Back in 1974, newly installed President Gerald Ford unveiled his plan to beat inflation with his slogan (and lapel pin): “WIN” for Whip Inflation Now! The WIN campaign was later seen as a huge public relations failure because it did nothing to address the inflation problem.

And now the problem’s back.

Inflation, inflation, inflation is all we hear about. Yes, it’s here, and it means products and services cost more. People need more money to pay for these things. Where will it come from? There are two obvious solutions; either earn more or spend less. But neither one will produce the additional cash needed to keep pace with inflation.

One less obvious solution you don’t hear anyone talk about is taxes. Smart tax planning can produce a windfall of cash for life and even beyond for beneficiaries. Yes, tax planning is not as much fun as holiday shopping deals, but the savings can be massive and last much longer.

Tax planning can save clients thousands, tens or hundreds of thousands, or even millions in some cases for clients who hold most of their wealth in tax-deferred retirement accounts.

Clients with substantial funds in IRAs and 401(k)s will be subject to growing tax erosion where increasing balances may be subject to higher taxes as these funds are withdrawn.

Advisors need to remind clients that these retirement accounts are tax-deferred. These funds have not yet been taxed, but they will be, and likely at higher rates. The time to act is now.

The fundamental principle of all good tax planning is really very simple, but often not acted on enough: Always pay taxes at the lowest rates. That may sound simple, and it is simple. Think of tax rates like a stock. You want to buy low and sell high. It’s the same thing with tax planning. Pay taxes when rates are low.

The old-time comedian Henny Youngman said it best: “I’m putting all my money in taxes. The only thing sure to go up!” He was right!

Remember that tax-deferred retirement balances will be taxed at some point, so the only question is “how much will it cost?” That’s where tax planning comes in.

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.

Talk with clients about a long-term, multi-year strategy to reduce IRA balances by leveraging low tax brackets each year with voluntary IRA distributions, paying taxes when rates will be lower.

Roth Conversion Advantage
Voluntary (pre-RMD) withdrawals can be converted to Roth IRAs, allowing the funds to grow income tax free for the rest of the client’s life, and 10 years after that for their beneficiaries. Roth IRA owners are not subject to lifetime RMDs.

Once clients reach their RMD age at 72, Roth conversions become more expensive since RMDs cannot be converted to Roth IRAs. The first dollars withdrawn from the IRA in an RMD year will be deemed to satisfy the RMD. Once that amount is met, part or all the remaining IRA balance can be converted for that year. But then next year, the same RMD issue returns, unless the entire IRA was converted in the prior year. While RMDs cannot be converted, those RMD funds can be used to pay the tax on converting the remaining IRA funds to Roth IRAs.

The more IRA funds that are converted to Roth IRAs, the less future IRA RMDs will be. That can provide a lifetime of tax savings, both for clients and their beneficiaries, even after paying tax upfront. It’s all about the tax rates, now versus potentially higher rates later.

Life Insurance
For the right client, IRA withdrawals can be taken, again at low rates, and the net after-tax funds can be used to purchase life insurance (permanent, cash value life insurance – not term). The cash value can grow tax free and be available if clients need to tap those funds in retirement.

Like the Roth conversion, using voluntary IRA withdrawals for life insurance allows the funds to be immediately transferred into income tax free vehicles. This serves as a bulwark against the risk that future higher taxes will decimate tax-deferred retirement savings that are left to grow. In fact, when tax rates increase, anything tax free becomes immediately more valuable. Tax-free funds are not vulnerable to future tax risk.

QCDs (Qualified Charitable Distributions)
IRAs are the best assets to give to charity since they are loaded with taxes. Most clients who normally give to charity are no longer getting tax benefits for these gifts because they take the higher standard deduction rather than itemizing their deductions.

QCDs are direct transfers from IRAs to qualified charities, limited to $100,000 per year, per person (not per IRA). Following the same theme of reducing IRA balances when tax rates are low, a QCD allows IRA funds to be distributed at a zero percent tax rate. Plus, QCDs can satisfy an RMD. Not all clients qualify though, so identify those who do and have this conversation with them. QCDs are only available to IRA owners or beneficiaries who are age 70 ½ or older. They are not allowed from company plans like 401(k)s.

The QCD is an exclusion from income, which is a better tax deal than an itemized deduction because the exclusion reduces adjusted gross income. For clients who qualify for QCDs, have them do their giving from their IRAs. They’ll not only receive a tax benefit for their gift, but they will also be reducing their IRA balance at a zero-tax cost.

IRA Estate Planning - Leaving IRAs to Charity
While QCDs from IRAs are good for lifetime giving, IRAs are also the best assets to leave to charity at death for those who are charitably inclined. IRAs can be left directly to a charity. The estate will receive a charitable tax deduction reducing estate tax exposure.

When more post-death control over the inherited IRA is desired, the IRA can be left to a CRT (charitable remainder trust). At death, the full amount of the IRA passes to the trust with no tax erosion, providing yearly payments to the CRT beneficiaries, usually children. Then, after a term of years or when the CRT income beneficiary dies, the remaining CRT funds pass to the charity.

However, this is an example of charitable giving that should not be done solely for tax reasons. There needs to be a charitable intent. With the CRT strategy, the funds eventually go to charity, not to families. Unless the beneficiary payouts lasts for decades, this would not provide a tax advantage. In addition, to prevent a loss to the beneficiary’s family in the event of an early death, the CRT should be coupled with a life insurance policy on the beneficiary to provide for that family.

Update IRA Estate Plans
Year-end is a good time to review estate plans. For those clients who wish to give to charity, have them update their estate plans to fund charitable bequests with IRAs instead of using other non-IRA funds. This will leave family beneficiaries with more non-IRA funds where they can receive a step-up in basis and less in taxable IRA money. Beneficiaries will end up receiving more by paying less to the government.

Whip Inflation Now!
Comedian Henny Youngman also famously said: “I’ve got all the money I'll ever need, if I die by four o'clock.” Clients who ignore these growing IRA tax bills may end up in the same boat. Be a proactive advisor and help clients really whip inflation now by saving lots of money that would otherwise be going to Uncle Sam.

Ed Slott, CPA, is a recognized retirement tax expert and author of many retirement focused books. For more information on Ed Slott, Ed Slott’s 2-Day IRA Workshop and Ed Slott’s Elite IRA Advisor Group, please visit www.IRAhelp.com.