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Tax-Aware Retirement Investing and Income Planning

By Adhesion Wealth, An AssetMark Company

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As an advisor, providing your clients with tax alpha is a critical part of what you can do for them. It is also something that can set you apart from other advisors who do not focus on this as part of their client advice.

At Adhesion Wealth we stress the value that financial advisors add for their clients by providing tax alpha. This is an additional value they generate for their clients through tax-efficient investment management and wealth planning strategies. Tax alpha, in the form of tax-aware investing and distribution strategies in retirement, is a key area where advisors can add tremendous value for their clients.

The Myth of Retirement and Taxes

While advisors know better, many people think that once they hit retirement their tax issues go away. Nothing could be further from the truth, especially for high-net-worth clients. While we agree with the general consensus that taxes should not be the main driver of investment decisions, taxes must be taken into consideration.

Tax-aware retirement withdrawal strategies should be a key part of the retirement planning process for your clients. Failing to incorporate tax awareness into your client’s retirement income strategy can result in their paying unnecessary taxes, depleting their retirement nest egg at a faster rate than necessary.

Here are some issues to consider in designing tax-aware investing and retirement income planning strategies for your clients in retirement.

Annual Reviews

It used to be that people would retire at age 65, stop working, collect their Social Security and perhaps a pension. Today retirement is not always so standardized. While some clients may retire “cold turkey,” others will follow different paths into retirement. This may include full or part-time work or perhaps launching a new business.

This is why it is critical to take a look at your client’s annual income situation each year and to revise their retirement income strategy for the year as appropriate. Will their income be higher or lower than normal? Required minimum distributions (RMDs) may come into play, as well as other factors.

This income projection can drive several decisions for the year including which accounts to tap, how much to withdraw, rebalancing, tax-loss harvesting, Roth conversions, charitable giving, and a host of others.

Which Accounts to Tap

One of the key decisions is which accounts to tap and when. In the years leading up to the commencement of RMDs there are many options. In years where your client’s income may be higher it may make sense to focus withdrawals on taxable accounts or Roth accounts if appropriate. In years where their income is a bit lower, you might consider taping traditional IRAs or 401(k)s (if applicable) to reduce the level of future RMDs.

Roth Conversions

In years where the client’s income is lower than normal, your client might consider doing a Roth IRA conversion. This can serve several purposes. The conversion adds to any balances already in a Roth IRA providing added tax diversification to their future retirement account withdrawals.

Money in a Roth IRA is not subject to RMDs, so taking the tax hit on the conversion in a lower income year can help to reduce RMDs in subsequent years, saving on taxes.

The other advantage of a Roth IRA is concerning estate planning. The Secure Act legislation changed the way inherited IRAs are taxed for most non-spousal beneficiaries. The stretch inherited IRA was largely eliminated for these beneficiaries, requiring that these beneficiaries take a full distribution within 10 years. This can result in steep taxes for them in some cases. Roth IRAs can be passed to beneficiaries tax-free as long as the account owner has satisfied the five-year rule prior to their death.

Strategic Rebalancing

Portfolio rebalancing is important for all clients, but especially for clients in or near retirement as you seek to keep their portfolio properly allocated to balance out risk and return. Strategic rebalancing done in a tax-efficient way can help achieve the goals of rebalancing and provide tax-alpha to your clients.

The rebalancing process can offer opportunities for both tax-loss harvesting and tax-gain harvesting within the client’s taxable accounts. Tax-loss harvesting involves realizing losses on securities and using those losses to offset capital gains realized during the year; excess losses can be used to offset a portion of the client’s other income for the year as well. Any unused tax losses can be carried over to a subsequent year.

Tax-gain harvesting can be used in the rebalancing process to realize gains on appreciated securities in lower income years and then taking the proceeds and reinvesting them elsewhere in their portfolio. Additionally, these proceeds can be used to provide income for your clients without having to tap accounts such as IRAs which might result in a larger tax hit.

Charitable giving through the gifting of appreciated securities and the use of qualified charitable distributions (QCDs) can be used as additional tools in the rebalancing process as well.

Charitable Giving

For charitably inclined clients, this can tie in well with providing tax alpha for their investments. Donating appreciated securities such as stocks or ETFs to charity, or a donor advised fund, offers several advantages for your client. Assuming they can itemize their deductions, the market value of the security at the time of donation is deductible.

Additionally, this method of giving results in no capital gains taxes which can be a significant tax savings to clients. Donating appreciated shares is a very tax-efficient tool if applicable when rebalancing your client’s portfolio.

Qualified charitable donations (QCDs) allow owners of traditional IRA accounts who are at least age 70 ½ to donate up to $105,000 from their account to a qualified charitable organization. This is the amount for 2024 and amounts for future years are indexed for inflation. The amount of the QCD is withdrawn from the account tax-free. Though there is no tax deduction for the QCD, this can be a tax-efficient way for clients who cannot itemize to make charitable contributions.

One application of the QCD is to use this method to fulfill all or part of their RMD for the year. This allows that portion of the RMD to be taken tax-free. QCDs are another way to strategically reduce future RMDs in the account as well. Additionally, QCDs can also fit into the rebalancing process within the IRA account.

Social Security and Medicare

Social Security benefits can be subject to taxes if the client’s income exceeds certain thresholds. These thresholds are relatively low but depending upon where the client is drawing retirement cash from you may be able to help keep their income for a given year under this threshold.

Medicare premiums can be subject to a surcharge called Medicare IRMAA (income-related monthly adjustment amount). The surcharge kicks in when a Medicare beneficiary’s income exceeds set amounts. IRMAA surcharges are based on the tax year two years prior to the current year. So, a 2024 surcharge is based on income from the 2022 tax year. Avoiding this surcharge can be a side benefit of the tax-aware investing and planning you do for clients.


Tax-aware strategies are a critical piece of what advisors can do for their clients. This includes all aspects of the wealth management process. Tax awareness is a critical part of the retirement process for your clients especially in the areas of investing and retirement income strategies.

Advisors need to discuss tax-aware strategies with their clients to help them understand the importance of these tax savings to the preservation of their retirement nest egg. The issues discussed above, and a host of others, can be critical to helping your clients achieve their goal of a happy, prosperous retirement as well as their goals of passing wealth onto the next generation or to a charity.

C24-21026 | EXP 3-31-2026

By Adhesion Wealth, An AssetMark Company

For financial professional use only.

Important Information

This is for informational purposes only, is not a solicitation, and should not be considered investment, legal or tax advice. The information has been drawn from sources believed to be reliable, but its accuracy is not guaranteed and is subject to change.

Investing involves risk, including the possible loss of principal. Past performance does not guarantee future results. UMAs are not suitable for all investors and should be evaluated for suitability by financial professionals prior to investing.

For more complete information about the various investment solutions available, including the investment objectives, risks, and fees, please refer to the Disclosure Brochure. Please read it carefully before investing. For a copy, please contact Adhesion Wealth Advisor Solutions (“Adhesion Wealth”).

Adhesion Wealth is an investment adviser registered with the U.S. Securities and Exchange Commission (“SEC”). Adhesion Wealth and third-party providers are separate and unaffiliated companies. Each party is responsible for their own content and services.

Adhesion Wealth is an affiliate of AssetMark, Inc., an investment adviser registered with the SEC.

©2024 Adhesion Wealth Advisor Solutions. All rights reserved. © 2024 Adhesion Wealth Advisor Solutions, Inc. All rights reserved.

C24-20942 | 02/2024 | EXP 2-28-2026