Tax Strategies for High-Income Individuals and Families

In This Video:

Do you know what comes with a higher income?  Most likely a higher tax bracket and a larger tax bill! Whether you are making an above-average income OR you have maxed out your retirement accounts and just wondering where to save in the most tax-efficient way, this video covers 11 tax strategies for high-income individuals to help reduce taxes and keep more of your hard-earned money with you and your family.

Things To Consider:

As your income rises, your tax rate rises.  When this happens not only is your income being taxed at a higher rate, but you will also pay a higher tax rate on any interest, dividends, and gains that you have in non-retirement accounts (ex. Brokerage Accounts, CDs, etc).  One of the challenges for those making a higher income is understanding how to keep as much of that money as you can.

First, let’s understand your tax bill.  Let’s keep it simple, how much you owe is based on:
What you have coming in:

  • income (wages, salaries, tips, pensions, retirement distributions, etc.)
  • interest, dividends, capital gains (From brokerage accounts, CDs, savings, money market, etc.)


  • Deductions

From that formula, you can quickly see that if you want to reduce your tax bill today you would need to reduce income, interest, dividends, and gains or increase deductions.

Let’s break these line items down a little further and understand what kind of adjustments you could make to impact your tax bill:

-Reduce it today and delay it to the future

Interest, Dividends, Capital Gains
-Pay tax as you go (Paying tax each year on these items)
-Defer tax to the future (A strategy using tax-deferred accounts that delays the taxes on these items until you make withdrawals from these accounts in the future)
-Don’t pay tax again (A strategy using tax-free accounts that provides tax-free growth and tax-free account withdrawals)

-Increase your deductions

There are multiple strategies that you can use to these types of adjustments to your tax bill and each strategy has it’s upsides and downsides.  Implementing some actions to reduce your taxes today may only be adding to your tax burden in the future.

While it is normal to think that your taxes may be lower in retirement, that is not always the case.  If you’ve saved a healthy amount into your IRAs, 401(k), 403(b) or 457 plans, the required minimum distributions (RMDs) may put you in a similar or higher tax bracket in your retirement than where you are at today.

When helping clients through tax planning decide on which strategies to implement, here are a few key items that we look at that you would want to consider:
-Today’s Tax Rates vs. Future Tax Rates
-Your Taxable Income Today vs. Your Future Taxable Income
-Timing of Implementation

In the video are the 11 strategies that high-income individuals can utilize to potentially reduce their taxes today, reduce their long-term tax burden, or both.  Here is a summary of the strategies that are covered in more detail in the video:

  1. Utilizing Retirement Accounts

Saving into your retirement accounts could provide you a tax deduction today or it could provide you tax-free growth and tax-free withdrawals for your future.  For those that have maxed out their retirement accounts, understanding additional strategies like After-Tax 401(k) Contributions or Back-Door Roth Contributions could help defer the tax (or convert it to tax-free) on interest, dividends, and gains on your surplus savings.

  1. Investments in Taxable Accounts

Paying attention to the investments in your non-retirement accounts could help prevent “extra” income from being added to your tax bill each year.  It could make the difference between your recognized investment gains getting taxed at a more favorable long-term capital gains rate vs. your ordinary income tax rate.

  1. Utilizing a Health Savings Account (HSA)

By saving into this triple tax-advantaged account you can reduce your income taxes today, get tax-free growth on your savings, and make tax-free withdrawals for qualified expenses.

  1. Deferred Compensation Plans

If offered by your employer, this is a process to delay some of your income to a future date to help reduce your taxes today.

  1. 529 Plans

If you plan to support your children’s or grandchildren’s college education, by shifting some of your savings into a 529 plan, you are able to keep the interest, dividends, and gains on that savings out of your annual taxable income.  If the savings is used for qualified expenses, you could essentially capture those gains tax-free.

  1. Utilizing Tax-Deferred Annuities

By putting non-qualified (after-tax) funds into an annuity, you are keeping any of the interest, dividends and gains out of your current tax bill and deferring it to a future date when you make a withdrawal from the annuity.

  1. Choosing the Right Business Structure

If you own a business, are self-employed, or an independent contractor, by taking the time to structure how you or your business gets taxed could help keep more of your revenue with you.

  1. Utilizing Life Insurance that Builds Cash Value

When properly structured, you could potentially put some of your surplus savings into a life insurance policy.  In doing so you are deferring tax on your interest, dividends and gains and may have the ability to take tax-free loans.

  1. Investing in Real Estate

By adding real estate to your portfolio, you may be able to increase your annual deductions.

  1. Charitable Strategies

Understanding and utilizing charitable strategies like Donor-Advised Funds, Gifting Appreciated Stock and Qualified Charitable Distributions could help you achieve a larger deduction or reduce your taxable income in addition to the standard deduction.

  1. Gifting

If part of your plan is to pass a portion of your wealth to your heirs, it may be beneficial to begin to gift it to them.  Especially if you are in a higher tax bracket than your heirs or if you just need to lower your overall taxable income.  However, when it comes to investments, you would definitely want to consider the trade-offs of gifting vs. using the step-up in cost basis upon death.


When meeting with someone new, all too often, we find little to no coordination between their taxes, their investment picture, and their future.  Putting together a tax plan and taking small actions could potentially make big differences in how much you will take home over your lifetime.  When it comes to taxes, there are 2 options.  You can become complacent.  Or, you can be proactive.  In my opinion, being proactive can potentially keep more of your hard-earned income in your pocket.