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Ways To Help Maximize Wealth Through Tax Planning

Introduction

High-net-worth families face unique challenges in managing and preserving their wealth. One of the most critical aspects of wealth management is tax planning. Effective tax planning can help to significantly reduce the amount of taxes paid overtime, allowing families to grow, protect, and transfer wealth more efficiently. We believe, long term, that taxes not managed correctly are the largest drawdown on a portfolio and estate plan. Below, we will explore key tax planning strategies and tax-efficient investment approaches tailored specifically for high-net-worth families.

  1. Income Deferral Strategies

Deferring income can be an essential tool in minimizing taxes. By postponing income to future years, families can avoid triggering higher tax brackets and capitalize on lower rates when the income is realized.

  • Qualified Retirement Plans: High-net-worth families should leverage 401(k) and IRA accounts for deferring income taxes. Additionally, considering nonqualified deferred compensation plans (NQDC) can also help defer taxation until retirement.
  • Roth Conversions: For families expecting higher future tax rates, Roth conversions offer the ability to pay taxes now at a lower rate, with future growth and withdrawals remaining tax-free.
    • This can be extremely important for retirees that have built up large Traditional 401(k) balances and may have massive taxes throughout retirement from large Required Minimum Distributions (RMDs)
    • In addition, a Roth IRA can help provide an excellently inheritance tool for the next generation. With the new “10 year rule” in place, your heirs are allowed to keep the inherited Roth IRA invested over the entire 10 years and withdrawal tax free in year 10.

  1. Utilizing Trusts for Tax Efficiency

Trusts offer a powerful way for high-net-worth families to help reduce tax burdens and protect assets for future generations.

  • Grantor Retained Annuity Trusts (GRATs): These allow families to transfer assets at a reduced gift tax cost, locking in appreciation for beneficiaries while limiting estate tax exposure.
  • Irrevocable Life Insurance Trusts (ILITs): ILITs remove life insurance proceeds from taxable estates, ensuring beneficiaries receive these funds without an estate tax hit.
  • Charitable Trusts: Charitable Remainder Trusts (CRTs) and Charitable Lead Trusts (CLTs) allow families to fulfill philanthropic goals while obtaining income tax deductions and helping to reduce estate taxes.

  1. Tax-Loss Harvesting

Tax-loss harvesting involves selling investments at a loss to offset taxable capital gains. This strategy can be particularly effective for high-net-worth families with diverse portfolios, or highly concentrated positions.

  • Reinvestment Strategy: After harvesting losses, reinvesting in similar but not identical securities can help maintain a portfolio's target allocation without violating the IRS wash-sale rule.
  • Long-Term vs. Short-Term Gains: Prioritizing long-term capital gains, which are taxed at lower rates, over short-term gains can also help minimize tax liabilities.
  1. Tax-Efficient Investment Strategies and Asset Location

Investment strategies that focus on minimizing tax drag are critical for optimizing long-term returns for high-net-worth families. One key strategy is asset location, which involves placing investments in the most tax-efficient accounts based on their characteristics.

  • Asset Location: Tax-inefficient investments, such as bonds and actively managed funds that generate high taxable income, should be placed in tax-deferred or tax-exempt accounts like IRAs or 401(k)s. In contrast, tax-efficient investments, such as stocks or index funds, can be held in taxable accounts where long-term capital gains enjoy favorable tax treatment.
  • Municipal Bonds: These offer tax-free interest income, making them ideal for families in higher tax brackets.
  • Tax-Efficient Mutual Funds and ETFs: Low-turnover funds and ETFs tend to generate fewer taxable events, making them more tax-efficient.
  • Direct Indexing: Direct indexing allows families to own individual securities within an index, offering greater opportunities for tax-loss harvesting.
  • Exchange Fund: Taking highly appreciated positions and entering a diversified fund to spread out your concentration risk and provide exposure to other areas of the index.

  1. Gifting and Estate Planning Strategies

Effective gifting and estate planning can help minimize taxes on wealth transfers between generations.

