Pay Taxes Now
So why aren’t clients doing this? Because the first step to saving the most in taxes is paying taxes, which may sound counterintuitive. But the secret to saving taxes long term comes down to three words: Pay Taxes Now. Using this principle, advisors can help clients to be in control of their tax rates, rather than leaving it to the control of government.

I get it. No one wants to pay taxes upfront, but that is a short-sighted view, especially right now when tax rates are at an all-time low. But these low rates are likely temporary.

After 2025, tax rates are set to increase unless there is legislation to change that. Given our massive debt and deficit levels, that seems unlikely. To put it another way, it’s highly unlikely that today’s tax rates will go even lower.

At some point, tax rates will have to increase to keep our nation solvent. When that happens, the people most likely to get stuck paying the bill will be those with the largest IRAs and 401(k)s, putting them directly in the IRS cross hairs. These tax-deferred accounts are at high risk of being lost to future taxes, leaving clients with less when they’ll need it most – in retirement. Clients need to understand that their IRA is an IOU to the IRS.

Identify Clients Most at Risk
Advisors must show clients the huge tax savings that can be gained by creating a plan to whittle down their large IRA balances, beginning now while tax rates are still at historic lows. Focus on clients with the largest exposure in their IRAs and other tax-deferred retirement savings.

Obviously, every client’s situation is different, but there are tax strategies that should be addressed now for just about every client. If this is not addressed, their retirement accounts will continue to grow future tax bills that may turn out to be much higher.

Here are some strategies that can help reduce future tax bills. Yes, this means paying some tax now, but if the funds can be withdrawn at low rates, the clients and their families will reap tax savings for years or even decades.

Pre-RMD Strategy
We are all so used to talking with clients about taking RMDs (required minimum distributions) that we focus only on the “minimum” when advising clients. That “minimum” mindset must change, and quickly before the taxes, like termites, eat away at the foundation of these accounts.

Clients like taking only the RMD because they do not want to pay any more tax than is required. But again, that is a short-sighted approach that will cost them and their beneficiaries significantly more in the long run, especially after the SECURE Act eliminated the stretch IRA for most beneficiaries. That will result in a bunching of IRA withdrawals into a shorter window, which in turn will increase the overall tax bill.

One strategy is to do pre-RMDs by taking IRA withdrawals voluntarily before they are required (at age 72). Work with clients and their CPAs or tax accountants to project clients’ tax brackets for the next few years. Even if clients are not yet subject to RMDs, see how much can be withdrawn over time to use up lower tax brackets. Yes, this means paying more in tax now than is required, but advisors need to show how the math results in long-term tax savings.