By Gonzalo M. Garcia, CLU
A Nationwide Retirement Institute survey published recently by InvestmentNews confirmed what most of us in the planning profession have been sensing for a while: 80% of investors expect taxes to go up. That is four out of five of your clients sitting across the table from you, believing that the tax environment is going to get worse.
But here’s the number that should get our attention as practitioners: only 31% of those investors are doing anything about it.
That is a massive gap between concern and action. And it tells me something important: it’s not that clients don’t care. They don’t know what to do. They’re waiting for us to show them.
An Opportunity Hiding in Plain Sight
The same Nationwide study, conducted by the Harris Poll, found that only 37% of investors say their advisor proactively discusses tax planning strategies or tax policy changes as part of their regular engagement. Only 26% of investors engage in ongoing tax management throughout the year. And separately, Allianz Life reports that 70% of Americans — including 78% of Gen Xers — are concerned about how taxes will affect their retirement income.
I’m not sharing these numbers to point fingers. I’m sharing them because they represent an enormous opportunity for every financial advisor who is willing to lean into the conversation. Your clients are worried about taxes. They want help. And the advisor
who steps up to provide that guidance — not just during tax season, but as an ongoing part of the financial planning process — will deepen those relationships in ways that a quarterly portfolio review simply cannot.
The Conversation Nobody Is Having: Income in Respect of a Decedent
If the general tax planning conversation is happening too infrequently, there is one topic that is almost never part of the discussion: Income in Respect of a Decedent, or IRD.
When a client passes away with a traditional IRA or 401(k), that account does not
receive a step-up in basis like their home or their stock portfolio. Every dollar that comes out of an inherited qualified account is taxed as ordinary income to the beneficiary. Under the SECURE Act of 2019, with further guidance from the SECURE Act 2.0 passed in 2022, non-spousal beneficiaries must deplete the entire inherited account within 10 years.
Think about the timing. The client’s children are likely in their 40s or 50s — their peak earning years. They are already in or near the top of their tax brackets. Now they’re forced to stack six or seven figures of inherited IRA distributions on top of that income, at what could very well be higher future tax rates. If the parents were right about taxes going up, the children will be the ones paying the price.
And if the estate is large enough, the IRA is also included in the gross estate for estate tax purposes. The same dollars can be hit with income tax and estate tax. I’ve called this the most God-awful “gotcha” in the history of taxation, and the math supports that characterization.
Most clients have no idea this is how it works. They assume their IRA will pass to their children the same way their brokerage account does. It doesn’t. And this is a conversation that, once you have it, changes the entire planning dynamic.
The Right Question to Ask
For clients who have sufficient lifestyle assets — a paid-off home, taxable investments, Social Security, perhaps a pension — and who will not consume their entire qualified plan balance during retirement, there is a question that can reframe the entire planning engagement:
“Is this a retirement account, or is it a wealth transfer vehicle that we’re
managing like a retirement account?”
For a growing number of affluent Americans, the answer is the latter. According to Fidelity, there are now 654,000 401(k) accounts with balances exceeding $1 million — and that’s before counting IRAs, rollovers, or other assets. Many of these individuals are following the same “defer, defer, defer” approach that was designed for someone with the average 401(k) balance of $144,400 who will actually need to spend it all down. The strategies for these two groups are fundamentally different.
The Tools Are Already in Your Toolkit
If your clients believe taxes are going up — and 80% of them do — the logical next step is to explore strategies that reduce the qualified plan balance proactively, rather than waiting for the government to force distributions at age 73 or 75. The good news is that there are multiple approaches, and the right combination will depend on each client’s goals, family situation, charitable intentions, and legacy objectives. This is not a one- size-fits-all conversation. It is, however, a conversation that every affluent client deserves to have.
