Taxes are one of the few guarantees in life, but overpaying them doesn’t have to be. Smart planning can add value in ways performance alone never will. Today we’ll look at a few practical takeaways you can apply to your own planning.
Qualified Charitable Distributions (QCDs): Giving Smarter After 70½
For charitably inclined investors, Qualified Charitable Distributions can be a game‑changer. A QCD allows you to give directly from your IRA to a qualified 501(c)(3) charity starting at age 70½.
Why does this matter?
Because those dollars come out pre‑tax. Once required minimum distributions (RMDs) kick in, QCDs can satisfy the RMD requirement without showing up as taxable income. That’s a win for you and the charity.
Many people continue donating from their checking account simply out of habit. Often, the better move is just changing which account the gift comes from.
Donor Advised Funds (DAFs): Flexibility Meets Tax Planning
Donor Advised Funds are especially powerful in high‑income years—think business exits, large bonuses, or deferred compensation payouts.
With a DAF, you can:
- Take a large tax deduction in one year
- Invest the funds inside the DAF
- Distribute grants to charities over time
This approach gives you flexibility, intentionality, and potentially more dollars to give in the long run thanks to investment growth. It’s philanthropy with a strategy behind it.
Tax‑Loss Harvesting: Finding Opportunity in Down Markets
Market pullbacks aren’t fun, but they can be useful.
Tax‑loss harvesting involves selling investments at a loss (while avoiding wash‑sale rules) and using those losses to offset gains or even ordinary income over time.
Some key benefits:
- Losses can offset current or future capital gains
- Up to $3,000 per year can offset ordinary income
- Unused losses carry forward indefinitely
Done consistently, this strategy can help “future‑proof” a portfolio, giving you flexibility when you need liquidity later without a surprise tax bill.
Backdoor Roth IRAs: Still a Powerful Tool for High Earners
High earners often feel locked out of Roth IRAs due to income limits—but that’s where the backdoor Roth comes in.
The basic idea:
- Contribute to a non‑deductible traditional IRA
- Convert it shortly after to a Roth IRA
When done correctly, this can move money into a tax‑free bucket with little or no tax impact. The catch? Existing traditional IRAs can complicate things, so coordination with a CPA or advisor is key.
As of now, this strategy remains very much alive—and extremely valuable.
529 Plans: More Flexible Than Ever
529 plans have evolved a lot over the years. They’re no longer just for traditional college paths.
Today, they can be used for:
- K‑12 private education (within limits)
- Trade and vocational schools
- Potential Roth IRA conversions for beneficiaries (under certain rules)
In states like Arizona, contributors may also receive a state tax deduction—even if they’re not the parent. That opens the door for family members to help out while getting a tax benefit themselves.
Tax‑Efficient Income: It’s Not Just About the Yield
When it comes to fixed income in taxable accounts, Dylan and Shane stress one thing: after‑tax return is what matters.
Municipal bonds, especially when structured thoughtfully, can provide tax‑free interest that outperforms higher‑yielding taxable bonds once taxes are factored in. The right choice depends on your tax bracket, state of residence, and long‑term plan.
This is where tax‑equivalent yield analysis becomes critical, and where professional guidance really adds value.
A few key considerations:
- Many tax strategies are about repositioning, not reinventing
- Timing and coordination matter just as much as the strategy itself
- Tax planning is a team sport: advisor, CPA, and attorney working together
- “Tax alpha” can be just as powerful as investment returns
If there’s one takeaway, it’s this: the best financial plans don’t just focus on what you earn - they focus on what you keep. Be sure to tune in to Episode 27 of the KDI Wealth Alchemist tomorrow for more insight from Shane Keith & Dylan Justice! Available on your favorite podcast platform!