suppose they convert $150,000 per year to Roth IRAs over several years. The conversions increase their taxable income enough to trigger higher Medicare premiums through IRMAA.

At first glance, paying higher Medicare premiums seems undesirable.

However, those same Roth conversions might significantly reduce future required minimum distributions, lower future taxable income, reduce taxes for a surviving spouse, create greater tax flexibility later in retirement and leave heirs with more tax-efficient assets.

If a temporary Medicare surcharge of several thousand dollars helps reduce projected lifetime taxes by six figures, many retirees would likely consider that an attractive trade-off.

The numbers — not the premium increase alone — should drive the decision.

IRMAA is one variable — not the objective

Retirement planning requires balancing many competing financial factors:

• Federal income taxes
• State income taxes
• Social Security taxation
• Required minimum distributions
• Medicare premiums
• Estate planning
• Legacy goals

Each deserves consideration, but the mistake is allowing any one of those to dominate the entire planning process.

IRMAA should be viewed the same way investors evaluate transaction costs or capital gains taxes. It is a legitimate expense to consider — but not necessarily a reason to abandon an otherwise beneficial strategy.

Waiting can be expensive

Many retirees assume paying less tax today automatically leads to paying less tax overall.

Unfortunately, that assumption often proves incorrect.

Traditional IRAs continue growing tax deferred. Larger account balances frequently produce larger required minimum distributions, which could:

• Push retirees into higher tax brackets.
• Increase the taxable portion of Social Security benefits.
• Trigger higher Medicare premiums later in retirement.
• Increase tax burdens after the death of a spouse, when the surviving spouse begins filing as a single taxpayer.
• Leave beneficiaries inheriting taxable retirement accounts that generally must be distributed within 10 years under current law.

Ironically, retirees who spend years trying to avoid modest IRMAA surcharges today might pay larger Medicare surcharges later because their required minimum distributions have become substantially larger.

Every recommendation should begin with a projection

No two retirees have identical circumstances.

The appropriate Roth conversion strategy depends on numerous variables, including expected investment returns, future tax rates, longevity, charitable giving goals, pension income, state taxes, estate-planning objectives and anticipated spending needs.

For that reason, sophisticated retirement planning relies on long-term projections rather than general rules.

Stopping a Roth conversion because it crosses an IRMAA threshold might feel prudent, but without a lifetime analysis, it's impossible to know whether that decision improves a retiree's long-term financial outcome.

The goal isn't to win this year's tax return

The Internal Revenue Service calculates your taxes one year at a time — your retirement plan shouldn't.

The objective of retirement tax planning isn't minimizing taxes this year — nor is it minimizing Medicare premiums this year.

The objective is maximizing after-tax wealth throughout retirement while preserving flexibility for future spending, charitable giving and legacy planning.

Sometimes that means staying below an IRMAA threshold.

Other times, the math clearly supports accepting a temporary Medicare surcharge because doing so produces substantially larger long-term tax savings.

The answer depends on the analysis — not the acronym.

The Centers for Medicare & Medicaid Services (CMS) establishes IRMAA as an income-based adjustment to Medicare premiums, while IRS rules govern the taxation of Roth conversions in the year they occur.

Neither rule suggests retirees should automatically avoid Roth conversions because of a temporary increase in Medicare premiums. Instead, both reinforce the importance of evaluating tax decisions within the context of an overall retirement income strategy.

The most ideal retirement tax plans rarely optimize a single year — they optimize a lifetime.

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This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

A commonly cited starting point is the 4% rule. It suggests withdrawing about 4% of a portfolio in the first year, then increasing that dollar amount for inflation.

Using this guideline:

• A $1 million portfolio might initially support about $40,000 in annual withdrawals
• A $1.5 million portfolio might support about $60,000
• A $2 million portfolio might support about $80,000

These figures are illustrations, not guarantees. A sustainable strategy depends on retirement length, returns, inflation, taxes, healthcare costs, other income, spending flexibility and legacy goals.

A financial adviser can help determine how these factors work together and how the strategy should change over time.

The 4% rule is only a starting point

The 4% rule is appealing because it is simple. Retirement is not. Markets fluctuate, healthcare expenses rise, tax laws evolve and spending changes.

An adviser can help determine whether 4% is reasonable for a particular household or whether a higher or lower starting amount may be more appropriate.

Why the right withdrawal rate is different for everyone

No single withdrawal rate works for every retiree.

Retirement length and investment allocation. Someone retiring at 60 may need a portfolio to last 35 or 40 years. The portfolio must also balance stability and growth. Investing too conservatively may make it difficult to keep pace with inflation, while investing too aggressively may create large losses at the wrong time. An adviser can model longevity assumptions and build an allocation suited to the retiree's needs.

Inflation and taxes. Inflation gradually reduces purchasing power. Taxes also affect how much of a withdrawal is available to spend. Traditional retirement account withdrawals are generally taxable, qualified Roth withdrawals may be tax-free, and taxable accounts may produce interest, dividends and capital gains.

The order in which accounts are used can affect tax brackets, Medicare premiums, Social Security taxation and required minimum distributions. An adviser can help coordinate withdrawals across account types and work with a tax professional when appropriate.

Other income, spending and legacy goals. Social Security, pensions, rental income and annuity payments can reduce the amount required from investments. Retirees who can reduce discretionary spending during difficult markets may have more flexibility.

Some retirees want to spend most of their assets; others want to preserve wealth for family or charities. An adviser can coordinate income and balance lifestyle needs with long-term security and legacy goals.

Why average returns don't tell the whole story

Even when these factors are considered, the timing of market returns can significantly affect retirement outcomes.

A calculator may assume a portfolio earns a steady average return each year. Real markets don't behave that way. Two retirees can earn the same average return over 20 years and still have very different results depending on when gains and losses occur.

The importance of sequence of returns risk

This timing risk is known as sequence of returns risk.

Consider two retirees with the same starting portfolio, withdrawals and average return. One experiences strong returns early. The other experiences a major decline shortly after retiring and stronger returns later.

The second retiree may end up with far less money because withdrawals during a downturn require selling more shares at depressed prices. Those shares are no longer available to participate in a recovery.

Assume a retiree begins with $1 million and plans to withdraw $40,000 annually. If the portfolio declines 20% before the withdrawal, its value falls to $800,000. After taking $40,000, about $760,000 remains. The portfolio would then need to gain more than 31% to return to $1 million.

This is why a withdrawal plan shouldn't operate independently from the investment strategy.

How an adviser can help manage retirement income risk

Sequence risk can't be eliminated, but it can be managed.

Maintain an appropriate cash reserve. Cash for near-term expenses may reduce the need to sell stocks during a downturn. An adviser can help determine how much to hold without weakening long-term growth.

Create flexible spending rules. A retiree may temporarily delay a major purchase, reduce travel or pause inflation increases. Establishing guidelines in advance can make these decisions easier.

Rebalance systematically. An adviser can restore the portfolio to its intended allocation and help prevent short-term headlines from driving investment decisions.

Coordinate Social Security and pensions. Delaying Social Security may increase future guaranteed income but require larger portfolio withdrawals in the near term. An adviser can compare the trade-offs involving taxes, longevity and survivor benefits.

Use a dynamic withdrawal strategy. A fixed withdrawal may not remain appropriate throughout retirement. Guardrails can allow spending to rise after strong performance and decline when the portfolio falls below predetermined levels.

Why ongoing advice matters

A retirement plan shouldn't be treated as a one-time calculation. Markets, spending, tax laws, health and family circumstances change.

An adviser can review withdrawal rates, rebalance investments, update projections, coordinate tax-sensitive distributions and provide an objective perspective during volatile markets.

The value of advice is not predicting every market move. It is helping retirees make disciplined decisions based on a coordinated plan rather than short-term emotion.

The bottom line

The 4% rule can be a useful starting point, but it isn't a personalized retirement income plan.

A sustainable strategy must account for retirement length, investment allocation, inflation, taxes, healthcare costs, other income, spending flexibility, legacy goals and sequence of returns risk.

A financial adviser can bring these issues together and help adjust the strategy as circumstances change. The goal isn't simply to withdraw the maximum amount possible today. It is to balance enjoying retirement now with maintaining financial security for the years ahead.

This article is intended for general educational purposes and does not constitute individualized investment, tax, legal or retirement advice.

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This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

The culprit is a lack of awareness around net unrealized appreciation (NUA), a little-known IRS provision that can convert a chunk of ordinary income tax into much cheaper long-term capital gains tax.

If you or your executives hold concentrated employer stock in a 401(k), profit-sharing plan or employee stock ownership plan (ESOP), understanding NUA could mean the difference between a seven-figure tax bill and meaningful savings.

What is NUA?

NUA is simply the growth in your company stock's value while it sat inside your retirement plan. To put it another way, it's the gap between what you (or your employer, via matches or stock bonuses) paid for the shares and what they're worth today.

Consider an executive who accumulated employer stock over a 20-year career with a cost basis of $200,000 and whose position is now worth $4.2 million. The $4 million difference is the NUA.

Under normal 401(k) rules, every dollar you eventually withdraw, including all that appreciation, gets taxed as ordinary income, which can run as high as 37% for top earners. On a $4 million distribution taxed entirely as ordinary income, that's roughly $1.5 million owed to the IRS.

NUA treatment changes that equation by letting you split the stock into two tax buckets: The $200,000 cost basis, taxed as ordinary income now, and the $4 million appreciation, taxed later at long-term capital gains rates (currently capped at 20% federally) whenever the shares are sold.

Why NUA is a big deal for executives

This distinction matters most for executives and long-tenured employees as they're the ones most likely to hold large, highly appreciated positions in employer stock after years of matches, ESOP allocations or stock bonus programs.

In this scenario, using NUA could shift roughly $4 million from a 37% ordinary income bracket down to a 20% capital gains bracket, a potential difference of more than $600,000 in taxes owed, simply by handling the distribution correctly.

There's an added bonus: The NUA portion, along with any gains after distribution, escapes the 10% early withdrawal penalty regardless of the employee's age, and it's exempt from the 3.8% Net Investment Income Tax as well.

The rules you can't skip

NUA isn't automatic. It only applies if very specific IRS requirements are met, and missing even one disqualifies the entire strategy. Use this checklist if you are considering it:

• A "triggering event" must occur first: Separation from the employer, reaching age 59½, disability or death.
• The entire vested balance across all of that employer's qualified plans must be distributed within a single calendar year, with no partial distributions carried into the next year.
• The company stock must be distributed "in-kind" as actual shares into a taxable brokerage account, never sold for cash first.
• If required minimum distributions were already taken in a prior year, NUA eligibility is lost. Taking only the current year's RMD is still allowed as long as the account is zeroed out by year-end.
• The stock must currently sit in a tax-deferred account, such as a traditional 401(k). It can't be in a Roth 401(k) or Roth IRA.

