12 Tax-Saving Moves for Client Portfolios: Advisors' Advice

Roth to the Rescue

Situation: Client retired at 60 and had all assets in taxable and tax-deferred accounts totaling over $5 million. They were moving from Pennsylvania, which doesn’t tax retirement distributions, to California, which could tax retirement distributions up to 12.3%, depending on the amount drawn.

They planned to start spending more, so they would need to draw more from their accounts, and eventually would receive Social Security. Due to the increase in draws and the Social Security payments, they would eventually have to start paying IRMAA (the Medicare Income-Related Monthly Adjustment Amount) once they enrolled in Medicare.

They were in great health with a good family history and wanted to leave assets to their daughter and future grandchildren with little tax burden.

Solution: Recommended Roth conversions of retirement accounts to move as much as possible before they were eligible for Medicare. Filling up to the 24% tax bracket they could convert as much as $200,000 per year while paying for taxes out of taxable accounts. This would potentially move over $1 million to tax-free holdings, which would lower their RMDs and create an estate-planning opportunity for their heirs.

— Ryan Kaysen, owner, founder and financial planner, Integritas Financial