Beyond the 401(k): Advanced Tax Strategies for High-Income Investors

If you’ve already maxed out your 401(k), IRA, or other retirement accounts, you might be wondering: What’s next? This guide explores sophisticated, lesser-known tax strategies designed for high-income earners seeking to optimize their wealth, reduce tax exposure, and protect long-term gains.

1. Taxable Account Optimization

• Buy-and-Hold Equities: Long-term capital gains and qualified dividends are taxed at preferential rates. Holding for the long haul allows compounding with minimized tax drag.
• Tax-Loss Harvesting: Realize losses to offset gains and up to $3,000 in ordinary income, carrying excess losses forward.
• Step-Up in Basis: Upon death, heirs receive a step-up in cost basis, eliminating capital gains tax on inherited equities.

2. International Equities & Foreign Tax Credits

• Hold ADRs or direct international stocks in taxable accounts to claim foreign tax credits on dividend withholding.
• Choose countries with U.S. tax treaties for higher qualified dividend eligibility.

3. Health Savings Accounts (HSAs)

• HSAs offer tax-deductible contributions, tax-free growth, and tax-free withdrawals for qualified medical expenses.
• After age 65, non-medical withdrawals are taxed like an IRA—no penalty.

4. Backdoor and Mega Backdoor Roth IRAs

• Backdoor Roth: Use nondeductible IRA contributions and convert to Roth for tax-free growth.
• Mega Backdoor Roth: Max out 401(k) plans that allow after-tax contributions (up to $69,000 in 2024) and roll over to Roth.

5. Charitable Giving Strategies

• Donor-Advised Funds: Bunch donations and contribute appreciated stock to avoid capital gains.
• Qualified Charitable Distributions: IRA owners over 70½ can satisfy RMDs tax-free by donating directly to charity.

6. 529 Plans & Educational Wealth Transfer

• Enjoy tax-free growth and withdrawals for education expenses. Many states offer additional deductions or credits.
• Contributions count as completed gifts and can be front-loaded using the five-year election.

7. Life Insurance & Annuities

• Permanent life insurance policies and annuities offer tax-deferred growth and estate planning benefits.
• Policy loans can offer tax-free income access depending on structure.

8. Roth Conversions

• Convert traditional IRA or 401(k) assets to Roth during low-income years (e.g., early retirement) to reduce future RMD impact.
• Prioritize growth assets in Roth accounts for long-term tax-free appreciation.

9. Qualified Opportunity Zones

• Defer taxes on capital gains by investing in QOFs.
• Hold investments for 10 years to potentially eliminate additional capital gains entirely.

10. Advanced Estate & Executive Strategies

• Private Placement Life Insurance (PPLI): For ultra-high-net-worth individuals, PPLI offers tax deferral within an insurance wrapper.
• Deferred Compensation Plans: Executives can defer income to future years, lowering current-year taxes.

11. Tax-Aware Investment Management

• ETFs & Index Funds: Use low-turnover vehicles to minimize capital gain distributions.
• Direct Indexing: Personalize your portfolio while optimizing for tax-loss harvesting.

Summary Table: Key Strategies at a Glance

• HSA: Triple-tax advantage
• Backdoor Roth: Tax-free growth access
• Donor-Advised Funds: Deduction + capital gains savings
• QOFs: Capital gains deferral + elimination
• Direct Indexing: Customization + loss harvesting