How the process actually works

Once eligibility is confirmed, the mechanics are straightforward but require careful sequencing.

• The employer stock gets distributed in-kind directly into a non-qualified brokerage account, triggering an immediate ordinary income tax bill on the $200,000 cost basis only.
• Meanwhile, any remaining 401(k) assets, such as mutual funds, cash or other holdings, can be rolled over tax-free into a traditional IRA or a new employer plan.
• From there, the $4 million NUA portion sits untaxed until the shares are actually sold, at which point it's taxed at long-term capital gains rates no matter how briefly the shares were held after distribution.
• Any additional appreciation that occurs after the distribution date is taxed separately, following normal short- or long-term capital gains rules based on the new holding period.

Common mistakes to avoid

The biggest and most irreversible mistake is rolling employer stock into an IRA by default, as this permanently forfeits NUA treatment on that entire $4 million gain. This is a common outcome when executives don't flag their intent in advance.

Other frequent missteps include taking RMDs in a prior year without realizing it disqualifies future NUA eligibility, selling shares inside the plan before distribution (converting NUA to cash disqualifies it), and failing to distribute the full account balance within one tax year.

Making the decision

NUA isn't right for everyone, but for an executive with a large basis-to-value gap, the math is compelling. It works best when the stock is highly appreciated relative to its basis, when the executive doesn't need immediate liquidity to cover the upfront ordinary income tax on the basis, and when long-term capital gains rates offer a real advantage over the executive's ordinary income bracket.

For those under 59½, the trade-off between the 10% early withdrawal penalty on the cost basis and the long-term tax savings on the multimillion-dollar gain needs careful modeling.

Given how irreversible and rules-driven this strategy is, any executive sitting on a concentrated, highly appreciated position of employer stock inside a 401(k) — especially those approaching retirement or a job change — should run the numbers with a financial adviser or tax professional well before their triggering event happens, not after.

Once the account is rolled into an IRA, the opportunity to save hundreds of thousands (or more) is gone for good.

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This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

When you think about working with a CPA, you probably think about your tax return. And that makes sense — tax professionals help calculate what you owe, identify available deductions and credits and make sure your return is filed correctly.

But there is a big difference between preparing your taxes and planning your taxes. Tax preparation looks backward. Tax planning looks forward (I wrote a book on this called I Hate Taxes — request a free copy here).

That distinction becomes particularly important for retirees with pensions, substantial savings and multiple sources of retirement income. A pension can provide valuable lifetime income, but it also creates a tax-planning challenge that many retirees don't anticipate: Your retirement income could be higher than it was during some of your working years.

As the founder and CEO of Peak Retirement Planning and a CFP® Professional, I recommend that retirees look beyond their federal income tax bracket and consider how decisions affect Social Security taxation, Medicare premiums, capital gains, Roth accounts and estate planning.

Here are eight retirement tax strategies worth discussing with your financial planning team.

1. Don't automatically dismiss Roth conversions

A Roth conversion involves moving money from a traditional IRA or other tax-deferred account into a Roth IRA and paying income taxes on the converted amount today.

In exchange, qualified Roth withdrawals in retirement are generally tax-free, and Roth IRAs aren't subject to lifetime required minimum distributions (RMDs) for the original owner.

The conventional wisdom around taxes is often simple: Defer taxes as long as possible. But that isn't necessarily the best strategy for every retiree.

Consider someone who has a pension, Social Security and several million dollars in traditional retirement accounts. Their future taxable income could be substantial, as RMDs will eventually force money out of tax-deferred accounts, and pension and Social Security income continues arriving regardless of whether the retiree needs additional cash.

This can create a very different tax picture than the one they had while working. A Roth conversion could make sense when the tax cost today is lower than the expected lifetime tax cost of leaving the money in a traditional account.

However, the calculation should include more than the federal income tax bracket. Social Security taxation, Medicare's income-related monthly adjustment amount (IRMAA), state taxes, future RMDs and estate planning goals all affect the result.

The goal isn't necessarily to pay the lowest tax rate this year; it's to pay the lowest lifetime tax bill.

2. Put charitable giving on your tax-planning calendar

If charitable giving is part of your retirement plan, don't wait until tax season to think about it. Beginning in 2026, a new above-the-line charitable deduction allows eligible taxpayers who take the standard deduction to deduct up to $1,000 of qualifying charitable contributions for single filers and $2,000 for married couples filing jointly.

This creates another planning opportunity for retirees who don't itemize deductions.

But retirees with larger retirement accounts have another important tool: Qualified charitable distributions (QCDs). Once you reach age 70½, a QCD allows you to make a charitable contribution directly from an IRA.

The distribution may satisfy part or all of an RMD, subject to applicable limits, while generally keeping the transferred amount out of adjusted gross income.

That distinction matters. For a retiree with a pension, keeping taxable income under control could have ripple effects beyond the income tax return, as it can influence Medicare premiums and the taxation of Social Security.

Charitable retirees therefore shouldn't simply ask, "How much can I deduct?" They should ask, "Which account should the charitable gift come from, and when should I make it?"

3. Stop treating tax preparation as tax planning

Your CPA might prepare an excellent tax return, but that doesn't necessarily mean you're receiving comprehensive retirement tax planning.

Tax preparation is largely reactive — the tax year has ended, your income and transactions are known, and your professional calculates the resulting liability.

Tax planning is proactive. It asks questions such as:

• Should you make a Roth conversion this year?
• How much should you convert?
• Which account should fund your next withdrawal?
• How will an RMD affect your tax bracket?
• Could a large capital gain increase your Medicare premiums?
• Should you delay Social Security?
• How will your tax strategy change after one spouse dies?
• Where should assets be held for tax efficiency?

These decisions often need to happen months or years before the tax return is prepared.

Retirees shouldn't necessarily expect one professional to handle every aspect of the process. Instead, the CPA and financial adviser should communicate so that investment and tax decisions work together rather than operating in silos.

That collaboration can be especially valuable for retirees with pensions, because the interaction between guaranteed income, retirement accounts and government benefits can add a lot of complexity to your plan.

4. Build tax diversification into your retirement portfolio

Most investors understand investment diversification: Don't put all your money in one stock or one asset class.

The same concept applies to taxes. Retirees may potentially benefit from having assets spread among three different tax "buckets":

• Tax-deferred. Traditional IRAs, 401(k)s, 403(b)s and similar accounts
• Tax-free. Roth IRAs and other qualifying Roth assets
• Taxable. Brokerage and other non-retirement accounts

Having everything in tax-deferred accounts could create a problem later. When you need money, you have limited flexibility — withdrawals generally create taxable income, and RMDs will eventually force distributions whether you need the money or not. A Roth account provides another option.

Suppose tax rates are relatively high in a particular year. You could draw more heavily from Roth assets, assuming the withdrawals are qualified, rather than adding more taxable income.

In another year, when your taxable income is lower, drawing from a traditional IRA could be more attractive.

Tax diversification gives retirees choices, and in a retirement that could last 20 or 30 years, flexibility has real value.

5. Pay attention to the "three-legged stool" of retirement income

Pension retirees often have three major sources of income:

• A pension
• Social Security
• Withdrawals from retirement accounts

Individually, each might be beneficial, but together they can create a surprisingly large stream of taxable income. A retiree with a $70,000 pension, $50,000 of Social Security and significant IRA withdrawals could have considerably more taxable income than they expected when they first retired. The consequences extend beyond ordinary income taxes.

This increased income could cause up to 85% of Social Security benefits to be taxable and can also push long-term capital gains into higher brackets, eliminating opportunities to realize gains at the 0% rate.

Medicare Part B and Part D premiums increase through IRMAA, when income exceeds certain thresholds. That means an additional dollar of taxable income isn't necessarily just another dollar subject to income tax. It could also contribute to higher Medicare premiums.

For pension holders, this is one reason tax planning needs to look beyond the tax return.

6. Don't overlook the tax implications of pension decisions

Choosing between pension options is primarily an income-planning decision, but taxes deserve a seat at the table.

For example, someone might be deciding between a monthly pension benefit and a lump-sum distribution. The choice involves numerous factors, including longevity, investment risk, survivor benefits, liquidity and spending needs.

Taxes are only one piece of that decision, but they influence the long-term outcome. Survivor benefits deserve particular attention, as while you may be able to file jointly now and enjoy the more favorable tax brackets, one spouse passing away could result in a severe increase in your tax and IRMAA situation. Not to mention the potential to lose a Social Security benefit.

That combination creates what is commonly called the widow's penalty. A pension strategy that looks perfectly reasonable while both spouses are alive could create a very different tax picture for the surviving spouse.

In some situations, Roth conversions during the couple's joint-filing years could help reduce the future tax burden. The key is to model the decision before making an irrevocable pension election.

7. Make your investment strategy tax-efficient, not just return-efficient

Retirement investing isn't only about selecting investments that you believe will perform well. It's also about deciding where those investments should live.

For example, highly appreciated assets held in a taxable brokerage account create capital gains when sold. Meanwhile, mutual funds often distribute taxable capital gains even when you didn't sell the fund yourself, creating "phantom gains."

Those distributions might make tax planning more difficult because you don't necessarily control when the taxable income occurs. Tax-loss harvesting is another strategy worth considering. Selling an investment that has declined in value generates a capital loss that offsets capital gains, subject to applicable tax rules.

The proceeds could then potentially be reinvested in another investment while maintaining a similar overall portfolio strategy, provided you follow the wash-sale rules.

Asset location matters, too. Growth-oriented investments could be particularly attractive inside a Roth account because future qualified growth can be tax-free.

More conservative investments could potentially fit better in traditional accounts, while certain investments in taxable accounts often benefit from favorable capital gains treatment.

The best location depends on the entire portfolio, not simply the investment itself.

8. Don't let your pension create a retirement tax trap

Here's the overarching issue pension holders need to understand: A guaranteed income stream could make retirement taxes more complicated, not less.

Many retirees have relatively little taxable income, so they remain within the standard deduction or lower tax brackets. Pensioners with significant savings can have a different experience.

Their pension continues producing income. Social Security then becomes partially or largely taxable. Their retirement accounts continue growing. Eventually, RMDs begin. If they don't need those RMDs for living expenses, they often reinvest the money in a taxable account, creating another layer of potential capital gains and taxable investment income.

The result is a cycle in which one source of income affects another. That's why retirees with pensions and substantial assets should look at taxes as a long-term planning issue rather than an annual filing exercise.

The objective isn't to eliminate taxes. Instead, the goal is to coordinate the different pieces of a retirement plan so that you aren't unnecessarily creating taxable income, Medicare surcharges or avoidable tax bills later in life.

The bottom line

Retirement tax planning isn't about finding one magic strategy; it's about understanding how today's decisions affect the next 10, 20 or even 30 years.

