How to reduce the multi-million-dollar tax bill from a large IRA

I talk to people like this all the time:

• California resident
• $7M traditional IRA
• Age 73

If you simply take the required minimum distributions (RMDs) each year without a broader tax strategy, you could end up paying more than $3 million in cumulative taxes over your lifetime.

The key is to:

• Intentionally manage RMDs and Roth conversions, and
• Unlock ordinary deductions that can be used to reduce the income tax on those

Depending on your situation, that could include:

Real estate depreciation

• Particularly for those who qualify for Real Estate Professional Status (REPS)
• Large depreciation deductions can help offset IRA distributions or Roth conversion income

Tax-aware hedge funds

• Certain strategies are designed in a way that can harvest ordinary deductions while remaining invested
• Particularly valuable for high-income California taxpayers facing combined marginal tax rates approaching 50%

Charitable planning

• Donor Advised Funds (DAFs), charitable trusts, and private foundations can all play a role
• The right structure depends on your charitable goals, income needs, and overall estate plan

The biggest mistake I see is waiting until RMDs become the focus.

The earlier these pieces are coordinated, the more opportunities you generally have to reduce lifetime taxes.