A resource from The Wealth Group
The 10 Most Commonly Overlooked Tax Strategies
How high earners and growing families lower taxes not just this year, but across the next 10 to 60 years.
Tax Planning Strategies Most People Miss
Search “how to save money on taxes” and thousands of articles about deductions appear. Far less is written about long-range tax strategy, and the two are not the same thing.
A deduction trims this year’s bill. A strategy reshapes what you owe over a lifetime. We see the same overlooked opportunities again and again in our work with clients across Minnesota, Tennessee, and the rest of the country. Here are ten of them.
First, what a deduction actually is
You pay out $10,000 to receive a $3,000 rebate. You are still out $7,000 net. You may have saved $3,000 in tax, but you spent $10,000 to get it. A deduction usually targets the current tax year. The strategies below look 10, 20, even 60 years ahead.
WHAT'S INSIDE
Inadequate Roth account funding
Search “how to save money on taxes” and thousands of articles about deductions appear. Far less is written about long-range tax strategy, and the two are not the same thing.
A deduction trims this year’s bill. A strategy reshapes what you owe over a lifetime. We see the same overlooked opportunities again and again in our work with clients across Minnesota, Tennessee, and the rest of the country. Here are ten of them.
| Roth | Pre-Tax | |
|---|---|---|
| Tax deduction today | No | Yes |
| Growth | Tax-free | Tax-deferred |
| Withdrawals | Tax-free | Taxed as income |
Roth: Roth IRA, Roth 401(k), Roth 403(b). Pre-tax: Traditional IRA, pre-tax 401(k), pre-tax 403(b).
Optimizing charitable giving
Most people give to charity straight from a bank account by cash, check, or debit. If you hold a taxable brokerage account, there is a better way.
You can donate highly appreciated securities directly to the charity’s investment account. You still get the full deduction, you skip the capital gains tax on that holding, and the charity receives full value. Because charities pay no tax, they can sell the holding with no capital gains and put the proceeds to work.
Then you backfill. This part is crucial. Move cash from your bank account into your brokerage and buy the same position back. If you gave $10,000 of stock, you transfer $10,000 in and repurchase. You have reset your cost basis and kept the deduction.
Two more giving strategies worth a conversation: a Donor Advised Fund, which we can set up for you, and “lumping” several years of giving into one year to clear the high standard deduction.
Building non-retirement investment accounts
Many people struggle to invest beyond 401(k)s and IRAs. Those accounts are great. The next level is a taxable brokerage account.
Our most successful clients tend to hold a meaningful balance in taxable accounts. The way to start is simply to start. Open a joint account with your spouse and invest $500 or $1,000 a month. If $50 is what you can do, do $50.
The most common path to a large taxable account runs through your mortgage. Pay off the house and become fully debt-free by your late 40s or early 50s, and you free up a long runway. If your principal and interest had been $3,500 a month, that $3,500 can flow into a brokerage account for 10 or 15 working years. That builds real wealth, and it gives you flexible, tax-efficient money to draw on in retirement.
Holding tax-inefficient funds in taxable accounts
As your taxable account grows, hold tax-efficient index funds inside it. Actively managed mutual funds can throw off unwanted year-end capital gain distributions you did not ask for.
Even among index funds, which we favor, tax efficiency varies. It depends on how much income the underlying holdings pay out and how much trading happens inside the fund each year.
Treating every deduction as a win
The goal is to keep as much of your money as possible. Sometimes people buy a depreciating asset just to lower a tax bill. A business owner buys an expensive truck for the write-off. A farmer buys equipment to save on taxes.
Buy an $80,000 truck to save $36,000 in tax, and you are still out $44,000 net of the savings. If you genuinely needed the truck, fine. But consider the alternative. Pay the tax, then invest the after-tax income in a brokerage account, and that capital keeps working for you for decades.
Tax-loss harvesting during down markets
Since the end of World War II, bear markets, defined as a decline of 20 percent or more, have arrived roughly once every six years. When markets fall meaningfully, our team reviews every client’s taxable account for losses worth harvesting. Here is how it works:
- Sell holding XYZ to realize a capital loss, say $25,000.