Roth Conversions. For clients in their late 50s and 60s — particularly those who have retired but haven’t yet begun Social Security or pension income — strategic Roth conversions can be powerful. You pay the income tax now, at known rates, and the converted dollars grow tax-free from that point forward. Roth accounts are not subject to Required Minimum Distributions during the owner’s lifetime, and qualified distributions to beneficiaries are income tax-free, even under the 10-year SECURE Act rule. For clients who believe tax rates are heading higher, a Roth conversion is a way to lock in today’s rates and take the uncertainty off the table for the next generation. The key is managing the pace and size of conversions so as not to push the client into unnecessarily high brackets — this is where year-round tax planning, in collaboration with the client’s CPA, really matters.
Qualified Charitable Distributions (QCDs). For clients age 70½ and older who are already charitably inclined, QCDs allow direct transfers from an IRA to a qualified charity — up to $111,000 in 2026 — without the distribution being included in taxable income. This is a straightforward way to satisfy charitable goals while reducing the IRA balance and lowering future RMDs. It’s a clean strategy for clients who are already giving, and it converts what would be a taxable distribution into a tax-free charitable transfer. That said, QCDs come out of your client’s assets under management. For the advisor, this is a case where doing the right thing for the client is the right thing —period.
Accelerated Distributions to Fund Life Insurance and a Donor Advised Fund. Now, I know that some planners will read this and have an allergic reaction to the word “insurance.” I get it. All I ask is that you look at the math.
Here is the transformation: you’re converting pre-tax dollars (the IRA) into after-tax dollars, which purchase tax-free dollars (life insurance death benefit) and leave tax-free dollars to create the family’s personal and charitable legacy (the Donor Advised Fund). Pre-tax → after-tax → tax-free → tax-free legacy.
The client takes strategic distributions from the IRA well before RMD age, pays the income taxes at today’s known rates, and uses the after-tax proceeds to fund life insurance. The children are named as life insurance beneficiaries and receive a tax-free death benefit that replaces the IRA value — without the 10-year drain, without income tax, and with immediate liquidity. The remaining IRA balance at death passes to a family Donor Advised Fund, eliminating both the income tax and estate tax hit to the beneficiaries while creating a charitable vehicle that children and grandchildren can direct for generations.
Whether this strategy makes sense for a given client depends on their health, insurability, age, family situation, and objectives. But the math is the math. In many cases, the combined value to heirs — tax-free insurance plus the DAF — exceeds what the children would have received under the traditional “defer and let them deal with it” approach, even after paying the taxes. That’s worth running the numbers.
Let Client Goals Drive the Strategy
The point of this article is not to advocate for any single approach. Roth conversions, QCDs, and the life insurance plus DAF architecture are all legitimate, well-established strategies. They can be used individually or in combination, and the right mix will look different for every family.
What matters is that the conversation starts with the client’s goals:
1. Do they want to maximize what passes to their children?
2. Do they have charitable intentions?
3. Is building a multi-generational family legacy important to them?
4. Are they concerned about tax rates going up?
The answers to these questions should drive the planning, not the product. A
comprehensive review of the client’s financial picture, family dynamics, and legacy intentions — conducted in collaboration with their tax and legal advisors — is the foundation.
And if the math points toward a strategy that happens to include life insurance, don’t dismiss it because of the wrapper. Evaluate it because of the outcome.
An Invitation to Our Profession
I want to be clear: this is not about criticizing our profession.
Financial advisors do extraordinary work for their clients every day. But the Nationwide data is telling us something we need to hear. Our clients are worried about taxes. Many of them feel they aren’t getting enough help navigating what comes next. And almost none of them have been told how Income in Respect of a Decedent will affect their children’s inheritance.
Tax planning should not be a once-a-year event. It’s a year-round discipline. And
retirement tax planning — specifically, understanding how qualified plan assets will be taxed during the client’s lifetime and after their death — deserves to be at the center of every affluent client’s financial plan.
The 80%/31% gap is not a problem. It’s an opening. Your clients already believe taxes are going up. They’re waiting for someone to help them think through their options — all the options — and build a plan that reflects what they actually want for their family.
Be that advisor.
Gonzalo M. Garcia, CLU, is Chief Advanced Markets Officer for SPG Life & Annuity. He specializes in sophisticated estate planning strategies for high-net-worth families. Gonzalo can be reached directly at (301) 910-1234 or gonzalo.garcia@specialtyprogramgroup.com.