  • Annual Gift Tax Exclusion: High-net-worth families should leverage the annual gift tax exclusion (currently $19,000 per person in 2025) to transfer wealth without incurring gift taxes.
  • Lifetime Estate Tax Exemption: Using the lifetime exemption (currently $13.99 million in 2025) allows for substantial wealth transfer without estate tax consequences.
  • Direct Gifting for Healthcare and Education: By gifting directly to these institutions, rather than outright to the beneficiary, it is not considered a gift.
  • Donor Advised Fund: Gift appreciated assets to a charitable fund that allows you to re-diversify and make charitable distributions from. Provides initial tax break for assets contributed and removes highly appreciated assets. This can be used to “bunch” multiple gift years into one for a larger tax savings or combined with Roth Conversion.
  • Education Gifting to 529: You are allowed to superfund a Child’s 529 plan by combing 5 years of contributions into 1 year. Allows for future growth to be removed from estate.

Conclusion

For high-net-worth families, tax planning isn’t just about minimizing this year's tax bill—it’s about creating a long-term, tax-efficient strategy that strives to preserve wealth for generations. From asset location and tax-efficient investing to trusts and gifting, there are a multitude of strategies that can be implemented to help reduce tax liabilities. Working with a  dedicated advisor who specializes in high-net-worth planning is essential to optimizing these opportunities and helping to ensure your family’s wealth is protected.

Securities are offered through Steward Partners Investment Solutions, LLC (“SPIS”), registered broker/dealer, member FINRA/SIPC. Investment advisory services are offered through Steward Partners Investment Advisory, LLC (“SPIA”), an SEC-registered investment adviser. SPIS, SPIA, and Steward Partners Global Advisory, LLC are affiliates and collectively referred to as Steward Partners. Representatives of The Briggs Group at Plaza Advisory are registered with and provide securities and/or advisory services through Steward Partners.

Steward Partners Investment Solutions, LLC (“Steward Partners”), its affiliates and Steward Partners Wealth Managers do not provide tax or legal advice.  You should consult with your tax advisor for matters involving taxation and tax planning and their attorney for matters involving trust and estate planning and other legal matters.

The views expressed herein are those of the author and do not necessarily reflect the views of Steward Partners or its affiliates.  All opinions are subject to change without notice.  Neither the information provided, nor any opinion expressed constitutes a solicitation for the purchase or sale of any security.  Past performance is no guarantee of future results.

Investors should consider many factors before deciding which 529 plan is appropriate. Some of these factors include: the Plan’s investment options and the historical investment performance of these options, the Plan’s flexibility and features, the reputation and expertise of the Plan’s investment manager, Plan contribution limits and the federal and state tax benefits associated with an investment in the Plan. Some states, for example, offer favorable tax treatment and other benefits to their residents only if they invest in the state’s own Qualified Tuition Program. Investors should determine their home state’s tax treatment of 529 plans when considering whether to choose an in-state or out-of-state plan. Investors should consult with their tax or legal advisor before investing in any 529 Plan or contact their state tax division for more information. Steward Partners Investment Solutions, LLC does not provide tax and/or legal advice.

Diversification does not guarantee a profit or protect against loss in a declining financial market. 

Conversions from IRA to Roth may be subject to its own five-year holding period. Unless specific criteria are met, Roth IRA owners must be 59½ or older and have held the IRA for five years before tax-free withdrawals of contributions along with any earnings are permitted. Converting a traditional IRA into a Roth IRA has tax implications. Investors should consult a tax advisor before deciding to do a Roth conversion.

Interest on municipal bonds is generally exempt from federal income tax. However, some bonds may be subject to the alternative minimum tax (AMT). Typically, state tax-exemption applies if securities are issued within one’s state of residence and, local tax-exemption typically applies if securities are issued within one’s city of residence. The tax-exempt status of municipal securities may be changed by legislative process, which could affect their value and marketability. Bonds are affected by a number of risks, including fluctuations in interest rates, credit risk and prepayment risk.  In general, as prevailing interest rates rise, fixed income securities prices will fall.  Bonds face credit risk if a decline in an issuer's credit rating, or creditworthiness, causes a bond's price to decline.  Finally, bonds can be subject to prepayment risk. When interest rates fall, an issuer may choose to borrow money at a lower interest rate, while paying off its previously issued bonds. As a consequence, underlying bonds will lose the interest payments from the investment and will be forced to reinvest in a market where prevailing interest rates are lower than when the initial investment was made.

Exchange traded funds and mutual funds are sold by prospectus. Investors should carefully consider the investment objectives and risks as well as charges and expenses of mutual funds and exchange traded funds including the underlying portfolios before investing. To obtain a prospectus, contact your Wealth Manager. The prospectus contains this and other information about the investment. Read the prospectus carefully before investing.

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