Tax Planning for Each Generation

The utility of different tax strategies can fluctuate with your age and where you are in your career. Below we’ll take a look at how various tax strategies may apply to each generation.


Whether they’re working part-time during high school or starting a career, members of Generation Z typically fall into one of the lower income tax brackets. As a result, they may benefit from funding a Roth IRA (or Roth 401(k) if offered by an individual’s employer).* Although Roth IRAs are funded with after-tax money, the account grows taxfree. After the account owner reaches age 59 ½, withdrawals will also be tax-free. For individuals currently in a lower tax bracket, a contribution to a Roth account may be preferable to a contribution to a traditional (tax-deferred) account because the tax-deferral benefit inherent to a contribution to a traditional account is less beneficial to a taxpayer in a lower tax bracket.


Generally, the benefits associated with tax-deductible contributions to a traditional retirement account increase as a taxpayer moves into a higher marginal tax bracket. Consequently, millennials and members of Generation X may want to prioritize contributions to traditional retirement accounts as they enter their higher-income years. All contributions to a traditional employer-sponsored retirement account are deductible up to the contribution limit. The deductibility of contributions to a traditional IRA depends on the taxpayer’s modified adjusted gross income and whether the taxpayer is covered by an employer sponsored retirement plan.* Although growth that occurs within a traditional account is tax-deferred, withdrawals are considered ordinary income. As a result, traditional accounts work best when a taxpayer anticipates that retirement income will be subject to lower tax rates than his or her current income.


Retirees with assets in retirement accounts may consider using the following strategies to minimize future income tax liability.

Converting assets from a traditional account to a Roth account

A Roth conversion allows a taxpayer to strategically move assets from a traditional account to a Roth account. The converted amount is taxed as ordinary income in the year of conversion. Account growth that occurs after the conversion is tax-free at the time of distribution. Roth conversions are often executed during the low-income years following retirement but prior to the start of Social Security benefits and/or required minimum distributions from tax-deferred accounts. A Roth conversion can have significant consequences, including increased Medicare premiums, increased taxation of Social Security benefits, and increased Net Investment Income Tax liability. Be sure to consult with your tax professional if you are considering implementing a Roth conversion strategy.

Executing a Qualified Charitable Distribution (QCD)

A taxpayer age 70 ½ or older may choose to transfer up to $100,000 per year from his or her traditional IRA to a public charity. QCDs are often used to satisfy a taxpayer’s required minimum distribution. Any amount transferred in this manner is excluded from the taxpayer’s adjusted gross income. This provides a great opportunity for taxpayers taking the standard deduction who generally don’t receive a benefit for charitable contributions. Additionally, a QCD can potentially have a positive impact on a taxpayer’s Medicare premiums. For more information on QCDs, contact your Stifel Financial Advisor and consult with your qualified tax professional.


The IIAR and ARF reserve investment funds are currently managed by Stifel Financial Services under the investment policy established by their respective board of directors. Members of IIAR may use the services of Stifel for personal and business investments and take advantage of the reduced rate structure offered with IIAR membership. For additional wealth planning assistance, contact your Stifel representative: Jeff Howard or Jim Lenaghan at (251) 340-5044. Stifel does not provide legal or tax advice. You should consult with your legal and tax advisors regarding your particular situation. These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable — we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice.