IRA TAX STRATEGIES
The IRA Tax Dilemma
More than half of every large traditional IRA flows to the government across the family lifecycle. Most clients (and even some CPAs) have no idea.
THE PROBLEM
The Problem Nobody Told You About
You spent decades building a substantial retirement account, doing exactly what you were told to do — saving pre-tax, company matching, deferring the income, letting it compound.
For previous generations, with smaller accounts and different tax laws, that strategy worked as advertised. For families with $3 million or more in traditional IRAs today, it doesn’t. Three changes in the law have quietly turned the largest financial asset in most retirement-age households into the largest tax exposure most of them have never been shown.
THREE FORCES
Three Forces, Working Together
Required Distributions You Can’t Avoid
Starting at age 73, the IRS forces you to withdraw from your IRA every year — whether you need the money or not. These withdrawals are taxed as ordinary income, at your highest rate, and they grow as you age.
The Widow’s Tax Cliff
When the first spouse dies, the surviving spouse continues taking the same required distributions, but now files Single, where the tax brackets are roughly half as wide and the standard deduction is cut in half. The same dollars are taxed at substantially higher rates.
Heirs’ 10-Year Drain
When your children inherit the account, they have just 10 years to take all of it out. Those distributions stack on top of their peak-earning salaries, often pushing them into the highest tax brackets and producing a tax bill measured in seven figures.
Each force on its own is manageable. Together, across the full family lifecycle, they routinely send 50 to 65 percent of a high-balance IRA’s principal to the federal and state governments.
WHAT IT MEANS FOR YOU
What This Means for Your Family
For a household with a $2.5+ million traditional IRA, this isn’t an abstract concern. It’s a real, quantifiable outcome — typically more than half flowing to government across the family lifecycle under default planning.
Most clients have never seen this math run for their own situation. Most retirement projections silently assume Married Filing Jointly forever, ignore the widow phase entirely, and treat heirs as a footnote rather than the largest tax event in the family’s lifetime.
The first step is seeing the numbers for your household specifically.
THE GOOD NEWS
The Good News
This outcome is not inevitable. It’s the result of default planning — planning that assumes the account will simply be drawn down as required, with no structural work done to change the trajectory.
There are several long-term planning approaches that can materially help reduce the lifetime family tax burden on a large IRA. Which approach fits your family depends on your account size, your other assets, your charitable intentions, and your timeline.
Roth Conversion Sequencing
Some families can benefit from focused Roth conversion sequencing using specific funds to temporarily decrease the value of the assets.
Charitable Strategies
Others use charitable strategies that satisfy giving goals while helping reduce tax.
Structural Planning
For families with the right profile, structural planning combining partnership investments and basis step-up at death can help reduce the lifetime tax outcome dramatically.
The right approach for your family begins with running the analysis on your specific situation.
Neither Tuckaway Capital nor &Partners renders legal or tax advice. Please consult your tax or legal advisors before taking any action that may have tax consequences. The material has been prepared or is distributed solely for informational purposes and is not a solicitation to participate in any strategy. Please consult with your financial professional to determine what might be appropriate for your situation.
ABOUT OUR WORK
About Our Work on This
At Tuckaway Capital, we’ve built a specialty practice around this IRA tax predicament. We’ve published a working analytical memo for the CPAs and tax attorneys we collaborate with, and we run client-specific modeling for households we serve so you can see exactly what’s at stake in your situation — and exactly what’s possible.
FURTHER READING
Further Reading
NEXT STEPS
Take the Next Step
Let us model it out for you. We’ll run the full lifecycle analysis on your household and show you the math, the realistic outcomes under default planning, and the approaches that could help change those outcomes. There’s no cost and no obligation.
Prefer to talk it through?
Get your free IRA whitepaper.
Securities and investment advisory services offered through &Partners, LLC, a broker-dealer and investment adviser registered with the U.S. Securities and Exchange Commission and member FINRA/SIPC. &Partners has selected Fidelity Investments (Fidelity) through its broker-dealer National Financial Services LLC (NFS) as our primary custodian. Registered Representatives are registered to conduct securities business and licensed to conduct insurance business in limited states. Response to, or contact with, residents of other states will only be made upon compliance with applicable licensing and registration requirements. This page is for information purposes only and should not be construed as legal or tax advice and is not intended to replace the advice of a qualified attorney, financial or tax advisor or plan provider.
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