New Webinar: From Ed Slott to Action: Using the 24% Bracket Before It Disappears.

Taxes and retirement planning are shifting, and the strategies you choose today matter more than ever. That’s why we’ve partnered with retirement tax expert Ed Slott to share insights on how to protect your wealth from rising rates. Join us on October 1st for our upcoming webinar, where we’ll dive deeper into proven retirement tax strategies that can help you maximize income, minimize tax burdens, and secure your financial future.

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In the meantime, here are some of the top retirement tax strategies we’ll be discussing, practical steps you can start considering now to strengthen your plan. These insights from Ed Slott highlight how proactive planning today can help you stay ahead of higher tax rates tomorrow.

Why “Spend Down” Planning Matters in Retirement Tax Strategies

When it comes to retirement, taxes are often one of the most overlooked expenses and also one of the most significant threats to preserving wealth. Today’s historically low tax rates won’t last forever! This means retirees have a unique opportunity to take action now. Strategic “spend down” planning is about more than simply drawing from accounts. It’s about deliberately managing how and when you recognize income to reduce your lifetime tax bill.

One common misconception is that retirees should always aim to minimize Required Minimum Distributions (RMDs). While this seems logical on the surface, it can actually backfire. Deferring too long often results in larger distributions later in life, pushing income into higher brackets when rates could be much steeper. Instead, a proactive approach focuses on maximizing the lower tax brackets available to you today.

Let’s look at a simple example. The 24% federal tax bracket, covering married couples filing jointly up to $394,600 of taxable income, is an attractive “sweet spot” for many households. By intentionally spending down or converting assets to fill this bracket, retirees can lock in relatively low rates now rather than risk facing higher taxes in the future. Conversions to Roth IRAs, reinvesting after-tax dollars, or simply drawing more strategically from retirement accounts can help make the most of this window.

Ultimately, “spend down” planning is not about spending recklessly but about spending wisely. By using the current tax landscape to your advantage, you can smooth out your tax liability over time, protect more of your retirement assets, and leave a stronger financial legacy for your family.

Case Study Example: Married Couple (Age 60) 

Let’s look at how “spend down” planning works in practice. Imagine a married couple, both age 60, with $1 million in qualified IRA assets. Their current taxable income is $250,000 per year. This places them comfortably within the 24% federal tax bracket. With the bracket for married filing jointly extending up to $394,600, they actually have room to add an additional $144,000 of income annually while staying in the same bracket. This creates a powerful planning opportunity to strategically draw down or convert assets today, rather than waiting until RMDs force larger distributions at potentially higher rates.

Now, let’s explore their three possible paths.

Option 1: Do Nothing & Reinvest RMDs (Stable Tax Environment)

The simplest approach is to do nothing until RMDs begin at age 73. Under this path of IRA tax planning, the couple lets their IRA grow untouched and pays taxes only when distributions are mandated. They would then reinvest the after-tax RMDs into a taxable brokerage account or equities portfolio.

Takeaways:

• If tax brackets remain stable, this strategy may feel “safe” and straightforward.
• However, it exposes the couple to future legislative risk: if rates rise, their future distributions could be taxed more heavily than expected.
• This approach also defers proactive planning opportunities, essentially betting that today’s historically low tax rates will last forever.

Option 2: RMDs Under Higher Tax Rates (40%) — Reduced Wealth Transfer

If tax rates increase as many experts, including Ed Slott, anticipate, waiting could have costly consequences. Suppose rates rise to 40% by the time the couple reaches RMD age. Suddenly, the same distributions that might have been taxed at 24% today are now taxed at much higher rates. This dramatically reduces their net spendable income and the wealth ultimately transferred to heirs.

Takeaways:

• Larger forced RMDs in later years can push retirees into higher brackets.
• Rising rates amplify the problem, potentially reducing legacy values by hundreds of thousands of dollars.
• Procrastination leaves retirees at the mercy of Congress and tax policy changes.

