Year-End IRA Planning: 3 Steps to Reduce Your Taxes 

The end of the year often brings a sense of reflection. For many retirees and high earners, it is also one of the most important moments to take a closer look at their IRA. Thoughtful year end IRA planning can influence how much you pay in taxes next spring and how much flexibility you have in retirement in the years ahead. 

This is especially true for those with large IRA balances. As these accounts grow, so does the portion the IRS may eventually claim. Required minimum distributions, which you can explore in this overview of required minimum distributions, rising tax brackets, and shifting legislation all play a role in how much of your savings becomes taxable income later. These considerations often shape the broader retirement tax planning strategies many households review during the year. 

For high balance IRA owners, reviewing the difference between traditional and Roth IRAs can provide helpful context as you evaluate which approaches align with your long-term goals. This type of review can also highlight whether strategies such as partial Roth conversions are worth considering as part of your planning process. Exploring additional planning opportunities before the year ends can offer perspective on the options available as you manage both current and future tax exposure. 

Step 1: Review Your Tax Bracket and Income Window 

As 2025 comes to a close, it is a natural time to take stock of your income for the year and where you may fall tax wise in 2026. This snapshot offers a clearer view of whether now is an appropriate moment to evaluate your IRA. Year-end IRA planning centers on understanding how this year’s income decisions may influence next year’s tax filing. 

One area that often shapes these decisions is your income window. If you have recently retired or expect lower income this year, you may have more room in your current tax bracket than you realize. Reviewing this during a lower income year can offer insight into how future taxes may evolve, especially before required minimum distributions or Social Security benefits increase your taxable income. For some households, understanding how Medicare expenses interact with retirement income can also be part of this review. 

The One Big Beautiful Bill Act extended or made permanent several tax provisions, offering retirees a bit more predictability as they plan. Even with that stability, year-end planning remains important. Large IRA balances can still lead to higher taxable income in future years, higher Medicare premiums, and additional taxes on Social Security benefits. Reviewing where your income stands now can help you see how future changes may affect your bracket once required minimum distributions begin. 

Many retirees underestimate how quickly required withdrawals can shift their tax picture. What feels manageable today can look very different once mandatory distributions start in 2026 or later. Taking time before year end to evaluate your bracket and income trends can offer perspective on how these elements may interact in the future. 

A simple comparison can be useful: estimate your taxable income for 2025, then compare it with what you expect once required minimum distributions or other benefits begin. That comparison can highlight whether this is an appropriate moment to review strategies that may influence future tax exposure. 

Step 2: Use Partial Roth Conversions to Manage Future RMDs 

Once you understand where your income sits for 2025, the next step is determining whether a partial Roth conversion fits your year-end plan. For many high balance IRA owners, converting even a portion of pre-tax savings into a Roth can reduce the size of future required minimum distributions and offer added flexibility later in retirement. 

A partial conversion allows you to choose how much to convert and when, rather than facing a single large tax bill in one year. This flexibility can be especially meaningful during a lower income year, when the tax impact may be more manageable. For those in the gap years, this window is often reviewed closely as households consider whether a conversion is appropriate. 

With 2025 coming to an end, another factor enters the picture. While the One Big Beautiful Bill Act extended or stabilized several tax provisions, the structure of future tax brackets may still shift in the coming years. Some individuals review different pacing methods, including how a Roth conversion ladder fits into long term planning, as they think through whether converting at today’s rates aligns with their goals. 

A common challenge for retirees is discovering how required minimum distributions can move them into higher brackets and increase the taxes owed on Social Security benefits or Medicare premiums. A partial Roth conversion may soften that shift by reducing the size of the IRA that will eventually be subject to mandatory withdrawals. 

This strategy tends to work best when it aligns with your broader plan. Factors such as your current bracket, your expected income in the coming years, and your ability to pay the conversion tax with non-retirement funds all play a role. A tax-aware review can help you see what amount, if any, fits your situation before December 31. 

Step 3: Evaluate Whether Life Insurance or Charitable Planning Can Improve Post-Tax Outcomes 

For many high-balance IRA owners, taxes are only part of the story. The larger question is what happens to your wealth after taxes are paid. Year end is a natural time to look beyond traditional strategies and explore approaches that can support both your tax picture and your long-term legacy. 

One approach is using permanent life insurance as a Roth alternative. Instead of paying a large tax bill for a Roth conversion in a single year, some families use those same dollars to fund a life insurance policy. The result can be a tax advantaged asset that grows over time and provides a tax-free benefit to heirs. For those who want to create a stable legacy or offset future tax exposure, this approach may offer a different form of flexibility. 

Year-end also brings opportunities for charitable planning, especially if philanthropy is part of your goals. Some retirees review whether strategies such as charitable remainder unitrusts, donor advised funds, or qualified charitable distributions fit into their plan, including how a qualified charitable distribution may affect their taxable income for 2025 while supporting causes that matter to them. For large IRA owners, these tools can also play a role in managing future required minimum distributions or extending the impact of savings beyond the ten-year inherited IRA rule. 

These strategies tend to fit well for individuals who have: 

• Adequate liquidity outside their IRA 
• A desire to reduce future tax burdens 
• Charitable or multigenerational planning goals 
• Large traditional IRA balances that could create significant required minimum distributions 

Each option works differently, but they share a common theme. They allow you to redirect what could have become a tax obligation into something more meaningful for your family or your community. 

Bonus Step: Make Sure Your Beneficiary Designations Are Updated Before December 31 

One of the simplest year-end steps is also one of the most important. Many families spend years fine-tuning their financial plans, only to have assets pass to the wrong person or in the wrong way because beneficiary designations were never updated. It’s a small detail with meaningful consequences. 

This matters even more after the SECURE Act changed the rules for inherited IRAs. Most non-spouse beneficiaries must now withdraw the full balance within ten years, which can create tax pressure or disrupt long-term plans if the designations don’t reflect your current wishes. Reviewing your designations before the year ends helps you make sure that your IRA is structured to support the people and causes you care about in the most tax-aware way possible. 

This is also an opportunity to think beyond the next generation. For families focused on multi-generational planning, updating contingent beneficiaries, coordinating designations with your trust, or aligning them with your charitable goals can help create consistency across your entire legacy plan. 

A quick review today can help prevent costly mistakes later. Before December 31, take a moment to confirm that your beneficiary designations match your intentions and your broader estate strategy. 

Conclusion 

It doesn’t always require a dramatic shift to make a meaningful difference. Often, it’s the smaller, well-timed decisions that create the most tax flexibility later and help you build a retirement plan that reflects your goals and values. The sooner you clarify your strategy, the more options you may have when the next tax year begins. 

If you would like to review how these year-end opportunities fit into your broader financial picture, contact our team. We are here to help you evaluate your options with clarity and confidence. 

You can also download our free guide, 3 Key Planning Opportunities for Large IRAs, to explore additional tax-saving strategies and legacy-focused planning ideas. 

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