Tax Planning Strategies for High Earners and Retirees
Four tools from a conversation with Michael Allen, CFP®, and the situation each one is built for.
Key Highlights
- A qualified charitable distribution sends IRA money directly to a qualified charity and, when the rules are met, is excluded from taxable income.
- A qualified charitable distribution cannot be made to a donor-advised fund.
- A backdoor Roth IRA is a non-deductible IRA contribution followed by a conversion, and the pro-rata rule applies when other pre-tax IRA money exists.
- Up to $3,000 of net capital loss a year can offset other income, and the wash sale rule can disallow a loss.
- In Michael’s words: “we don’t want the tax tail to wag the dog.”
Watch the Episode
Recorded in March 2026. Where this page differs from the episode, such as the required minimum distribution age, the page cites the IRS and Treasury sources listed at the bottom.
In this episode of Best Advice Podcast Guys, Rob Lovaglio talks with Michael Allen, CFP®, of Security Financial Management, about the month’s planning topic. Michael says he is taking each tool at a “30,000 foot” level, and that anyone interested can talk it through with the firm and with their CPA to see whether it fits their plan.
Chapters
- 0:26 — Welcome and introducing Michael Allen
- 1:14 — The month’s topic: tax planning
- 1:51 — Qualified charitable distributions
- 4:55 — Donor-advised funds
- 6:19 — The backdoor Roth IRA
- 7:17 — Direct indexing and tax-loss harvesting
- 10:30 — Coordinating with the CPA and the rest of the plan
What Is a Qualified Charitable Distribution?
A qualified charitable distribution, or QCD, is a gift made directly from an IRA (other than an ongoing SEP or SIMPLE IRA) to a qualified charity, available on or after the date the owner reaches age 70½. A qualified charitable distribution that meets the rules is excluded from the account owner’s taxable income, and it can count toward that year’s required minimum distribution. The qualified charitable distribution limit is $111,000 per person for 2026. (Source: IRS Notice 2025-67.) Required minimum distributions generally begin at age 73 for people born from 1951 through 1958, and at age 75 for people born in 1960 or later. For people born in 1959, the final regulations reserved the rule because of an ambiguity in section 107 of SECURE 2.0, and a separate proposed rule (REG-103529-23) addresses it. (Source: Treasury final regulations, July 2024.)
In the episode, Rob offers a $5,000 gift to a charity as the example, and Michael explains that the same gift sent from the IRA is not reported as income, because “if it goes directly to the organization, it’s not” reportable. He frames it for people who are “charitably inclined already” and do not need the money.
How Is a Donor-Advised Fund Different from a Qualified Charitable Distribution?
A donor-advised fund is a separately identified fund or account owned and controlled by a sponsoring 501(c)(3) organization, in which the donor can advise or recommend how amounts are distributed or invested. Donating long-term appreciated securities directly to a donor-advised fund generally allows an itemizing donor to deduct the fair market value, subject to adjusted-gross-income limits, without recognizing the capital gain. Qualified charitable distributions cannot be made to a donor-advised fund.
That makes the two tools start from different assets. A QCD moves money directly from an IRA. A donor-advised fund can be funded with appreciated holdings from a taxable account. Michael describes using it for households that hold “a lot of highly appreciated assets” and already like to give: gift the appreciated holding, then fill the gaps in the portfolio with cash to rebalance.
What Is a Backdoor Roth IRA, and Who Is It For?
A backdoor Roth IRA is a non-deductible contribution to a traditional IRA that is then converted to a Roth IRA, used by people whose income is too high to contribute to a Roth IRA directly. For 2026, the ability to contribute directly to a Roth IRA phases out between $153,000 and $168,000 of income for single and head-of-household filers, and between $242,000 and $252,000 for married couples filing jointly. (Source: IRS 2026 limits announcement.) Federal rules set no income limit on converting a traditional IRA to a Roth IRA.
The step that catches households is the pro-rata rule. When a person holds other pre-tax IRA money, a Roth conversion is taxed on a proportional basis rather than only on the amount just contributed, which is calculated on IRS Form 8606. Michael is direct that it is a narrow fit: “it’s not appropriate for everybody,” because many households can simply contribute to a Roth IRA. He calls it “another tool” among several.
How Does Tax-Loss Harvesting Work, and What Is Direct Indexing?