- Immediately reinvest the proceeds into holding ABC, so you never leave the market.
- Use the $25,000 loss to offset capital gains that year. Carry any unused loss forward indefinitely, deduct up to $3,000 a year against ordinary income, and apply the rest against future gains.
This disciplined approach has saved our clients hundreds of thousands of tax dollars over the years.
Roth conversions
Converting pre-tax dollars into tax-free Roth dollars makes sense at specific stages of life. The aim is to fill up the lowest federal brackets, the 10 and 12 percent rates, every year you can.
- A client who retires a few years before claiming Social Security and has taxable savings to live on in the meantime. We have helped clients convert several hundred thousand dollars from IRAs to Roth IRAs in their late 50s and early 60s.
- A sales professional with a down year, or a gap between jobs, whose lower income opens a low-rate conversion window.
- A year with a large charitable gift, where the deduction offsets the conversion income.
Insufficient withholding on bonuses and stock vests
For tax purposes, all earned income lands in one pot of ordinary income. Your salary, a bonus, and an RSU vest are taxed the same way.
Payroll treats them differently, though. Many companies withhold a flat 22 percent federal rate on bonuses and RSU vesting. For a lot of our clients, 22 percent is not enough, and they get a surprise bill at filing. Work with your payroll or benefits contact to raise the withholding on sizable bonuses and vests.
Missing the backdoor Roth IRA and the mega backdoor Roth
The backdoor Roth IRA is a legal way around the Roth income cap. It works cleanly for people who do not already hold a Traditional IRA. The mechanics:
- Make a non-deductible contribution up to the annual IRA contribution limit.
- Immediately convert that amount into a Roth IRA.
- Report it as a tax-free conversion, since you took no deduction on the contribution.
The mega backdoor Roth is a larger version available through some workplace plans. Ask us whether your plan supports it.
Building a large HSA across your working career
The Health Savings Account is the only vehicle that offers all three of these at once:
- A deduction on contributions.
- Tax-free growth.
- Tax-free withdrawals for qualified medical expenses.
Most HSA plans offer real investment options. You usually keep a small cash balance, around $2,000, and invest the rest. The list of qualified expenses is long, so spending it down later is not hard. In retirement, even Medicare premiums qualify. You can also reimburse yourself years later. Pay $7,000 out of pocket for a surgery at 50, keep the receipt, and reimburse yourself decades down the road.
| Account type | Contributions | Growth | Qualified withdrawals |
|---|---|---|---|
| HSA | Tax-deductible | Tax-free | Tax-free |
| Traditional retirement | Tax-deductible | Tax-deferred | Taxed as income |
| Roth retirement | After-tax | Tax-free | Tax-free |
| 529 plan | After-tax | Tax-free | Tax-free (education) |
| Non-qualified annuity | After-tax | Tax-deferred | Gains taxed as income |
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Frequently Asked Questions
What is the difference between a tax deduction and a tax strategy?
A deduction lowers your taxable income for the current year. A strategy positions your accounts and income to reduce taxes across many years, often decades. Both have a place, but only one compounds.
Can high-income earners contribute to a Roth?
A direct Roth IRA contribution phases out at higher incomes. High earners can often still fund Roth dollars through a Roth 401(k) or 403(b), a backdoor Roth IRA, or a mega backdoor Roth inside certain workplace plans.
Is a tax write-off always worth it?
No. Spending money to claim a deduction still leaves you out the difference. A $10,000 expense that saves $3,000 in tax costs you $7,000 net. The deduction is only worth it if you needed the expense anyway.
What is a backdoor Roth IRA?
It is a legal sequence where you make a non-deductible Traditional IRA contribution and immediately convert it to a Roth. It lets people above the income cap still get money into a Roth. It works best when you hold no other Traditional IRA balances.
What is the triple tax advantage of an HSA?
Contributions are deductible, growth is tax-free, and withdrawals for qualified medical expenses are tax-free. No other account offers all three.