• A Roth conversion could be beneficial in one situation and counterproductive in another
• A charitable gift could comprise cash, appreciated investments or an IRA, with different tax consequences
• A pension election could affect the surviving spouse's future tax burden
• And the way investments are allocated among taxable, tax-deferred and Roth accounts may influence how much flexibility you have later

Perhaps most importantly, tax preparation and tax planning should not be confused. Your tax return tells you what happened. A comprehensive retirement tax plan asks what you can do about what happens next.

For retirees with pensions and significant savings, that distinction could be one of the most valuable parts of their retirement strategy.

Now, for those who have a financial planner who says, "I am not a tax professional, go talk to your tax preparer": It may be time to find a new adviser. We believe retirees should work with what we call a "one-stop shop," where the CPA and financial planners work in the same office to ensure the above strategies get implemented.

Related Content

• Why a Roth Conversion Is Wrong for Most People But Often Right for Pension Holders
• 13 Things to Know About How Your Pension Affects Your Taxes in Retirement
• Many Retirees With a Pension and $1 Million-Plus Do These 7 Things (and Regret It Later)
• 10 Retirement Fixes You Can Implement Today to Strengthen Your Financial Plan
• When Is a Roth Conversion a Bad Idea? 6 Situations Retirees Should Consider Carefully

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

Let me paint the picture.

• Oil is above $80 a barrel and volatile
• Gas is hovering around $4 a gallon nationwide (and above $6 in parts of California)
• The Strait of Hormuz, through which roughly 20% of the world's oil supply normally flows, has been contested and largely closed since early March — the International Energy Agency has called it the largest supply disruption in the history of the global oil market
• Moody's recession model is sitting at 49%
• Mortgage rates have climbed back above 6%

If your instinct right now is to freeze, to sit on your hands and wait for the smoke to clear, I understand the impulse. But I'd also argue that's exactly the wrong move.

Because buried inside this chaos is one of the most compelling arguments for tax-advantaged real estate investing that I've seen in my career.

Let me explain what I mean.

When everything else gets expensive, real estate gets interesting

Inflation is the silent killer of stock market portfolios. When oil prices spike, the cost of everything follows: Food, shipping, manufacturing and consumer goods. Corporate margins shrink. Consumer spending contracts. Stocks, which are priced on future earnings expectations, take the hit.

Real estate, on the other hand, has a fundamentally different relationship with inflation. Rental income tends to rise with inflation, because landlords adjust rents as costs increase. Property values tend to hold or appreciate because the replacement cost of building new construction rises with materials and energy prices. And the debt on the property, which is typically fixed-rate, becomes cheaper in real terms as the dollar loses purchasing power.

In other words, inflation erodes the value of what you owe while increasing the value of what you own. That's not a bad deal.

This dynamic doesn't guarantee positive returns in every scenario, of course. Rising mortgage rates can suppress transaction volume and put downward pressure on prices. But for investors who already own real estate, or who are exchanging into it using tax-advantaged strategies, the inflationary environment actually strengthens the fundamental case for staying in the game.

One crisis, three investors, three strategies

Let's look at how this energy crisis is affecting three very different investors and how each one is using the current environment to their advantage.

Nadia is a 58-year-old landlord who owns a small strip center in suburban Houston. She's been thinking about selling for years, but the capital gains tax bill has always stopped her cold. Now, with commercial property values still holding steady in her market but stock portfolios getting hammered, she's fielding calls from buyers who want to move money out of equities and into something tangible. Her property is suddenly more attractive to a wider pool of buyers than it has been in years.

Nadia's move: Sell now while buyer demand is strong, execute a 1031 exchange and roll the proceeds into a portfolio of Delaware statutory trusts. She defers the entire capital gains tax, exits active management and picks up monthly passive income from institutional-grade real estate, the kind of property that weathers inflationary storms better than a strip center with two vacant units.

She also captures bonus depreciation through DSTs that have undergone cost-segregation studies, creating paper losses that offset her passive income and reduce her current tax bill.

David is a 44-year-old software executive who sold $2 million in company stock when his restricted stock units (RSUs) vested in January. He was already sitting on a significant capital gain. Then the market cratered, and now he's watching his remaining portfolio shrink while staring at a six-figure tax bill on the shares he already sold.

David's move: Invest the capital gains from his stock sale into a Qualified Opportunity Fund within his 180-day window. He defers the tax on those gains through the end of 2026 and, more importantly, starts the 10-year clock toward completely tax-free appreciation on any growth within the QOZ investment.

His money moves from the stock market — which is at the mercy of oil prices, geopolitics and Federal Reserve press conferences — into tangible real estate in communities poised for long-term growth.

Ten years from now, if all goes well, the IRS doesn't see a dime of the new appreciation.

Patricia and Ray are both 67, and they're done. Done with tenants, done with maintenance, done with the stress of checking their brokerage account every morning to see what the latest Strait of Hormuz headline did to their retirement savings overnight. They own a rental duplex worth $800,000 and a stock portfolio that lost 15% of its value earlier in the year. They want simplicity, stability and income they can count on.

Their move: Sell the duplex via a 1031 exchange into DSTs for the real estate side, eliminating landlord duties while deferring the capital gains. For the stock portfolio, they harvest losses on their worst-performing positions to offset gains elsewhere and redirect a portion of any remaining gains into a QOZ fund.

The combination gives them passive income from the DSTs, tax-loss harvesting from the stock sell-off and a long-term growth vehicle in the QOZ. They've turned a crisis into a retirement plan.

Why timing matters more than usual

There are three reasons why this particular moment demands attention.

First, the Opportunity Zone clock is ticking. Deferred gains from earlier QOZ investments come due on December 31, 2026. If you're making a new QOZ investment today, you're still under the OZ 1.0 rules, which means the 10-year tax-free appreciation benefit is fully intact.

And with the OZ 2.0 maps being drawn, which began on July 1, investors who understand both programs will have a significant edge over those who don't.

Second, bonus depreciation is back at 100%, permanently, thanks to the One Big Beautiful Bill Act. For high earners investing in DSTs with cost-segregation studies, this creates the opportunity to offset passive income with accelerated first-year depreciation deductions. In an inflationary environment where every dollar of tax savings matters more, this benefit is amplified.

Third, the energy crisis itself is creating urgency among sellers and opportunity among buyers. Landlords who are spooked by rising costs and uncertain economic conditions are motivated to sell. Investors fleeing the stock market are looking for stable, income-producing alternatives.

The result is a marketplace where well-advised buyers using 1031 exchanges, DSTs and QOZ strategies can acquire quality assets at attractive valuations while deferring or eliminating taxes in the process.

The bigger picture

Every major economic disruption in modern history — the 1973 oil crisis, the 2008 financial collapse, the 2020 pandemic — has reshaped how investors think about risk, tangibility and tax efficiency. The 2026 energy crisis will be no different.

When the dust settles, the investors who moved toward real estate and deployed tax-advantaged strategies during the turbulence will have built portfolios that are more resilient, more diversified and more tax-efficient than those who waited for calm seas that may be years away or may never come.

The tools are all on the table: 1031 exchanges for tax-deferred repositioning, DSTs for passive income and bonus depreciation and Qualified Opportunity Zones for tax-free long-term growth.

Each one is powerful on its own. Used together, in the hands of an adviser who understands how the pieces fit, they become something close to a complete playbook for navigating exactly this kind of environment.

The crisis is real. But so is the opportunity. The only question is whether you're positioned to take advantage of it.

Related Content

• What a Delaware Statutory Trust Can Do for Your Kids That Your Will Can't
• DST Inventory Just Hit a Record $3.9 Billion: What 1031 Exchange Investors Should Do Next
• Your Stock Portfolio Just Got Hammered: Here's a Tax-Smart Way to Recover
• Don't Defer Retirement if You're a Landlord, Defer Taxes Instead
• I'm a Real Estate Investing Pro: This Is How to Use 1031 Exchanges to Scale Up Your Real Estate Empire

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

A natural disaster has occurred. Do you want to donate to help out?

You're checking out at your local store and get a prompt asking if you want to round up for charity. Do you do it?

While many of us are basking in the hazy days of summer vs the cold reality of the months to come, the warm weather seems to bring a lot of "Giving Tuesdays." The asks for everything from swim teams to summer camps to walk-a-thons begin to add up, leaving me to ponder: "Am I giving enough?"

So, while the end of the year feels a long way away, this time of year is a good time to think about creating a giving plan for the rest of the year and identifying how you want to maximize the tax benefits for your gifts.

There are a few key components to unpack with this process. Some include:

• Is charitable giving important to your core values?
• What capacity do you have to give to charities?
• How much can you give to receive a tax benefit?

The causes

Every one of us, without too much trouble, could find, or be asked, to give to a charity every day. There are plenty of groups that need help (some we've never heard of) and plenty of people (some we've never met) looking to raise cash.

Psychologically, if I give to something in a reactionary way — maybe I got put on the spot to give — I'm most likely going to feel less connected to the outcome, and the feel-good nature of the gift will be fleeting.

So, how do conversations with my clients go? Especially with those who might have a significant capacity to give.

I always advise my clients who are charitably inclined to set an intentional giving plan. This means rather than scattering a few dollars here or there based on various fundraisers, pick one or two core causes that align with your personal values.

Local youth sports? Animal welfare? Your alma mater? A local house of worship? Take the time to see if these fit the legacy you want to leave. After determining the cause, spend the time to do the due diligence on the charitable options presented in that space.

Look at the mission and the impact measurements, as well as the financials of an organization so you feel more confident that your investment is going to be spent in a way that you feel good about and aligns with your own goals and values.

What's your giving capacity?

Once you've determined that you want to give to charity, it's important to look at your personal capacity to give.

Everyone has different demands on their bank account. If someone is in a position where they need to pay off high interest debt, build an emergency fund or saving for a large purchase or a college education, their capacity is going to look differently than someone who doesn't have any of those events looming, is fully funding their retirement plans and is in their peak earning years.

While charitable giving is initially driven by values and purpose, it's OK to also want to maximize the financial advantages associated with giving to nonprofit organizations.

By the numbers

It's important to address upfront that while giving your money to something you believe in can feel good, a dollar-for-dollar tax deduction is not guaranteed.

In truth, a deduction lowers your taxable income, rather than your final tax bill.

The next key thing to know is the level of deduction you are eligible for depends on whether you take the standard deduction or itemize.

The standard deduction for 2026 tax year is $16,100 for single filers and $32,200 for married couples filing jointly — leaving many Americans finding themselves in the standard-deduction camp.

For a long time, this meant that you wouldn't get any deduction for giving to charity. But, as a result of the One Big Beautiful Bill Act, passed on July 4, 2025, taxpayers utilizing the standard deduction will now be able to receive a deduction for charitable gifts up to $1,000 for single filers and $2,000 for married couples filing jointly.

For individuals who itemize, there is a new floor for deductions. The amount given to charity that is equivalent to the first 0.5% of adjusted gross income (AGI) is not deductible, and for taxpayers in the top tax bracket, the tax benefit of the charitable deductions is capped at 35% rather than 37%.