Capital losses offset capital gains, and up to $3,000 of net capital loss a year ($1,500 if married filing separately) can offset other income, with the rest carried forward. (Source: IRS Topic 409.) Michael describes tax-loss harvesting as taking a loss on a holding and then buying something else right away.
Tax-loss harvesting has limits. Under the wash sale rule, an investor generally cannot deduct a loss on a sale if they buy substantially identical stock or securities within 30 days before or after the sale. (Source: IRS Publication 550.) Michael raises the same 30-day point in the episode, and says the goal is not to leave cash on the sidelines while waiting it out.
The limits matter as much as the offset. A replacement holding’s basis is usually its purchase price, typically lower than the basis of the lot sold, so part of the tax reduced by harvesting a loss can come back as a larger taxable gain when the replacement is later sold. The replacement holding can fall in value as well as rise.
Direct indexing means owning many or all of the individual stocks in an index instead of a single fund, which lets losses on individual holdings be realized separately. Michael calls it “a non-qualified account where you’re trying to tax harvest,” and says it “gets really technical.” He closes that part with a caution that applies to every tool on this page: “it’s just another tool.”
Which Tool Fits Which Situation?
| Tool | What it does | Starts from | Condition to check |
|---|---|---|---|
| Qualified charitable distribution | Sends IRA money directly to a charity; excluded from taxable income | A pre-tax IRA, owner age 70½ or older | $111,000 per person for 2026; cannot go to a donor-advised fund |
| Donor-advised fund | Gift of appreciated securities to a charitable account; the donor recommends grants | Long-term appreciated holdings | Deduction is subject to adjusted-gross-income limits |
| Backdoor Roth IRA | Non-deductible IRA contribution, then a conversion to a Roth IRA | A household with income above the Roth contribution limit | Pro-rata rule applies when other pre-tax IRA money exists (Form 8606) |
| Tax-loss harvesting | Realizes losses to offset gains | A holding that has fallen in value | $3,000 a year against other income; wash sale rule |
Why the Four Belong in One Return
Each of these four tax planning tools (a qualified charitable distribution, a donor-advised fund, a backdoor Roth IRA and tax-loss harvesting) changes what lands on the return in a given year. Decided one at a time, they can work against each other; decided together, they can be sized to fit. Michael’s version of this is a rule of thumb: “we don’t want the tax tail to wag the dog.” The financial planner, he says, is “a quarterback” who works with the CPA, the estate planning attorney, the insurance agent and the investment team.
The conversation also ends on a margin-based index strategy that Michael describes as “not for everybody.” It is not covered on this page. Whether any strategy is suitable depends on the household, and this page does not recommend a product.
Frequently Asked Questions
What is a qualified charitable distribution?
A qualified charitable distribution (QCD) is a gift made directly from an IRA (other than an ongoing SEP or SIMPLE IRA) to a qualified charity, available on or after the date the owner reaches age 70½. One that meets the rules is excluded from the account owner’s taxable income, and it can count toward that year’s required minimum distribution.
Can a qualified charitable distribution go to a donor-advised fund?
No. Qualified charitable distributions cannot be made to a donor-advised fund. A QCD comes from an IRA, while a gift to a donor-advised fund comes from other assets, such as appreciated securities.
At what age do required minimum distributions start?
Required minimum distributions generally begin at age 73 for people born from 1951 through 1958, and at age 75 for people born in 1960 or later. For people born in 1959, the final regulations reserved the rule because of an ambiguity in section 107 of SECURE 2.0, and a separate proposed rule (REG-103529-23) addresses it.
What is the pro-rata rule on a backdoor Roth conversion?
When a person holds other pre-tax IRA money, a Roth conversion is taxed on a proportional basis rather than only on the amount just contributed. The calculation is made on IRS Form 8606.
How much investment loss can offset other income in a year?
Capital losses offset capital gains first. Up to $3,000 of net capital loss a year ($1,500 if married filing separately) can then offset other income, with the rest carried forward.
What is a wash sale?
A wash sale happens when an investor buys substantially identical stock or securities within 30 days before or after selling a holding at a loss. An investor generally cannot deduct a loss on a wash sale.
Who should a household consult before using these tax planning strategies?
A household considering a qualified charitable distribution, a donor-advised fund, a backdoor Roth IRA or tax-loss harvesting can review it with its financial planner and its CPA, so the strategy fits the rest of the return and the plan. This page is general education and is not tax advice.
