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TAX STRATEGIES FOR RETIREMENT ACCOUNTS

Updated: 4 days ago








TAX STRATEGIES FOR RETIREMENT ACCOUNTS


Leveraging Tax-Advantaged Accounts

The best ways to leverage tax-advantaged accounts are to start your contributions as early as possible, contribute as much as possible, and maintain an allocation that aligns with your goals while providing a comfortable level of risk for you.


Qualified Charitable Distributions

If you are charitably inclined and planning to take distributions from your IRA, consider a qualified charitable distribution (QCD) directly from your IRA to a qualified charity. The distribution can satisfy part or all of your required minimum distribution and is not subject to taxation. You must be 70½ or older to make a QCD, and the distribution amount is limited to $105,000 (2024). You can even elect to use your QCD (one time only) to fund a charitable remainder unitrust, charitable remainder annuity trust, or charitable gift annuity.1


Qualified Longevity Annuity Contract

You can also purchase a qualified longevity annuity contract (QLAC) with some of your retirement funds.2 The QLAC was enacted under the Secure 2.0 Act. You won’t need to take distributions from that annuity contract until you turn 85. A QLAC could help you defer some of your required minimum distributions and tax bills from those distributions.


Net Unrealized Appreciation

If you own a large position of employer stock in a retirement account, consider the net unrealized appreciation rule. The net unrealized appreciation rule allows you to pay ordinary income taxes on the cost basis of your employer stock when it is distributed to a brokerage account, and then long-term capital gains on the net unrealized appreciation.3 This strategy could potentially offer tax savings compared to paying ordinary income taxes on future distributions. It’s advisable to run the numbers with your accountant or advisor to determine if using the net unrealized appreciation strategy is the best approach for you.


Backdoor and Mega Backdoor Roth IRA

Other strategies to consider include advanced planning techniques such as the backdoor Roth IRA4 or mega backdoor Roth IRA.5 


Backdoor Roth IRA

The backdoor Roth IRA strategy, popular with high earners, is a way to contribute to a Roth IRA if you can’t normally contribute to one because of income limits. The strategy starts with a contribution to a nondeductible IRA and is completed with a Roth conversion. Make sure you are prepared to pay any potential taxes on the conversion and familiarize yourself with the pro-rata rule before you make a Roth conversion.4


Mega Backdoor Roth IRA

The mega backdoor Roth IRA is another strategy you can use to potentially save more in a Roth IRA or Roth 401(k). The mega backdoor Roth IRA starts with a contribution to an after-tax 401(k). After the contribution is made, you can then convert that contribution to a Roth IRA or Roth 401(k). Your retirement plan must have the parameters in place to allow for the mega backdoor strategy. Make sure to discuss the tax impact of the conversion with a tax professional.5


Required Minimum Distributions

While not a tax strategy, it’s important to be mindful of the distributions required in your tax-deferred accounts.6 The rules can be complex, but the key is to avoid penalties for failing to take a required distribution. There are no required minimum distributions in Roth IRAs or Roth 401(k) accounts.


Let’s Talk

Find out how Prestiq Wealth can help you create a comprehensive financial plan based on their book, 5 Steps To Retirement Planning.





All advisory services are offered through Savvy Advisors, Inc. (“Savvy Advisors”), an investment advisor registered with the Securities and Exchange Commission (“SEC”).


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