Meaning if you have $500,000 AGI and charitable contributions of $20,000, then the first $2,500 (0.5% of $500,000) is not deductible, but the remaining $17,500 is. But, because you're in the highest bracket, the benefit is capped at 35%. In this example, the gift produces about $6,125 of federal income tax savings.

For individuals who want to get more of a tax benefit, but don't give enough in a single year to make the most of these limits, there is an idea called "bunching." Instead of giving a small amount every year, they can bunch two or three years of giving into a single year.

As a reminder, in order for you to receive a charitable deduction for your donation, the charity you choose must be a registered 501(c)(3) organization. So, while giving money to a friend's GoFundMe page after they experience misfortune is kind, it's not tax-deductible.

Additionally, for gifts of $250 or more, taxpayers must receive a formal acknowledgment letter from the charity confirming the donation and making it clear that they didn't receive any goods or services in return for their largesse.

So, should you be giving more to charity? Well, many of us could probably give more.

But a better question — and one I always ask my clients — might be: Are you giving in a way that reflects your values and maximizes the impact you want to have?

When charitable giving is approached with intention rather than obligation, it becomes more than a tax deduction or a response to the latest fundraising appeal.

It becomes an expression of purpose, a reflection of personal values and an opportunity to create meaningful change for the causes and communities we care about most.

Having a plan in place for your charities and your taxes makes great sense — especially as peak giving season approaches.

Related Content

• Donating Complex Assets Doesn't Have to Be Complicated
• Give More But Pay Less: An Essential Guide to Tax-Smart Charitable Giving in 2026
• Five Ways to Maintain Charitable Giving in Volatile Times
• 3 Reasons Young People are Filled With Financial Anxiety — and How to Help
• Tending to Your Estate Plan? Don't Forget to Give Your IRA Some Love

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

According to a new survey conducted by Morning Consult on behalf of Kiplinger, only about 56% of parents admitted to having a conversation with their children about inheritance. That number drops to just 39% when you ask adult children whether they've had a discussion about family plans for passing on money and assets.

The lack of engagement and understanding is also stark when it comes to estate taxes, according to the survey. Roughly 40% of both children and parents say they're "not sure" whether taxes will apply to any inheritance plans.

Considering the U.S. is already in the beginning stages of the Great Wealth Transfer, in which members of the massive baby boomer demographic reach the end of their lives, this kind of procrastination with estate planning comes with a real cost. By some estimates, the collective fortune to be passed to younger generations tops well over $100 trillion in value.

Naturally, you want to ensure that your financial legacy stays in the hands of your loved ones, and doesn't get consumed by the Internal Revenue Service. Perhaps you're making arrangements for your own estate. Maybe you're overdue for such a plan and don't know where to start.

Whatever the case might be, take a few minutes for an introduction to the most tax-efficient ways to leave investments to your children.

1. Hold appreciated investments until death

A lot of research shows that the best strategy for investing is to buy and hold stocks for very long periods rather than actively trading in and out of fads. When it comes to tax planning, one of the best strategies for the stocks that have appreciated over the long-term is to hold them until the day you die.

According to IRS rules, heirs are frequently eligible for a "step-up" in cost basis to the asset's fair market value at the date of death. That has the potential to entirely eliminate capital gains taxes on a stock's appreciation over the original owner's lifetime.

Considering long-term capital gains can be 15% or more of the profits on a stock sale, this strategy of handing down the stock itself can result in significant cost savings.

If you've invested wisely and have big winners, one of the most tax-efficient ways to leave investments to your children is to not liquidate shares or to pass on the stock as a gift while you're still alive. Just let your heirs inherit the stock and do the selling directly.

2. Make your 401(k) and IRA beneficiaries your heirs

For many families, one of the biggest legacies they'll leave is the retirement funds in a tax-deferred retirement account such as a 401(k). As the term implies, the taxes on this money were deferred when originally invested. When withdrawals are made, the IRS is due its share.

The challenge is that withdrawals from such an account are taxed as "ordinary income," so a big one-time windfall results in a big tax bill. For example, current tax brackets include a 24% tax rate on anything above $105,701 — and a hefty 32% rate on anything above $201,776.

Because this ordinary income category includes an employer's paycheck, an heir who makes a decent living might find themselves in a steep tax bracket even if the distribution from your estate is relatively modest.

This is where adding heirs directly to your account can help. The IRS generally allows 10 years for nonspouse beneficiaries to liquidate an account such as a 401(k). As such, they can withdraw the money in smaller chunks on their own terms to maximize tax savings.

While there's no way to avoid taxes entirely on an inherited 401(k) or traditional IRA, this longer runway allows heirs to avoid a big one-time tax hit from a single distribution.

3. Regular gifts under the tax threshold

If you want the warm feeling of delivering some cash into your child's hands so you can watch them enjoy it, there are also ways to pass on assets now without running afoul of the tax man. Parents can gradually transfer investments during their lifetimes using the federal annual gift tax exclusion.

The maximum annual tax-free gift as of 2026 IRS rules is $19,000. That's a nice chunk of change by itself, but you can also continue to provide that gift annually – and to as many different individuals as you see fit — to transfer significant wealth over time.

What's more, making annual gifts in this manner might reduce the size of a taxable estate after death.

As long as you don't cross the threshold in a given year, your heirs won't have to claim the cash on their tax returns. They also can put that money to immediate use to take a trip, put a down payment on a house or anything else — while you have the benefit of seeing them put your gift in action.

4. Irrevocable trusts

It's worth noting that most families won't face significant tax burdens by deploying the strategies above. However, if your estate is particularly large, a comprehensive irrevocable trust might be in order.

Irrevocable trusts are commonly used by higher-net-worth families to remove future appreciation from a taxable estate by permanently giving ownership of assets to a trust. That trust then manages those assets for the benefit of other people and can deliver the cash according to the grantor's instructions.

This is the big artillery when it comes to the most tax-efficient ways to leave investments to your children.

Trusts have numerous benefits, including protecting assets from creditors or lawsuits as well as taxes and allowing you a measure of control on how your heirs spend their inheritance long after you've passed away.

However, the word "irrevocable" is not to be taken lightly. Many estate planners call such a trust a one-way street because you can't change your mind to get the money back or about your directions.

That said, these trusts can sometimes span multiple generations and efficiently protect a hard-earned fortune from eroding, thanks to mismanagement or heavy taxes.

5. Financial planning is personal, so talk about it

The Morning Consult survey conducted for Kiplinger found that almost a third of all U.S. parents say they have no formal estate plan — including failing to document arrangements in a will. There are many reasons for this including the fact that some families don't have significant assets to pass on.

But it's also simply a matter of avoiding the topic.

Estate planning begins by taking stock of what you want to leave behind when you're gone. These financial goals will naturally be personal, based on your specific portfolio, as well as your family situation and your final wishes.

You have a sense of your situation; consider talking with a good estate planning attorney or tax adviser next. These professionals can be well worth their fees by providing tailor-made solutions in which various investing and tax strategies can be used in complementary ways.

Most important: Share your plans clearly with your heirs before it's too late.

Nobody likes to dwell on death or taxes, but they're realities for all of us. If you're confused about how to arrange your estate, the simplest way to begin is by talking about it.

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• Before You Leave Your Home to Your Children, Ask These Questions
• Could You Handle a Sudden Windfall?

Asset protection is a layered strategy — a financial fortress built one wall at a time — and the right combination of tools depends on your needs, your risk profile and your circumstances.

Understanding what asset protection is — and is not — is essential: Done properly, it is not about hiding assets or evading legitimate debts, but it is entirely lawful and transparent.

The goal is to structure your affairs so that reaching your assets becomes difficult, slow and expensive for a creditor — changing the economics of a dispute so a claimant is motivated to settle for a fraction of the claim, if anything at all.

While the objective is not mere concealment, legitimate steps such as holding real property in an anonymous LLC can keep your ownership out of public view, since title to real property is a matter of public record.

Protection layer No. 1: The right business entity

The foundation of most plans is to operate any active trade or business through a properly formed and maintained entity, most commonly a C corporation, an S corporation or an LLC.

The purpose is liability containment: A shareholder or member is generally not personally liable for the entity's debts, so long as corporate formalities — separate bank accounts, adequate capitalization, documented governance and arm's-length dealings — are respected. However, the extent of the protection depends on the nature of the claim, the creditor and all the circumstances.

For example, a corporation or LLC is formed for liability protection, but the business owner fails to pay the employees' share of payroll taxes. Most states and the IRS provide for personal liability of not only the corporate or company officers but anyone with control over the business accounts.

The benefits of the limited liability entity were lost for failure to pay the employees' share of the payroll tax liability.

Ignoring those formalities invites veil-piercing or alter-ego claims that reach the owner personally. The choice among entities is driven mainly by taxation:

• A C corporation is a separate taxpayer subject to double taxation
• An S corporation is a pass-through but is limited to 100 eligible shareholders and a single class of stock
• An LLC is the most flexible, offering pass-through taxation by default with the option to elect other treatment

Protection layer No. 2: Foundational estate planning

Before layering on advanced tools, everyone should have a foundational estate plan, because incapacity or death can itself expose assets and because the advanced structures are built on these documents.

The core documents are:

• A revocable living trust, to avoid probate and manage assets on incapacity
• A pour-over will, to name an executor and guardians and catch assets left outside the trust
• Durable powers of attorney for financial and healthcare decisions
• An advance healthcare directive
• A HIPAA authorization

Key considerations include properly funding the trust, coordinating beneficiary designations on retirement accounts and life insurance and using discretionary and spendthrift provisions so that what you leave to children is shielded from their future creditors and divorcing spouses.

A revocable trust avoids probate, but, because you retain control, it does not protect your assets from your own creditors during life; a blind trust — which can even be a revocable trust whose name does not identify you — can hold title to real property without revealing your name in public filings.

Protection layer No. 3: Statutory exemptions

State and federal law already shield specified assets without any special structuring, so careful planning means identifying and maximizing the exemptions available where you live.

The homestead exemption protects equity in a primary residence, but the amount varies enormously by state — from a few thousand dollars to a capped figure (California ties its exemption to countywide median home prices), to the effectively unlimited exemptions in Florida and Texas.

Retirement assets receive some of the strongest protection: ERISA-governed plans such as 401(k)s enjoy a federal anti-alienation shield, and IRAs are protected in bankruptcy up to an inflation-adjusted cap.

Most states also exempt some combination of life insurance cash value and annuities, a motor vehicle up to a set value, household goods, tools of the trade, a portion of wages, public benefits such as Social Security and workers' compensation, college savings accounts and a "wildcard" amount — and some protect property held as tenancy by the entirety from the creditors of only one spouse.

A well-known illustration is the O.J. Simpson matter: After a roughly $33.5 million wrongful death judgment for the Goldman and Brown families, little was collected, in part because his NFL pension and other retirement assets were beyond creditors' reach, and he'd moved to Florida, where the homestead exemption is essentially unlimited in value.