Can tax saved by harvesting a loss come back later?
It can. A replacement holding’s basis is usually its purchase price, typically lower than the basis of the lot sold, so part of the tax reduced by harvesting a loss can come back as a larger taxable gain when the replacement is later sold.
Full Conversation
This transcript has been edited for length and clarity. Brackets mark text added by the editor.
ROB LOVAGLIO: Today’s episode is brought to you by Security Financial Management. Welcome back to Best Advice Podcast. I’m here with Michael Allen, certified financial planner here at SFM. [Cut: a job title.]
MICHAEL ALLEN: Today’s an interesting episode. The monthly topic at Security Financial Management is tax planning. So we’re going to get into qualified charitable distributions, backdoor Roth IRAs, donor-advised funds, and even some direct indexing, which is very complicated. I’m going to go 30,000 foot, and then if somebody is interested, they can call us. We can set up a time to talk and see if it fits in their plan, and then also collaborate with their CPA to make sure it all makes sense. So let’s start with qualified charitable distributions, or QCDs.
MICHAEL ALLEN: It’s when somebody is 70 and a half years old and they have money in their IRA. It used to go with the required minimum distribution, when they required people to take it out at 70 and a half. Now it’s later in life that they require it. I think it’s 73 now [Editor’s note: 73 for people born from 1951 through 1958 and 75 for people born in 1960 or later; the rule for 1959 is reserved]. However, they still let people give to a charitable organization directly from their IRA, and there’s no income tax, as opposed to if they take the money out and spend it, or it goes into another account. Then they’re going to pay taxes on it.
ROB LOVAGLIO: So, hypothetically, if somebody has $5,000 they want to give to the Salvation Army.
MICHAEL ALLEN: [Cut: an unclear passage about a gift from a checking account.] If they have to take money out of their IRA anyway, [Cut: an advice-style comparison of which account to give from.] So if somebody’s required to take money out at 73, or even 70 and a half, and they already give money to an organization, [Editor’s note: the gift can come from the IRA instead of from savings]. Say hypothetically you don’t need the money coming from your IRA. You can take $5,000 from the IRA, send it to the charity directly, and not pay taxes on it [Editor’s note: when the QCD rules are met: age 70½ or older, paid directly to a qualified charity, and within the annual limit], and you’re still satisfying the required minimum distribution coming out of your IRA.
ROB LOVAGLIO: Does it deduct from your income?
MICHAEL ALLEN: It doesn’t go into income at all. It would have been reportable income if it came to you. But if it goes directly to the organization, it’s not. It’s great, especially if you don’t need the money and you’re charitably inclined already.
ROB LOVAGLIO: Okay. So you’re comparing it with somebody who has a non-qualified account with a lot of highly appreciated stock in it.
MICHAEL ALLEN: Yeah. They still like to give to organizations. They can take that stock and move it directly into a donor-advised fund account. The organization can sell it, and you can sell within that donor-advised fund. [Cut: statements that no one pays any tax.] [Cut: references to client services and client use.] Where they have a lot of highly appreciated assets in their brokerage accounts, and they like to give, instead of giving cash, we say let’s take that highly appreciated asset and move it over into the donor-advised fund. You’re gifting it over there, and then let’s fill in the missing holes in your portfolio to rebalance with cash.
ROB LOVAGLIO: All right, Michael, keep it going. You’re on a roll. What’s next? Backdoor Roth IRA?
MICHAEL ALLEN: Again, it’s not appropriate for everybody, because a lot of people can just add to a Roth IRA if they don’t make too much money. If you make too much money, or there are different criteria that say the IRS says you can’t do a Roth IRA anymore, you can do a backdoor Roth. You contribute to a non-deductible traditional IRA, and then you move it over to a Roth IRA. So you don’t get a deduction. [Cut: statements about how the account grows and how withdrawals are taxed.] Again, we try to diversify tax strategies, and that’s one of them. It’s another tool to use.
ROB LOVAGLIO: So let’s keep rolling down the tool list. What about direct indexing? This one I’m least familiar with.
