Tax-Efficient Strategies for High-Income Families in 2025
By Brandy Branstetter, CFP®
Although you might be diving into preparing your 2024 tax return, it’s also a perfect time to implement tax-saving strategies for 2025—especially if you’re a high-income earner and fall into the higher tax brackets that seem to take more of your money each year. At Beyond Wealth, tax planning is a core element we integrate within our wealth management and planning services. In our experience, not having a coordinated and tax-efficient plan can lead to unnecessary tax liability and less money for your own objectives and life aspirations. The sooner you start, the more tax dollars you could save. Here are the top tax strategies we recommend.
Steps to Reduce Your 2025 Taxable Income
Maximize Your Retirement Contributions
401(k), 403(b), and 457 Plans: In 2025, the 401(k), 403(b), and most 457 plans have an annual contribution cap of $23,500. Those 50 and older are also eligible to contribute an extra $7,500 in catch-up contributions, and for anyone age 60-63, a new “super” catch-up contribution cap of $11,250 is allowed. Maximizing your contributions to an employer-based retirement plan is one of the best deductions options still available to high-bracket taxpayers to reduce your taxable income.
Efficient Use of Tax-Advantaged Accounts
Health Savings Accounts (HSAs): Other than a 401(k) retirement account, one of the last great tax-advantaged accounts available that we recommend for high-income earners is the health savings account. For those in high-deductible health insurance plans, HSAs offer triple tax benefits in saving for future qualified medical expenses. Contributions to an HSA ($4,300 single/$8,550 family with $1,000 extra for those 50+) are income tax-deductible and the funds in the account grow tax-deferred. Withdrawals for qualified medical costs are tax-free. High-income families often overlook this strategy as a stealth retirement and medical-expense savings tool since funds roll over indefinitely. Maximizing your contribution to these accounts each year is smart tax and financial planning.
529 Plans: 529 college savings plan accounts offer tax advantages when saving and investing for qualified education expenses (now including K-12 private school tuition as well as college). Distributions for qualifying educational expenses are federally tax-free and contributions may also be state tax-deductible (check residency requirements). Under the SECURE 2.0 Act, up to $10,000 (lifetime) of the account may be used to pay back student loans, and limited rollovers of unused funds to a Roth IRA for the 529 account beneficiary are now allowed, as well as changing beneficiaries to other family members.
Leverage Charitable Giving Strategies
Donor-Advised Funds (DAFs): We often suggest donor-advised funds for our philanthropic high-income clients. DAFs are charitable investment accounts that allow an immediate tax-deduction for contributions along with the freedom to choose when and to whom a donation may be made. Earnings within the account grow tax-free and the donor may designate which qualified charitable organizations will receive donations from the account at any time in the future.
For high-income earners, DAFs provide a number of tax-saving opportunities. First, they facilitate “bunching” of donations to maximize income tax deductions in a single year. Bunching means you can combine deductions by contributing multiple years’ worth of charitable donations to a DAF into one year. (Example: If you normally donate $10,000/year, consider donating $30,000 and itemize deductions this year, then use the standard deduction in the following years.)
Second, DAFs allow contributed assets to appreciate tax-free. Donors can avoid capital gains taxes on highly appreciated assets (such as common stock) by donating them to a DAF and enjoy a tax deduction on the entire value donated.
Qualified Charitable Distributions (QCDs): If you are over 70½ or subject to required minimum distributions (RMDs) on IRA and qualified retirement accounts, you can utilize a QCD deduction of up to $100,000 each year to donate your taxable RMD to charity. This is an effective tax strategy for high-income retirees who don’t require the RMD income for lifestyle expenses but certainly don’t want the extra income tax liability generated by these required distributions. Speak with your tax professional or call us to help you coordinate this technique with other charitable or planning objectives.
Tax-Efficient Investment Strategies
While there are only a handful of ways to reduce taxes on the income you earn each year, there are a variety of other strategies that can be implemented to help you save on future taxes from your investments.
Utilizing Backdoor Roth IRAs
Backdoor Roth IRA: As we discuss here, tax planning is a lifetime endeavor that considers tax exposure in the future as well as the present, and paying taxes now may save considerable taxes in the future, particularly if you’re expecting higher future tax liability. If your higher income prohibits you from contributing to a Roth IRA each year, a backdoor Roth strategy may be used to convert traditional IRAs to a tax-free Roth IRA account. Bear in mind that doing so will mean more income subject to taxation in the conversion year and paying the taxes should be funded from sources other than the IRA itself to avoid penalties—so consulting with an experienced financial professional and/or tax advisor is recommended.