Protection layer No. 4: Limited liability entities

Holding investment assets and real estate in limited liability entities such as LLCs and limited partnerships adds a layer of separation and changes the remedies available to a creditor.

Their signature feature is the charging order, which in many states limits a creditor to a lien on distributions rather than the entity's assets — and where the charging order is the exclusive remedy, the creditor cannot foreclose on the interest or force a distribution, improving settlement posture.

The strength of this protection varies by state: Nevada makes the charging order the exclusive remedy even for single-member LLCs, one of the strongest positions in the country, while single-member LLCs are weaker elsewhere (Florida's Olmstead decision is the well-known example, since addressed by statute).

Holding real property in an anonymous LLC also keeps ownership off the public record, though this is privacy, not concealment, and transfers into an entity remain subject to fraudulent transfer law.

Protection layer No. 5: Marital planning

For married couples, careful planning can shift lower-risk assets to the spouse less exposed to liability. The mechanics depend on the marital property regime:

• In community property states, community property is generally reachable for the debts of either spouse, so planning may involve a written transmutation or partition agreement converting it to the separate property of the lower-risk spouse
• In common-law states, titling — and, where available, tenancy by the entirety — controls ownership.

Premarital (prenuptial) and postmarital (postnuptial) agreements are central tools, characterizing assets as one spouse's separate property and defining how future earnings are owned — generally enforceable only with full financial disclosure, independent counsel for each spouse and the absence of duress.

This planning must be proactive: A transfer to a spouse made after a claim arises can be unwound as a fraudulent transfer, and it carries divorce-related risk that should be weighed separately.

Protection layer No. 6: Domestic asset protection trusts

A domestic asset protection trust (DAPT) is a self-settled spendthrift trust that, contrary to the traditional rule, lets you remain a discretionary beneficiary while shielding trust assets from many creditors after a seasoning period.

DAPTs are authorized or permitted in 20 states, which include Alaska, Delaware, Nevada, South Dakota, Tennessee and Wyoming. Nevada is often favored for its lack of a state income tax, short two-year seasoning period and absence of statutory exception creditors.

A DAPT can also enhance privacy, since assets titled in the trust's name are not held in your own name.

Residents of states hostile to self-settled trusts — California, in particular — should plan carefully, often using a third-party trust (for the benefit of a spouse, child or parent) rather than a self-settled DAPT.

Protection layer No. 7: Foreign and hybrid trusts

A fully foreign trust is often considered the highest level of protection because it places assets beyond the easy reach of U.S. courts, but it carries the heaviest U.S. tax compliance from the outset, including foreign trust and foreign account reporting (Forms 3520 and 3520-A and FBAR filings).

The hybrid trust captures the benefit while deferring that cost: It begins as a DAPT and stays domestic until a defined threat arises, at which point the U.S. trustee resigns, and a predesignated foreign trustee takes over.

Because a trust is generally governed by the law of the jurisdiction where the trustee sits, that change shifts the trust into an offshore regime such as the Cook Islands, Nevis or the Cayman Islands — where U.S. judgments are not recognized, registries are private, and, in the Cook Islands, a creditor must prove its case beyond a reasonable doubt with no contingency fees allowed.

Even greater protection comes from also moving the underlying assets offshore, and the heavier reporting is triggered only if the trust actually goes foreign.

One important caution: If you remain within reach of the U.S. courts while your assets sit offshore, a court can order you to repatriate them and hold you in civil contempt — even jailing you until you comply, as happened in FTC v. Affordable Media, LLC and in Re Lawrence.

In both cases, though, the debtor retained control or acted in bad faith; a trust settled in calm weather is harder for a court to reach, but the personal risk of contempt is real.

Critical limitations

The most important rule is timing: Planning must be completed before the events that give rise to the liability.

Every state has a fraudulent transfer statute — the Uniform Fraudulent Transfer Act or its successor, the Uniform Voidable Transactions Act — allowing a creditor to unwind two kinds of transfers:

• Actual fraud, made with intent to hinder, delay or defraud, inferred from "badges of fraud" such as transfers to insiders or after being sued
• Constructive fraud, made without reasonably equivalent value while insolvent, regardless of intent

A voidable transfer can be set aside and clawed back from the transferee.

In asset protection, once a claim is on the horizon, the most effective tools are largely off the table, so implement any plan well in advance and with experienced counsel.

The same principle applies to exemptions, which are powerful but not absolute: In bankruptcy, the homestead exemption is reduced to the extent its value derives from property disposed of within the prior 10 years with intent to defraud a creditor, so last-minute conversions of nonexempt assets into exempt ones can be challenged.

In conclusion

Asset protection works best when it is proactive, layered and tailored to your circumstances.

Beginning with the right operating entity and a sound foundational estate plan, then adding statutory exemptions, limited liability entities, marital planning and — where appropriate — domestic, hybrid or foreign trusts, you can build a financial fortress that stands up to future challenges.

Because the rules vary significantly by state, interact with federal tax and bankruptcy law and turn heavily on timing, this planning should always be done well before any claim arises and with the guidance of qualified counsel.

This article is provided for general informational purposes and does not constitute legal advice. Consult a qualified attorney regarding your specific circumstances.

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• Ins and Outs of Domestic Asset Protection Trusts (DAPTs)

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

They felt their work stress slip away as they settled into their retired life.

Their morning commute turned into coffee on the porch. The only deadline they had was signing up on time for their pickleball league. And their projection of lower taxes at retirement was spot on.

With Social Security and a pension covering their bills, and their savings account covering "extras" like travel and gifts to the grandkids, their first retirement tax bill was much lower than when they were working.

Life was carefree — until they turned 73 and they got their first notice for required minimum distributions (RMDs).

Thankfully, their retirement money had grown. But now, more than $3.2 million in their traditional retirement accounts was subject to RMDs.

They were required to take out more than $120,000 in taxable income each year, and their RMDs were projected to grow even higher in the future.

When they retired, Bob and Sue figured their RMDs would push them into a higher tax bracket, but they didn't think it would be that bad.

But when they got there, they wished they had done something about the RMD problem sooner.

Sadly, Bob and Sue — and far too many others in their 70s — had missed what I call their "golden tax planning window." In their 60s, they could have chosen how much of their retirement income would be taxable, instead of being required to take a minimum taxable amount when they hit RMD age.

They thought they had their taxes set in their 60s because they had a lower tax bill each year than when they were working.

Yet they were unknowingly making a huge tax mistake each year by failing to use tax planning strategies that would help them avoid nasty tax surprises in their 70s.

Here are the three biggest mistakes I believe retirees can make during the golden tax planning window.

Tax Mistake No. 1: Missing the best years for Roth conversions

Bob and Sue were actually enjoying tax season in the early part of retirement. They were in a lower tax bracket than when they were working and they really weren't worried about how much they owed, or whether they were facing a tax penalty.

But then they were faced with their first RMD of more than $120,000.

That caused their Social Security to go from a small amount showing up as taxable to the maximum 85% showing up as taxable income.

And it pushed them from regular Medicare costs to paying extra through the IRMAA (income-related monthly adjustment amount) Medicare surcharges.

Each low tax year of their 60s felt like a win. Instead, it was a missed opportunity to take advantage of their lower tax bracket by making use of Roth conversions.

A Roth conversion allows you to intentionally pay taxes — within the tax bracket you'd like — by choosing the timing and amount of your traditional IRA that shows up on your tax return.

This level of control on the timing of your tax payments is generally the biggest during your golden tax planning window — the time between when you retire and when your RMDs start at 73.

When you retire in your 60s, your taxable income is generally the lowest it's been in decades. This allows you to convert part of your traditional IRA to a Roth IRA so that your future gains can grow tax-free — and won't be subject to required taxable distributions later on as an RMD.

Here is a three-step action framework I created to help retirees in their 60s make the most of their golden window:

Find your lower-income years: Usually these are the gap years between when you stop working and when guaranteed retirement income (pensions, Social Security benefits, RMDs) begins.

Estimate your future RMDs: Using the IRS' formula, calculate what your traditional IRA balances will be at your RMD ages, how large those RMDs will be and how much you'll have to pay in taxes.

Compare your current versus future tax brackets: If your tax rate on a Roth conversion during your golden window is lower than the tax rate on an RMD will potentially be in the future, that's your opportunity to reduce your overall lifetime taxes.

Tax Mistake No. 2: Forgetting the tax component of Social Security

Bob and Sue were like many retirees who view Social Security strictly as an income decision.

They were like many of their friends, who took their Social Security right away because it helped them get enough income to retire.

Other retirees look at the near 8% growth on waiting to file Social Security and they choose to delay their claiming, so they get the most income later on.

Whether you take Social Security early or late, focusing just on the income component may often mean you overlook the tax flexibility and lifetime tax bill that your Social Security decision can create.

Start claiming Social Security too soon, and you might drive up your taxable income for the rest of your retirement. This could potentially slam shut your golden window for Roth conversions, resulting in higher RMDs later on.

On the other hand, if you start claiming maximum benefits at 70, and you haven't already made moves to reduce the taxable impact of your RMDs, you could be facing the same basket of tax problems.

Sure, in a vacuum, letting your Social Security benefits grow by approximately 8% per year is a smart move. But maintaining long-term financial flexibility and reducing your lifetime tax liability are also parts of the Social Security equation.

Before claiming your Social Security benefits, remember to:

Evaluate your claiming age: Calculate how your projected benefits at various ages affect the other parts of your financial plan — especially taxes and your golden window for Roth conversions.

Compare your tax projections: Run scenarios showing how your taxes could look if you claim at 62 versus claiming at full retirement age and later.

Target Roth conversion opportunities: Once you start taking Social Security, your golden window for Roth conversions starts to close. Make the most of these low-tax years before you are on Social Security so that you're taxed less in the future as well.

Tax Mistake No. 3: Leaving the survivor with the 'widow's penalty'

No one wants to imagine a world without them or their spouse in it. But preparing for both of those difficult scenarios is an important part of retirement planning.

Bob and Sue were fortunate to both be living as they hit their RMD age of 73. But at some point, one of them will pass away. The other could be faced with the same RMD amount but with the single taxpayer brackets, instead of married filing jointly brackets.

When you transition from a married couple filing taxes jointly to a single filer, the tax brackets and the standard deduction are cut in half. But RMD percentages often stay relatively the same — and the taxable RMD amount stays relatively the same.

With a similar taxable distribution, and half the room in each bracket, the widow runs through the tax brackets quicker, getting to the higher tax rates quicker.

For a surviving spouse, the taxable income often stays nearly the same, yet their tax bill goes up.

To avoid this "widow's penalty," you can take the opportunity during your golden window to:

Model survivor tax projections: What will each spouse's income and tax brackets look like if they become a single filer at various ages?

