Key Takeaways
- Traditional IRAs create three tax problems: owner’s RMDs at age 75, ‘the widow’s penalty’ (when the surviving spouse loses joint filing status and faces higher tax brackets), and beneficiaries’ forced 10-year liquidation during what could be peak earning years.
- The Secure Act eliminated the stretch IRA, forcing most beneficiaries to empty inherited accounts within 10 years, turning retirement accounts into post-death tax problems.
- Many advisors deliver annual planning but stop before reaching lifetime tax management across the owner’s, surviving spouse’s, and beneficiaries’ lifetimes.
A client converted several hundred thousand to Roth in the late 1990s. He recently passed away, and his son inherited a $5.7 million Roth account, completely tax-free.
That one decision, made 25 years ago, saved his family over $2 million in taxes.
Had it stayed traditional? The son would face forced distributions within 10 years, stacking every dollar on his existing income during his highest-earning decade.
What Financial Advisors Are Missing About Multi-Generational Tax Planning
I co-presented a webinar with Ed Slott and his IRA expert team. Over 1,200 advisors joined. The questions they asked revealed something critical: advisors often focus on annual tax optimization:” Your RMD is $47,000 this year” or “Should we fill up the 24% bracket before year-end?”
Almost no one asks: “How much should we distribute annually over the next 15 years to help minimize taxes across three critical events —when you take RMDs, when your spouse dies and loses joint filing brackets, and when your children inherit and face forced liquidation?”
Many advisors address the first moment. Few think about all three.
Why Traditional IRAs Create Three Separate Tax Problems
The multi-generational tax challenge breaks down into three distinct events.
Event 1: The Owner’s Required Minimum Distributions (RMDs)
Starting at age 75, clients are forced to take income whether they need it or not. This creates bracket creep, increases Social Security taxation, and often surprises clients who expected retirement to mean lower taxes.
The question advisors should ask: “How do we use your current low brackets before they disappear?”
[Related: 4 Types of Roth Conversion Strategies to Manage Taxes]
Event 2: Unexpected Tax Increase Known as ‘The Widow’s Penalty’
When one spouse dies, the survivor loses access to married filing jointly brackets. Income might drop slightly, but the standard deduction gets cut in half and the surviving spouse often finds themselves in higher tax brackets, creating a larger tax liability on the same income need.
I use a visual called the measuring cup to show clients this bracket shift. When filing jointly, you have more capacity to fill up the cup with income in lower brackets, in addition to having a much higher standard deduction. But when one spouse passes away, you go from the right side of the cup to the left side, meaning for the same income, many clients find themselves in a much higher tax bracket (single bracket vs MFJ bracket). The result: immediate and painful tax increases.
[Related: Tax Planning Strategies To Help You Serve Women Clients]
Event 3: The Beneficiaries’ 10-Year Forced Liquidation
This is where the SECURE Act changed everything.
The SECURE Act eliminated the stretch IRA. Many beneficiaries must now empty inherited accounts within 10 years, compressing distributions during what could be their highest-earning years when tax rates are typically at their peak.
Every dollar in a traditional IRA is an IOU to the IRS. Under current law, beneficiaries will be forced to settle it in a compressed window at potentially much higher rates.
Your clients’ adult children are probably at their career peaks, making strong income and paying top federal rates, often in high-tax states. Now imagine they inherit a $2 million IRA and must liquidate it within 10 years, stacking all distributions on top of their existing income.
If you’re not modeling what happens to client accounts post-death across all three of these events, you’re missing the biggest planning opportunity.
[Related: Year-End Tax Strategies for High-Net-Worth Clients: OBBB Planning Guide]
How Tax Management Differentiates Your Practice
Addressing all three tax problems systematically, across the owner’s lifetime, the surviving spouse’s lifetime, and the beneficiaries compressed timeline, separates advisors who retain affluent clients from those who don’t.
As Ed Slott puts it:
“Tax preparation costs you money. Tax planning makes you money. That’s a big difference. And tax planning is not only lifetime, it’s multi-generational.”
When you save a family hundreds of thousands or millions in lifetime taxes by modeling all three taxation events, you stand apart completely.
[Related: How to Provide Exceptional Wealth Management for High-Net-Worth Individuals]
Master Multi-Generational Tax Planning Through The Tax Management Journey®
These insights are what we teach advisors to implement systematically through The Tax Management Journey® training.
The Tax Management Journey® provides the seven-step framework, visual tools like the measuring cup, presentation materials for client meetings, and CPA coordination processes you need to integrate The Tax Trilogy into your practice.
Book a complimentary 20-minute strategy call to explore how this framework helps you implement multi-generational tax management and attract higher-net-worth clients. Learn if you qualify to attend the full training at no cost.
[Related: Staying Sharp to Stay Ahead: Why Continuous Learning is Crucial as a Financial Advisor]
Frequently Asked Questions About Multi-Generational IRA Tax Planning
During the webinar with Ed Slott, several questions came up repeatedly from the 1,200 advisors in attendance. Here are the most common ones and the answers that matter for your practice.
When should we start Roth conversions with clients?
As early as possible when rates are known and low. The ideal windows: early retirement before RMDs begin, years with lower income (job transitions, business sales), or the year of a spouse’s death when filing the final joint return. Each offers unique opportunities to convert at favorable rates.
What about IRMAA?
Medicare premium increases from Roth conversions concern many clients. IRMAA surcharges are minimal compared to the lifetime tax savings. Don’t sacrifice hundreds of thousands in tax savings to avoid a few thousand in temporary Medicare premiums.
What if my client is already in a high bracket?
If they’re a high earner, they’ll probably always be in the top bracket. So 37% today might be a bargain compared to rates in 10 or 20 years. More importantly, if they don’t convert, their beneficiaries will pay 37%+ on compressed distributions during their highest-earning years.
Should young investors still max out traditional 401(k)s?
Young investors in the 12% or 22% brackets should consider focusing exclusively on Roth contributions. Taking a deduction at low rates to pay higher rates later is backward planning. A 45-year-old client with $2 million in her pre-tax IRA deferred taxes at 22% twenty years ago. Now she could pay 24%-37% to withdrawal, and her kids will pay even more when they inherit.
What’s the difference between tax planning and tax management?
Tax planning optimizes for a single year or short window. Tax management is lifetime strategy that helps minimize multi-generational tax burden through systematic, ongoing processes.
What is multi-generational tax planning?
Planning that considers three taxation events: owner’s RMDs, surviving spouse’s widow’s penalty, and beneficiaries’ 10-year forced distributions to minimize total family tax burden.
How can I implement these strategies with clients?
The Tax Management Journey® teaches a systematic seven-step framework with visual tools like the measuring cup, presentation materials for client meetings, and processes for CPA coordination to help you implement these strategies consistently.
[Related: Structuring Your Financial Advisory Firm for Success]
Learn More: Tax Management Podcasts and Resources
Hear how advisors are implementing multi-generational tax strategies and IRA planning in their practices. Explore real-world insights on Roth conversions, tax management, and working with high-net-worth clients:
The Bucket Plan® On Demand – Episodes featuring tax-efficient distribution strategies and lifetime income planning
The Rainmaker Multiplier On Demand – Conversations with advisors growing their practices through advanced tax planning expertise
[Related: The One Big Beautiful Bill Act (OBBB): Key Tax Changes Advisors Should Know]
For Financial Professional Use Only. This information is for educational purposes and not intended as individual investment, tax, or legal advice. Tax laws frequently change—consult with qualified professionals.