MICHAEL ALLEN: Right. Direct indexing again is a non-qualified account where you’re trying to tax harvest. Tax-loss harvesting is if you have a loss in a holding, and you have gains that you want to offset in the future, you take that loss, you sell it, and then you buy something really quick. If the market goes up, great. However, you booked that loss already, so that can go against long-term capital gains. [Cut: two named stocks and a reference to the largest technology stocks.] This is where it gets really technical and I don’t want to get too far into the weeds, but at the same time it gives you a strategy to [Editor’s note: use realized losses to offset gains; it does not reduce the investment loss itself]. It may not work great in a market that’s going screaming high. It’s just another tool.
ROB LOVAGLIO: You’re subtracting the losses from your gains and paying less in taxes [Editor’s note: a replacement holding’s basis is usually its purchase price, typically lower than the basis of the lot sold, so part of the tax reduced by harvesting a loss can come back as a larger taxable gain when the replacement is later sold].
MICHAEL ALLEN: Exactly. Another thing with tax-loss harvesting: you could go back into that individual holding if you wanted to, but it has to be after 30 days, or they call it a wash sale. Generally what we do, we don’t want to have that cash sitting on the sidelines for 30 days, because a lot can happen in a day. We want to have it back in a holding. So if the market goes up, there are gains, you take advantage of those gains, but you booked the loss.
ROB LOVAGLIO: Before we let you go, I know [that strategy] has been a hot topic between advisors. What exactly is that?
MICHAEL ALLEN: It’s like indexing, direct indexing. However, you own it and they use margin. Again, I don’t want to get too into the weeds. The thing is, it’s not for everybody. [Cut: the product name, its minimum, and statements about client outcomes.] With any of these tools, we don’t want the tax tail to wag the dog. Financial planner is a quarterback. We like to collaborate with the insurance agents, with the CPAs, with the estate planning attorneys, and also the investment people. The financial planner is the quarterback.
ROB LOVAGLIO: If you want to talk to Michael Allen or any of our certified financial planners here at Security Financial Management, [Editor’s note: the scheduling link is below.] [Cut: closing slogan.] Happy days, everybody.
This podcast is for entertainment and educational purposes only and is not intended as personal financial advice. Before making any financial decision, please do your own research and consult a financial adviser as needed.
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If you would like help applying this to your plan, our team works with households across Central Florida on exactly this question: how gifts, conversions, gains and losses fit together in one return.
About the Speakers
Rob Lovaglio · Host, Best Advice Podcast Guys · Security Financial Management. Rob hosts the SFM monthly podcast conversation series covering retirement, tax and estate coordination for households across Central Florida.
Michael Allen, CFP® · CRD #3153161 · Security Financial Management. Verify credentials at BrokerCheck by FINRA.
Sources
- IRS, Notice 2025-67, 2026 cost-of-living adjustments
- IRS, 2026 retirement plan limits announcement (Roth IRA income ranges)
- IRS, Publication 590-B, Distributions from Individual Retirement Arrangements
- IRS, Publication 590-A, Contributions to Individual Retirement Arrangements, and Form 8606 instructions
- Federal Register, Required Minimum Distributions final regulations, July 19, 2024
- 26 U.S.C. § 408 and § 4966
- IRS, Donor-advised funds, Publication 526 and Topic 506
- IRS, Topic 409, Capital gains and losses, and Publication 550
- FINRA, Direct indexing
- For the limits of tax-loss harvesting: IRS, Publication 551; Michael Kitces, Is Capital Loss Harvesting Overvalued?; The Tax Adviser, The economics of tax-loss harvesting (September 2023); Investor.gov, Risk tolerance
- For the backdoor Roth definition, the pro-rata rule and the absence of an income limit on conversions, where the IRS pages are silent: Charles Schwab, Vanguard and Wells Fargo
Figures checked against these sources in October 2026. IRS amounts are for the tax year stated and change over time.
Disclosures
The information presented is for educational purposes only and does not constitute legal, tax, or investment advice, and is not a recommendation to buy, hold or sell any security or to use any strategy. Tax figures are the IRS amounts for the year stated and change over time; confirm them with a tax professional. Diversification and asset allocation do not ensure a profit or protect against loss in a declining market. Past performance is not indicative of future results. Securities offered through Kestra Investment Services, LLC, member FINRA/SIPC (Kestra IS). Investment advisory services offered through Kestra Advisory Services, LLC (Kestra AS). Security Financial Management, Bluespring Wealth Partners, LLC, Kestra IS and Kestra AS are affiliated through common ownership by Kestra Holdings. Verify advisor credentials at BrokerCheck by FINRA or SEC Investment Adviser Public Disclosure.