Consider Roth conversions while filing jointly: Take advantage of the wider married filing jointly tax brackets while you both are still living. The more money you can convert into a Roth IRA now, the more potential tax-free money a surviving spouse will have in the future.

Evaluate the long-term household tax burden: Too many 90-year-old widows are living off the income and tax decisions their husbands made decades ago. Couples should plan for each survivor's long-term tax scenario before they start claiming Social Security.

Create your tax-smart retirement plan

When you consider not just this year's taxes, but your lifetime tax bill, your 60s might be the most valuable decade of your entire life.

And while each of these three mistakes — missing out on Roth conversions, forgetting the tax aspect of Social Security and leaving the survivor with the widow's penalty — can be costly, I believe the biggest retirement planning mistake you can make in your 60s is not realizing how each decision coordinates with the other.

The key to retirement planning, which I cover in more detail in chapter 5 of my book Retire Today, is to follow a system that helps you make retirement decisions in a coordinated manner.

During the golden window you can often manage your tax strategy for the rest of your retirement by:

Using your lower-income years intentionally: Pay lower taxes today "on purpose" through Roth conversions.

Evaluating Social Security through a tax lens: Don't just claim benefits because you stopped working. And don't delay taking benefits just to maximize them. Consider, as well, using your Social Security plan to help lower your lifetime taxes.

Planning for the survivor tax situation before it happens: Try to avoid the "widow's penalty" by shifting taxable IRAs to the tax-free growth potential of Roth IRAs while you still have the advantage of larger tax brackets on your married filing jointly tax return.

Remember: Once the golden tax planning window closes, it's likely closed for good. Unlike Bob and Sue, use the lower tax brackets you might find in your 60s to lower your tax bill over your lifetime.

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• Are Roth Conversions for Retirees Dead in 2026 Because of the New Tax Law?

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

But it's not just centi-millionaires and billionaires who are generous — average Americans are committed to charitable giving, too. According to a survey from the Associated Press-NORC Center for Public Affairs Research, roughly three-quarters of U.S. adults say their households have donated to a charitable cause.

While "'tis better to give than to receive," it does help that the U.S. tax code rewards generosity. Of course, the structure of the gift is important when considering the tax implications of philanthropy.

Heading into the second half of the year, many people begin to think carefully about their year-end giving strategy. Here are four structures to consider.

Direct giving

The simplest, most straightforward way to give to a charitable organization or cause is direct giving. While most people think philanthropy must involve monetary donations, you can also gift appreciated securities, automobiles, recreational vehicles, boats and other personal items, all of which will also qualify for a tax benefit.

Direct gifts of appreciated securities, for example, may allow donors to avoid recognizing capital gains while potentially receiving a charitable deduction for the full fair market value, subject to applicable IRA rules.

Not only is this the most common form of giving, it can also supplement the other structures outlined below.

Donor-advised funds

Donor-advised funds (DAFs), which effectively separate the tax savings from the charitable-planning component, are becoming increasingly popular.

With a DAF, an advisor opens the fund, and the donor immediately receives an eligible charitable income tax deduction. Meanwhile, the fund continues to grow, giving the donor time to decide how to disburse money.

Beyond the planning benefits, DAFs can provide meaningful tax savings. With the standard deduction for married couples (filing jointly) now at $32,200, most Americans will find that it doesn't make sense to itemize their taxes for a standard charitable gift.

But if you can afford to bunch multiple years of charitable donations into one lump sum, it might help you surpass the standard deduction and realize significant tax savings.

This strategy is particularly helpful in a year when a family has an unexpected windfall, such as a large bonus, and it's looking to offset larger tax liabilities. Another perk of setting up a DAF: You can name the fund, which can allow you to preserve anonymity.

DAFs are also great for teaching children about giving back and money management, as families can decide together how to distribute the funds based on shared values.

Charitable trusts

For families gifting larger dollar amounts, charitable trusts can wrap charitable donations in a larger estate planning framework. There are typically two trust structures which clients choose from when creating a charitable trust.

A charitable remainder trust provides income from investments during the donor's lifetime, with the remaining assets ultimately passing to the charity.

Conversely, if a donor wants to leave assets to their children, a charitable lead trust operates in the opposite fashion — the charity receives payments for a specific period before the remaining assets pass to heirs.

Both options allow families to pair their charitable giving with estate planning to support both personal and philanthropic goals.

Foundations

Individual or family foundations provide donors with more control over named charities and benefactors, but this structure also requires a significant commitment, both financially and timewise.

Donors must be prepared to set up and fund the entire organization, including operational oversight and administrative expenses. Often, foundations can become difficult to sustain over time when the administrator steps away, and the foundation begins looking at how to wind down operations, either via a merger or dissolution.

While the idea of a foundation might sound appealing, we typically advise wealthier clients that they can achieve the same goals through either a donor-advised fund or a charitable trust.

Some parents like the idea of creating a foundation to provide a child with a job and an income stream. But if you're simply looking for income, you can achieve the same goals by setting up a charitable remainder trust with the child as the income beneficiary, or as a grantor charitable lead trust, with children or grandchildren eventually inheriting.

Families sometimes view private foundations as a path to involving younger generations in philanthropy. However, donor-advised funds and charitable trusts can often provide similar opportunities with less administrative complexity.

Philanthropy is personal. Whether you give to express your values, honor a loved one or leave a legacy, the smartest philanthropists make it a win-win, structuring their gifts to increase both the effectiveness of their giving and the value of available tax incentives.

Janney Montgomery Scott LLC, its affiliates, and its employees are not in the business of providing tax, regulatory, accounting or legal advice. Any such taxpayer should seek advice based on the taxpayer's particular circumstances from an independent tax adviser.

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This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

Deducting Losses

Individuals can deduct personal casualty losses that are not reimbursed by insurance to the extent those uninsured losses are attributable to federally declared disasters that affect a wide area.

Your loss is equal to the smaller of the damaged property's adjusted basis or decline in value, less any insurance proceeds you receive or expect to receive.

New legislation passed by Congress has tax easings identical to prior relief for victims of federally declared disasters that occurred in 2020 through July 4, 2025. The law, named the "Doug LaMalfa Federal Disaster Tax Relief Certainty Act," applies to federally declared disasters beginning before 2027, which includes disasters that occurred in the last six months of 2025 and in all of 2026.

The new legislation lets taxpayers deduct their uninsured personal losses, such as damage to a house, car, or personal belongings, from federally declared disasters in excess of a $500 threshold, without regard to the 10%-of-adjusted-gross-income offset that generally applies to disaster loss deductions.

This expanded tax break is available for taxpayers who claim the standard deduction and for those who itemize on Schedule A of Form 1040. The IRS refers to these losses as “qualified disaster losses.”

Computing the amount of loss to your home, car, or belongings can be difficult. Luckily, the IRS has multiple safe harbors that may help with this calculation.

• For example, one method lets a homeowner with casualty losses of $20,000 or less take the lesser of two repair estimates to determine the decrease in the home's value.
• Homeowners can also use the estimated loss in reports prepared by an insurer or a licensed contractor's invoice.
• And there is a safe harbor to help you compute the replacement cost of your personal belongings destroyed in the federally declared disaster.

You can find out more about these safe harbors in IRS Publication 547 and IRS Revenue Procedure 2018-08.

If you suffered a disaster loss last year after July 4, 2025, and you used the old tax rules when preparing your 2025 tax return, you have three years from the filing due date to amend your return by filing Form 1040X to take advantage of the new law.

If you suffer a disaster loss in 2026, you can claim the loss on your 2026 or 2025 federal tax return. That's because individuals can opt to take the loss for the disaster year or the year immediately preceding the disaster.

For example, if a tornado damaged your home or personal belongings this year, you can claim the loss on your 2026 return or your 2025 return, giving you the flexibility to claim it in the year that provides the greatest benefit. If you decide to claim it for 2025 and you have already filed your 2025 return, you can amend it by filing Form 1040-X.

Note that for this purpose, the filing due date for a 2025 amended return is six months after the normal due date for filing your return (without extensions) for the year in which the loss took place. So for 2026 disaster losses, you would need to file an amended 2025 return by October 15, 2027.

IRS Resources

The IRS can be your friend after a disaster. If you lost prior-year tax returns in a hurricane, fire or other disaster, there are multiple ways to get a tax transcript, which is a summary of your key tax information. You can get a paper copy of your full return, but that would take longer.

The IRS also has a dedicated phone line for disaster-related questions: 866-562-5227. This is in addition to the tax filing and tax payment extensions that the IRS regularly provides after a disaster.

Note: This item first appeared in Kiplinger Retirement Report, our popular monthly periodical that covers key concerns of affluent older Americans who are retired or preparing for retirement. Subscribe for retirement advice that's right on the money.

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When you were saving for retirement, you were in the accumulation phase as you built wealth. Once you reach retirement, you move into the distribution phase where you begin spending those savings. This warrants a different approach to your financial decisions — and possibly a different adviser.

Just as doctors have specialties, so do many financial professionals. Those who concentrate on the accumulation phase are adept at helping you grow your money during your working years and finding ways to make the market work for you. Their view is long term — as it should be — because they are looking at your retirement from a distance.

Other financial professionals specialize in the distribution phase of retirement. They understand the strategies that can help you maximize your retirement income, improve tax efficiency and make your savings last. Their primary objective is to help you avoid the costly mistakes that can derail an otherwise well-planned retirement.

1. How much income will you really need?

As someone who works in the distribution phase, one of the first things I discuss with clients is what type of lifestyle they want in retirement.

Do they expect to be on the go, traveling to bucket-list locales or buying that boat they fantasized about for years? Or do they envision being a homebody, reading books, chatting with friends and babysitting the grandchildren?

Their answer helps determine how much income they will need, and income is the heartbeat of retirement. Without a sustainable income strategy, retirement plans can go awry.

That's why it's important to make sure your income aligns with your spending goals. Your sources of income may include Social Security, a pension, IRA withdrawals, dividends and interest, cash and rental property.

For example, if someone expects to spend $10,000 monthly in retirement, their withdrawal strategy should be tailored to that need. I always plan for the worst-case scenario and recommend budgeting for more than you will actually spend.

2. When will you claim Social Security?

One significant decision that affects retirement income is when you claim Social Security benefits. The federal government offers plenty of options but not a lot of guidance on this, so Social Security is another area where a conversation with an adviser who specializes in the distribution phase is helpful.

You can begin drawing Social Security as early as age 62 but at a reduced amount that remains reduced for life. There are also income limits if you plan to keep working.

If you wait until your full retirement age (67 for most people these days), you receive more money and there are no income limits. Finally, you can postpone Social Security up until age 70 and receive a larger monthly benefit.

Each claiming strategy has its own advantages and trade-offs, which is why there is no one-size-fits-all answer. The right decision depends on factors such as your health, life expectancy, income needs, tax situation and whether maximizing survivor benefits for a spouse is an important consideration.