The Mega Backdoor Roth strategy: You can also build a tax-free retirement account within your 401(k) plan via this technique. If your employer plan allows after-tax contributions (and since the employee/employer maximum is $70,000 in 2025), you are allowed to contribute an additional $46,500 of after-tax contributions (on top of the normal maximum pre-tax $23,500) to a Roth account within the 401(k) plan. Employer contributions reduce the allowable after-tax contributions you could make, but the method is effective for accumulating after-tax retirement resources that can be rolled over to a Roth IRA in the future. The maximums are even higher for those over 50 ($77,500) and those who are age 60-63 ($81,250) due to the 2025 “catch-up” provisions. Check with your employer plan to see if after-tax contributions are permitted.
Consider Tax-Loss Harvesting
Tax-loss harvesting is a tool we work on year-round for our clients. In a taxable investment account, this strategy involves selling holdings at a loss to offset capital gains from other investments or to reduce overall taxable income. This is similar to “weeding your investment garden” by selling lagging investments at a loss and using the booked losses to offset taxable gains on your bountiful winners. However, be aware of the “wash-sale rule,” an IRS rule that bans investors from deducting losses on investments if they buy back the same or a “substantially similar” asset within 30 days before or after the sale. Examine your taxable brokerage accounts for opportunities year-round to make the most of this strategy.
Allocate Assets Strategically
Asset location is a fundamental component of tax-efficient investing. Asset location means strategically placing different investment types in the most tax-appropriate accounts. For example, in order to reduce tax obligations, high-dividend stocks and bonds are usually optimally suited for tax-deferred accounts, such as traditional IRAs. Conversely, high-growth securities are better suited for your tax-free Roth IRA. Lastly, your taxable accounts are best used to hold investments that you plan to own for a long period of time and don’t produce a lot of income. By holding them for the long term, you can benefit from the lower long-term capital gains rate. Income-producing investments in your taxable accounts can add to your taxable income. Examine your Form 1099 statements to see how much taxable dividend and capital gain tax liability you’ve incurred, and review your accounts to see where a holding relocation might be beneficial.
Utilize Tax-Efficient Investment Accounts
At Beyond Wealth, we favor tax-efficient investments such as index funds and ETFs as a savvy strategy to limit capital gains distributions. Since these investments seek to mimic a target index, there is little trading of internal holdings throughout the year, saving the high-income investor money in limiting taxable short-term capital gains exposure (taxed at ordinary income rates) and lowering internal investment expenses as well. Municipal bonds are a staple fixed income holding for taxable accounts since the interest paid is exempt from federal income tax. If you’re still holding high-turnover mutual funds and other expensive investments in your taxable accounts, you might consider changing to these tax-efficient alternatives this year.
Talk to Us About What’s Possible—for You and Your Family
Mitigating taxes is often a complicated and confusing process. Most individuals are too busy to manage their financial landscape alone, and no one likes to pay more taxes than necessary or miss money-saving opportunities they didn’t know about.
We understand.
Our team at Beyond Wealth focuses on the most efficient strategies to help you realize your objectives and life aspirations. Our independent advisory firm offers an array of services—focused on our clients—to help pursue a confident financial future.
Our goal is aligned with yours: Connect your wealth to your life’s objectives and empower you to choose and follow the financial road that feels right for you and your family.
Are you interested in finding out if the above tax strategies could work for you? Give us a call (913) 871-7980 or email brandy@beyond-wealth.com to schedule an introductory meeting and start this year on a better financial path toward your own vision.
About Brandy
Brandy Branstetter, CFP® is Principal & Wealth Advisor at Beyond Wealth, a fiduciary financial advisory firm based in Overland Park, Kansas. Beyond Wealth is dedicated to empowering clients to make confident and meaningful financial decisions. Specializing in helping mid-career professionals and business owners navigate their work-optional lifestyle, the firm provides personalized comprehensive wealth management services to the Kansas City metro area and beyond.
Brandy’s approach is collaborative and values-driven, helping clients pursue financial independence while aligning their plans with their unique goals and aspirations. She began her financial career in 2005 and became an advisor in 2012. Throughout her journey, she noticed a disconnect in how many firms communicated with female clients, inspiring her to establish a practice focused on genuinely engaging and supporting women in their financial journeys. In 2012, she co-founded Beyond Wealth with a mission to provide clients—especially female professionals and entrepreneurs—the guidance needed to navigate their financial complexities. Together with her business partner, Andrew, Brandy developed the “Good, Better, Best” financial planning framework to deliver tailored strategies that help clients achieve meaningful progress towards their financial aspirations.
Brandy earned a BSBA in Finance from the University of Tulsa and holds the CERTIFIED FINANCIAL PLANNER® designation. Outside of work, she enjoys spending time with her husband, Jon, and their two children, Alexa and Ethan. In their downtime, they love golfing, exploring new vacation spots, and attending live events—everything from rock concerts to Broadway musicals. A dedicated sports enthusiast, Brandy especially enjoys watching Oklahoma Sooner football and cheering on the Kansas City Chiefs. With a lifelong dream of living by the beach, she’s always planning her family’s next big adventure. To learn more about Brandy, connect with her on LinkedIn.