Option 3: 10-Year Accelerated Spend Down With Life Insurance

A proactive alternative is a 10-year accelerated “spend down” strategy. Here, the couple gradually withdraws or converts additional income (up to $144K more annually) while staying within the 24% bracket. The after-tax funds can then be shifted into a permanent life insurance policy, such as an Indexed Universal Life (IUL).

This strategy not only locks in today’s lower rates but also allows assets to grow tax-deferred inside the policy. Down the road, they may access tax-free income via policy loans or withdrawals, while the death benefit provides a tax-advantaged wealth transfer for beneficiaries.

Takeaways:

• Smooths out tax liability by intentionally recognizing income at today’s favorable rates.
• Creates an additional tax-advantaged asset bucket beyond IRAs and taxable accounts.
• Enhances legacy planning by leveraging life insurance as one of the most efficient wealth transfer strategies.

Roth Conversion Strategies: Compare the Key Takeaways

Spend Down

Spend down and tax planning today can mean significantly more wealth passed on to heirs tomorrow. By converting portions of traditional IRA assets into a Roth IRA while tax rates remain historically low, retirees can take control of when and how they pay taxes. A Roth IRA conversion strategy​ not only reduces the burden of future RMDs but also creates a pool of tax-free income for retirement and a powerful legacy planning tool for the next generation.

Why a Roth Conversion Strategy​ Works

Pay taxes on your terms: By converting now, you lock in known rates rather than gambling on future brackets.

Eliminate RMDs on converted funds: Roth IRAs are not subject to required distributions, giving retirees more flexibility in managing income.

Tax-free legacy: Heirs inherit Roth accounts income-tax free, making them one of the most efficient wealth transfer vehicles available.

Roth vs. Traditional IRA: With a Roth, you pay taxes now at potentially lower rates instead of later at potentially higher ones.

Roth vs. “Do Nothing” Approach: Waiting until RMD age may mean paying more in the long run and leaving heirs with a larger tax bill.

Roth vs. Accelerated Spend Down with Life Insurance: Both strategies reduce future tax burdens, but a Roth conversion strategy​ provides liquidity and flexibility, while life insurance offers added protection and leverages wealth transfer strategies.

Life Insurance as a Repositioning Tool

Key Benefits of Doing So

• Locks in lower rates now and reduces future RMD burdens.
• Builds an additional bucket of tax-advantaged retirement income.
• Enhances legacy planning through a tax-free death benefit.

Think Maximum, Not Minimum: Avoid Wasting Lower Tax Brackets

Too often, retirees focus on taking the minimum amount required from their retirement accounts to delay taxes. This strategy can waste valuable space in today’s lower brackets, leaving more income to be taxed at higher rates later. Instead, proactive planning means “filling up” those lower brackets now with strategic withdrawals or conversions to ensure you pay the lowest rates possible over your lifetime.

Rethink RMDs

• Aims to maximize lower brackets, not just minimize distributions
• Smooths out tax liability and reduces the risk of being pushed into higher brackets later

RMDs turn today’s historically low rates into a long-term advantage for both retirement income and legacy planning.

Learn More About Wealth Transfer Strategies From Our Webinar 

Retirement tax strategies like spend down planning, Roth conversions, and life insurance repositioning can make a profound difference in how much wealth you preserve and pass on. These strategies will be explored in detail during our upcoming October 1st webinar at 12 PM EST. This session is designed to give financial professionals actionable insights they can apply directly with their clients.

We encourage you to join us for our live webinar to learn how to help clients take advantage of today’s unique tax environment and prepare for tomorrow’s uncertainties. If you can’t attend live, don’t worry. The full recording will be available on demand, so you won’t miss a moment of the valuable presentation. 

For a more personalized discussion, contact us to schedule a one-on-one walkthrough of the material. Together, we’ll explore how to tailor these strategies to your clients’ unique needs and long-term goals.