3. Can you lower your tax burden?

Taxes may not have been a concern during your accumulation phase, but they could become one during the distribution phase. There are ways to reduce your tax burden in retirement, but if you're not careful, you could unintentionally increase it.

Roth conversions, for example, allow you to move money from taxable retirement accounts, such as traditional IRAs and 401(k)s, to a Roth account that isn't taxed.

It's better to start using them when you are still a few years away from your required minimum distribution age. You pay taxes when you make the conversion, but then your money grows tax-free and isn't taxed when you withdraw it in retirement.

Be careful about transferring too much money into a Roth in the same year, though. You could bump yourself into a higher tax bracket or even cause an increase in your Medicare premiums if your taxable income grows too high.

With the right planning, you can reduce your taxes, keeping more of your money to pay for your retirement needs and wants.

4. Have you thought about sequence of returns risk?

Sequence of returns risk is a potential shadow looming over many retirements — and it may be one of the most significant differences between the accumulation and distribution phases.

It's also another reason retirees need a financial professional who has distribution-phase experience.

Sequence of returns risk can be summed up this way: Before you enter retirement, the order in which your investment returns happen generally makes no difference.

For example, in a 20-year stretch, you can have weak years followed by strong years, or strong years followed by weak years, and at the end the total in your portfolio will be substantially the same.

This is not the case when you retire and are making withdrawals. If the market performs poorly in the first five to 10 years, that combination of market losses with withdrawals can severely drain your portfolio. By the time a recovery happens, you may not have enough in your accounts to capitalize on it.

On the other hand, if the market is strong in your first years of retirement and you are seeing growth even as you make withdrawals, you will be better poised to withstand a down market later on.

Sequence of returns risk is one reason people might want to revisit their investments as they approach retirement. One strategy is to reduce the level of volatility your portfolio faces.

5. And finally: Will you let yourself have some fun?

Many people are hesitant to spend money in retirement, watching pennies carefully and avoiding luxuries or anything even vaguely ostentatious. Remember what I said about retirement requiring a new mindset? That applies here as well.

People who lived frugally as they saved for retirement sometimes struggle to turn off that economical mental attitude when they reach the distribution phase.

They worry so much about running out of money that they risk missing out on the enjoyment these years they saved for can bring. I encourage them to spend that money, to reap the benefits of those years of frugality and to remember the adage they have heard their entire lives, "You can't take it with you."

Of course, they need clarity, structure and some level of comfort to make such a mindset adjustment. That's where the right financial professional comes into play, helping them achieve that comfort by discussing income plans, expenses and any legacy they want to leave behind for children, grandchildren or favorite causes.

The distribution phase can and should be the fun phase — if you let it.

Ronnie Blair contributed to this article.

The appearances in Kiplinger were obtained through a PR program. The columnist received assistance from a public relations firm in preparing this piece for submission to Kiplinger.com. Kiplinger was not compensated in any way.

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This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

As a CFP® and wealth adviser with more than 20 years of investment experience, I hear some version of that question from nearly every client approaching retirement in a high-tax state, and it's a fair one.

If you've spent decades building your savings, of course you want to keep more of it. States like Florida, Texas, Tennessee and Nevada have long attracted retirees because they skip state income tax entirely. Next to a high-tax state like Connecticut, New Jersey or California, the choice can look obvious.

After helping hundreds of families work through this decision, I've learned it rarely is. The tax savings are usually smaller than people expect, and the true cost of relocating is almost always bigger.

Recent changes in federal tax law have shifted the math even further. Before you list your house, it's worth running the numbers.

Here's what I walk clients through before they make the call.

The tax gap has narrowed

New federal legislation has changed how I evaluate a move for clients. A higher cap on the state and local tax (SALT) deduction, a new bonus deduction for eligible older taxpayers and a permanent federal estate tax exemption of roughly $15 million per individual all reduce the federal tax burden for many retired households.

None of that eliminates state income tax. But it does mean the gap between staying in a high-tax state and relocating to a no-tax one is often smaller than it looked just a few years ago, especially for clients who assumed the old rules still applied.

I've started running this comparison earlier in the planning process for exactly that reason: The answer clients got two or three years ago may not hold up today.

Consider a hypothetical couple pulling $90,000 from IRAs, $45,000 in Social Security and $20,000 in investment income. Depending on their deductions and how that income is structured, moving to a no-tax state might save them several thousand dollars a year, which is real money but rarely the whole story.

The moving costs add up fast

Clients focus on the annual savings and forget the one-time bill: Real estate commissions, closing costs, movers, repairs before listing, furnishing a new home, temporary housing and the cost of rebuilding a healthcare and professional network from scratch.

I've seen these add up to tens of thousands of dollars before anyone accounts for the stress of starting over.

If a move saves $6,000 a year but costs $60,000 to pull off, that's a decade just to break even. I want clients to see that number before they call a Realtor, not after.

You're not just leaving a state

The cost that's hardest to put on a spreadsheet, and the one I push clients hardest on, is distance from family. I've watched clients move south for the weather, then start flying back for birthdays, grandchildren's games and Sunday dinners they didn't expect to miss. The airfare and hotel bills climb, and some eventually move back entirely.

There's also the team you leave behind: Your financial adviser, tax preparer, estate attorney, insurance agent, doctors. You can rebuild that team, but it takes time, and a physician who knows your history or an adviser who's worked with your family for years provides continuity you can't buy on day one in a new state.

I've had clients spend the better part of a year finding a new cardiologist or estate attorney they trusted as much as the one they left, and that search has a cost even if it never shows up on a spreadsheet.

Moving isn't the only lever

Relocating is one way to lower your lifetime tax bill. It's far from the only one.

I regularly help clients cut their tax burden through Roth conversions timed to lower-income years, coordinating retirement account withdrawals, managing required minimum distributions (RMDs), tax-efficient investing, charitable giving and smarter timing of Social Security.

Done well, these strategies can produce meaningful savings while letting clients stay exactly where they are.

When a move actually makes sense

None of this means relocating is a mistake. I have plenty of clients for whom it was the right call: Their family had already scattered, healthcare needs were easy to meet elsewhere, housing costs fit their goals better, or the long-term tax savings genuinely outweighed the cost of getting there.

The difference is that those clients ran the numbers first. Before you decide, ask yourself what you'd actually save after every tax year, what the total moving cost would be, how long it would take to break even, how often you'd travel back for family and whether better tax planning could get you a similar result without packing a single box.

Sometimes those questions confirm that moving is the right move. Just as often, they reveal that staying put is the smarter financial decision — you just hadn't run the full comparison yet.

Retirement isn't about finding the state with the lowest taxes. It's about building a life you won't spend the next decade second-guessing.

When I walk clients through taxes, income, healthcare, housing, estate planning and family togetherness, the answer usually gets a lot clearer, and it isn't always the one they expected when they first asked about moving to Florida.

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This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

I recently read a news story in which a lottery winner who received a jackpot worth more than $167 million had reportedly been arrested four times within 14 months of receiving the money.

Such stories often generate headlines because they reinforce the belief that sudden wealth changes people.

After more than 25 years as a financial planner, I don't believe that's entirely true.

I believe sudden wealth reveals whether someone has developed the habits and discipline necessary to manage it.

While lottery winners capture the headlines, they're among the least common examples of becoming suddenly wealthy.

Sudden wealth typically arrives in four main ways:

• Inheritance
• The sale of a closely held business (liquidity event)
• A significant legal settlement
• On rare occasions, a lottery or other unexpected windfall

Although each situation is unique, they all have one thing in common. Money that was once unavailable suddenly becomes accessible. That transition is both psychological and financial.

People who accumulate wealth over time (commonly decades) become accustomed to seeing money in their accounts and formulating successful financial and emotional discipline.

• They watch retirement accounts fluctuate with the markets without panic
• They realize that consistent contributions, compounding returns and time is what it took to get to a particular level

The goal is to make work optional through having a balance sheet that yields enough to replace your income.

For some, their balance sheets aren't there yet, or maybe they were never working toward financial independence, then one day the inheritance arrives or the settlement comes in. Whatever the source, the money is available, and it is now a spendable currency.

Real-life examples

I've watched families respond to this moment very differently.

Years ago, I worked with a blue-collar worker and father who spent his entire working life doing everything right. He lived modestly, saved consistently and built a meaningful estate because he wanted to leave something for his three children.

After his passing, two of the children requested checks rather than seeking guidance or developing a long-term plan. Within a couple short weeks, their inheritance was spent on a trip to Las Vegas. The third sibling made some responsible decisions, but within a relatively short period, those funds had also been depleted.

It would be easy to conclude they simply made poor choices. I see it differently. They inherited the money. They never had the opportunity to develop the habits that created it.

I've also witnessed the opposite. A client's mother accumulated substantial wealth during her lifetime and explained not only what she hoped her daughter and son-in-law would receive, but what she hoped the wealth would accomplish.

Today, they continue to manage those assets thoughtfully, taking disciplined annual distributions while preserving the portfolio for future generations.

The difference between these two families wasn't as much about the size of the inheritance. It was the mindset, and the steps below can help anyone with mental framing and decision-making related to sudden wealth.

4 steps to staying wealthy after experiencing 'sudden wealth'

1. Do nothing.

When a significant amount of money suddenly appears on your balance sheet, resist the urge to act.

In most situations, I recommend making no major financial decisions for four to six months. Don't purchase a vacation home, quit your job or make large investments simply because the money is available. The assets aren't going anywhere.

What often changes during that time is your perspective.

2. Understand what you have.

Before making any financial commitments, determine the tax consequences and legal obligations associated with your newfound wealth.

Depending on how the assets were received, there might be income taxes, capital gains taxes, inheritance taxes, trust provisions, estate planning implications or other considerations that affect what's truly available.

3. Decide what this wealth is meant to accomplish.

Start with your own household. Does this wealth provide financial independence or greater flexibility?

Once your household is secure, consider whether you want to help family members, support charitable causes or strengthen your community.

Finally, revisit your estate plan so your own legacy reflects your new financial circumstances.

4. Create a sustainable spending plan.

What lump sum amounts are immediately required? Evaluate what impact spending today has on future income.

Risk tolerance and time horizon will influence what amount of annual distribution is sustainable.

Look for articles on strategies and options on calculating a safe withdrawal rate and methodologies of creating a paycheck from your portfolio.

The real measure of success

After more than two decades helping families navigate life's biggest financial transitions, I've come to believe that sudden wealth isn't really about money. It's about stewardship.

Money can be transferred in a single day. The judgment required to preserve it often takes time to develop.

Whether your wealth arrives through an inheritance, the sale of a business, a settlement or an unexpected windfall, the greatest responsibility isn't deciding what to buy. It's properly preparing before starting to deploy your newfound resources.

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This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

For retirees with modest savings and no pension, leaving traditional accounts untouched until it's time to start RMDs can work well. But retirees with pensions face an entirely different tax reality.

