Pitfalls of Short-Term Tax Planning: Plan for the Long Run
Most of my clients hate paying taxes. That part is universal. But what I’ve noticed over years of helping high-net-worth families with tax planning is that the instinct to avoid taxes today often leads to paying significantly more of them tomorrow.
The pattern shows up consistently: A client prefers to draw first from Roth accounts or taxable brokerage accounts, which are taxed at favorable capital gains rates, to avoid touching their IRA or 401(k) for as long as possible. It feels like a win. They’ve deferred taxes.
But when you model it out over 20 or 30 years of retirement, that approach often increases the cumulative tax burden, because they haven’t spread withdrawals across tax brackets in a way that keeps their taxable income in check year after year.
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That’s what happens when you optimize for April instead of the next two decades.
Why deadlines are the enemy of good tax planning
When tax planning happens only in the fourth quarter, or in the final days of December, it may limit available strategies.
First, there’s a logistical problem: Custodians can’t guarantee that transactions such as qualified charitable distributions (QCDs), donor-advised fund (DAF) contributions or Roth conversions will settle before year-end if you wait until the last minute. A missed deadline isn’t a tax strategy, it’s a penalty.
Second, and more importantly, you lose flexibility. Many tax-saving moves depend on timing relative to market conditions, income fluctuations and life circumstances. Gifting appreciated shares to charity, for instance, is far more impactful when a stock has just jumped on an earnings report than when you’re scrambling in December.
The difference between gifting 10 shares at $80 vs $88 per share, a 10% move that translates directly into a larger charitable deduction and greater tax savings, is an opportunity you can only capture if you’re watching for it throughout the year.
Four strategies that require time to be effective
Some of the most effective tax moves cannot be executed well in a single tax season. Four stand out, and each one requires years, not months, to deliver.
1. Roth conversions in the low-income window.
For clients who retire before claiming Social Security, there’s often a window, of about five to 10 years, when taxable income drops considerably.
Converting IRA or 401(k) funds to a Roth account during this window, at the 12% or 22% bracket rather than the 32% or higher rate that may apply once Social Security and required minimum distributions (RMDs) kick in, may produce meaningful lifetime tax savings, depending on individual income levels, bracket projections and future tax law changes.
This is cash flow modeling at its most useful: Mapping out conversion amounts year by year rather than deciding in isolation.
2. Coordinated charitable giving.
Bunching charitable deductions into a high-income year, such as one marked by a significant portfolio rebalance or a large Roth conversion, can be far more effective than spreading gifts evenly.
When income spikes irregularly, charitable giving becomes a natural offset. Planning this in advance, rather than reacting after the income event has already occurred, is what separates intentional strategy from coincidence.
3. Inherited IRA management under the SECURE Act.
For clients who inherit an IRA, the old “stretch” provision that allowed distributions over a lifetime is largely gone. Most beneficiaries now have a 10-year window to deplete the account. The planning question is when, within that window, to take distributions.
Consider a client who inherits an IRA two years before retirement and is still earning a full income. Depending on their income trajectory and tax bracket, delaying those withdrawals until after they stop working, while still within the 10-year depletion period, could shift distributions into meaningfully lower tax years.
4. Portfolio transitions for clients with embedded gains.
When a client comes in holding a portfolio of highly appreciated securities, triggering all of those gains in year one is rarely the right answer. A better approach recognizes those gains gradually over two, three or more tax years, spreading the burden while moving toward a better-diversified portfolio.
This requires a long-range view of the tax cost, not a reflex to get everything repositioned quickly.
Where investment decisions and tax strategy meet
Paying capital gains taxes is not inherently bad. It means your investments have grown. The risk of staying in a concentrated position that may no longer outperform can be far greater than the tax cost of diversifying.
We see clients hold individual company stock well past the point where it makes portfolio sense, purely to avoid a capital gains bill. That’s a case where the tax tail is wagging the investment dog.
The better goal is minimizing taxes without compromising portfolio quality and diversification. Strategies such as tax-loss harvesting, asset location and direct indexing are genuine tools, but they work best as optimizations on top of a sound plan, not as substitutes for one.
Three steps to explore before your next tax season
If you’ve been taking a reactive approach, here are three places to start looking for opportunities:
1. Pull out your 2025 tax return and look for surprises.
Were there large distributions you didn’t anticipate? Did you end up in a higher bracket than expected? Are there tax-advantaged accounts you could be contributing more to?
2. Identify any irregular income on the horizon.
Equity compensation, a business sale, a liquidity event, a large one-time expense: Each of these is a planning opportunity, and the earlier you can model the tax implications, the more options you have.
Once the income has already hit your return, many of the best strategies are off the table.
3. Get organized before you need to be.
One of the biggest sources of tax-season friction is simply not knowing where things are: Prior returns, IRS PINs, cost basis records, charitable contribution receipts.
Building a simple reference document for your annual tax prep reduces stress and makes it far easier to execute time-sensitive strategies without scrambling.
Taxes are unavoidable. But the total taxes paid over a lifetime of retirement are not fixed. They’re shaped by decisions made years in advance, at the right income levels, in the right accounts, in the right sequence. That’s a long game worth playing.
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