In a recent article, Joe F. Schmitz, a CFP® and CEO of Peak Retirement Planning, explains why Roth conversions are so important for retirees with pensions. Schmitz is a regular contributor to Kiplinger's Adviser Intel program, a curated network of trusted financial professionals who share expert insights on wealth building and preservation.

Check out these five questions to test your knowledge about Roth conversions, pensions and taxes.

Good luck! (Don't worry if you miss an answer: You can follow the links below the quiz to brush up on your knowledge.)

Related Content From Adviser Intel

• Why a Roth Conversion Is Wrong for Most People But Often Right for Pension Holders
• When Is a Roth Conversion a Bad Idea? 6 Situations Retirees Should Consider Carefully
• If You're Converting to a Roth IRA, Don't Do It Like This
• 5 Reasons Roth Conversions and Pensions Work Well Together
• 7 Times to Dip Into Your Roth IRA if You Have a Pension (and When to Leave It Alone)

While many of us look at inheritance as something purely for the wealthy, 66% of Americans either expect to or have already received an inheritance from their parents, according to a survey from Choice Mutual.

Receiving any kind of inheritance can be overwhelming, and being unprepared can lead to losing much of that money to poor financial decisions or taxes. If you think you may be a part of the Great Wealth Transfer, either as a provider or a beneficiary, here's how to avoid those pitfalls.

1. Start conversations now

One of the biggest issues with the trillions of dollars expected to be passed down during the Great Wealth Transfer isn't the money itself, but beneficiaries being unprepared to manage the assets they receive.

Although it may be uncomfortable, discussing the plan for these ahead of time helps family members know exactly how much they will receive and what taxes they might expect.

If beneficiaries don't have a chance to discuss the inheritance before their loved one passes away, they may end up making important decisions while they're grieving.

Bringing the topic up well beforehand will give them time to plan before their emotions take over, helping reduce the likelihood of poor decisions or impulsive spending.

Some of the most successful inheritances I have seen are among families who prioritize these conversations.

2. Avoid spending sprees

If you suddenly receive a windfall, it can be tempting to spend money on the things you've always dreamed of. You may want to buy a bigger house, a more expensive car or finally take that extravagant vacation. But going on a shopping spree can lead to disaster.

Your dream items will come with additional costs, such as taxes, insurance and maintenance, and those will stick around long after the initial purchase.

You should look at your inheritance as a long-term investment, not an excuse for a one-time splurge. If you have a good plan for the assets, they should help provide financial security for years.

Using the money to pay down any debts you have or starting an emergency fund is much more valuable than spending it on an asset that will eventually lose its value.

3. Consider tax implications

While the tax implications that come with an inheritance will depend on what you inherit and where you live, receiving an inheritance can trigger estate, capital gains, inheritance or income taxes.

For example, while many people may believe they will owe federal income taxes on any inherited money they receive, that may not be the case. Cash that is passed down from a person who has passed away is not considered taxable income for the beneficiary.

If you are gifted a property as an inheritance, receiving it is not taxed in most cases. However, depending on how you plan to use it, you need to consider a few things:

• Ongoing property taxes, insurance and maintenance costs
• Capital gains tax if the property value increases significantly before it is sold
• How you will use the property (personal, investment, rental) determines which tax deductions you can take

Most people don't have a full understanding of which processes will be triggered when estates are handed down. It's important to work with a financial professional before signing anything.

4. Build a strong team

Being part of the Great Wealth Transfer may be life-changing, but it could also be overwhelming. You may be faced with financial decisions you've never had to navigate before.

Having a strong team of professionals, such as a trusted financial adviser, tax professional or estate attorney, can help everyone involved avoid costly mistakes and create strategies that align with their goals.

A large inheritance is a life-changing event, and surrounding yourself with the right people can be the difference between enjoying it and watching it disappear.

Related Content

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This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

Some experts argue that everyone should convert their traditional IRA to a Roth. Others insist it's a costly mistake. The truth is far more nuanced.

As a CERTIFIED FINANCIAL PLANNER® and CEO of Peak Retirement Planning, I can tell you that for most Americans, a Roth conversion probably isn't necessary. However, retirees with pensions often live by a different set of tax rules (I wrote a book for those with pensions, The 2% Club, that you can request for free here.)

Their guaranteed income can create tax challenges that don't apply to the average retiree, making Roth conversions worth a much closer look.

Before deciding whether a Roth conversion belongs in your retirement strategy, it's important to understand the factors that actually determine whether the math makes sense. You can learn more about this in my YouTube video:

The only question that really matters

Many investors focus on whether they can afford to pay the taxes on a Roth conversion today. While that's certainly part of the equation, it isn't the deciding factor. The more important question is this: Will your total tax rate be lower today than it will be later?

That "total tax rate" extends beyond your federal income tax bracket. A Roth conversion can also influence:

• State income taxes
• Medicare IRMAA surcharges
• Social Security taxation
• Capital gains taxes
• Estate planning outcomes

When viewed together, your true tax cost could look very different than your federal bracket alone suggests.

Why most people don't need a Roth conversion

For many retirees, taxable income will naturally decline when they stop working. Someone who retires with modest retirement savings, no pension and Social Security as their primary income source usually remains in relatively low tax brackets throughout retirement.

In those situations, paying taxes today through a Roth conversion could result in paying more tax than necessary.

Roth conversions are frequently overpromoted, as they can be powerful, but they aren't universally beneficial.

Pension holders face a different tax reality

Rather than seeing their income in retirement decline, retirees with pensions often have multiple sources of guaranteed retirement income arriving simultaneously:

• Pension payments
• Social Security benefits
• Required minimum distributions (RMDs) from traditional retirement accounts

Each source adds taxable income, and together they can keep retirees in higher tax brackets for decades.

For households that have accumulated substantial balances in tax-deferred accounts, such as 401(k)s, IRAs, TSPs or 403(b)s, RMDs can make the situation even more challenging as they grow over time.

That's why many pension recipients find themselves paying as much, if not more, in taxes during retirement than they did while working.

Today's tax environment creates planning opportunities

Another consideration is today's tax landscape: Current tax laws provide relatively favorable tax rates and expanded standard deductions compared with historical norms.

While no one can predict future legislation, many economists expect government revenue needs to increase over time because of rising national debt and the long-term funding challenges facing programs such as Medicare and Social Security.

If future tax rates eventually rise, converting portions of traditional retirement accounts while rates remain relatively low could produce meaningful lifetime tax savings. The objective isn't simply to pay taxes sooner, but to pay them when they're expected to be lower than they otherwise would be.

Don't look only at your tax bracket

One of the biggest mistakes retirees make is evaluating Roth conversions using only the federal tax tables. Your retirement tax picture is much more interconnected.

Increasing taxable income through a Roth conversion could:

• Cause more of your Social Security benefits to become taxable
• Push you into a higher Medicare IRMAA bracket, increasing Medicare Part B and Part D premiums
• Raise your capital gains tax rate
• Increase state income taxes

This is why comprehensive tax planning frequently produces better results than simply converting up to the top of a particular tax bracket.

The widow's penalty can create future tax problems

Married couples regularly overlook one significant future risk: When one spouse dies, the surviving spouse generally transitions from married filing jointly to single tax status. At that time:

• Tax brackets and IRMAA thresholds shrink
• The standard deduction lowers
• One Social Security benefit typically disappears
• The surviving spouse often continues receiving pension income and RMDs

The result can be substantially higher taxes for the surviving spouse. Completing Roth conversions while both spouses are alive allows couples to take advantage of the wider married tax brackets before this transition occurs.

Your children's tax situations matter, too

If leaving money to your children is one of your goals, their future tax bracket deserves consideration as well.

Under current law, most non-spouse beneficiaries must empty inherited retirement accounts within 10 years. A child inheriting a large traditional IRA might be required to recognize hundreds of thousands of dollars of taxable income during that period, potentially pushing them into significantly higher tax brackets.

On the other hand, if your children are likely to remain in relatively low tax brackets, leaving them traditional retirement assets instead of paying higher taxes through Roth conversions today could prove more efficient.

Estate planning isn't one-size-fits-all, and understanding your heirs' financial circumstances is an important part of the analysis.

Tax diversification provides flexibility

Many retirees have accumulated the vast majority of their wealth inside tax-deferred retirement accounts, and that creates a challenge. Every dollar withdrawn becomes taxable income, leaving retirees with limited flexibility when tax laws or personal circumstances change.

Building assets across multiple account types — including traditional retirement accounts, Roth accounts and taxable brokerage accounts — creates what many planners call tax diversification.

Having multiple "tax buckets" allows retirees to decide where retirement income comes from each year, making it easier to adapt to changing tax laws, Medicare thresholds or unexpected expenses.

Where you live can affect the timing

State taxes can also influence whether a Roth conversion makes sense. Someone planning to relocate from a high-income-tax state to one with no state income tax could benefit from delaying Roth conversions until after the move.

Conversely, someone expecting to move into a higher-tax state might decide to accelerate conversions before relocating.

State taxes generally receive less attention in planning than federal taxes, but they can meaningfully affect lifetime tax costs.

A common Roth conversion myth

One objection frequently raised against Roth conversions is that paying taxes today means losing years of investment growth. That argument overlooks an important concept: Taxes on a traditional IRA already represent a future liability.

Paying that liability earlier doesn't necessarily reduce long-term wealth if tax rates remain unchanged — it simply satisfies the government's share sooner.

Where Roth conversions can create additional value is by reducing future RMDs, potentially lowering Medicare premiums, limiting Social Security taxation, providing greater withdrawal flexibility and protecting against higher future tax rates.

The comparison isn't simply about investment growth — it's about maximizing what you keep after taxes over the course of retirement.

The bottom line

Roth conversions aren't appropriate for everyone. In fact, many retirees with modest savings and no pensions might be better off leaving their traditional retirement accounts untouched.

Pension holders, however, ordinarily face a different reality. Guaranteed income, RMDs and long retirement horizons can create tax burdens that make proactive planning far more valuable.

Rather than asking whether Roth conversions are "good" or "bad," ask a better question: Will paying taxes today likely cost less than paying them later?

For retirees with pensions and substantial retirement savings, the answer is often worth exploring through a comprehensive, long-term tax strategy that considers not only income taxes but also Medicare premiums, Social Security taxation, estate planning and future tax flexibility.

Because when it comes to retirement, it's not just about how much you've saved — it's about how much you'll ultimately keep.

Related Content

• Do You Know Why a Roth Conversion Isn't Right for Everybody? Test Your Knowledge With This Quiz
• 13 Things to Know About How Your Pension Affects Your Taxes in Retirement
• Many Retirees With a Pension and $1 Million-Plus Do These 7 Things (and Regret It Later)
• 10 Retirement Fixes You Can Implement Today to Strengthen Your Financial Plan
• When Is a Roth Conversion a Bad Idea? 6 Situations Retirees Should Consider Carefully

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.