I Have $1 Million in Taxable Accounts and $1 Million in IRAs. How Can I Prepare for Higher Taxes?

If you've built up $1M in your IRA and $1M in taxable investments, David McKnight has a warning: every year that money stays put, the IRS gets to vote on your tax rate.

He breaks down a retirement planning strategy for gradually converting your IRA to Roth – fast enough to beat rising rates, slow enough to avoid painful brackets.

In this episode, David McKnight looks at what you should do if you have accumulated $1M in taxable investments, and $1M in traditional IRAs and are concerned about the possibility of higher taxes in retirement.

He stresses that having money in IRAs is like going into a business partnership with the IRS – every year they get to vote on what percentage of your profits they get to keep…

The solution to the IRA problem is relatively straightforward: start doing Roth conversions.

True, by doing so, you'll pay taxes on the conversion today, but you'll be doing so at near historically low tax rates.

Remember: the key is to convert money slowly enough that you don't rise into a tax bracket that gives you heartburn, but quickly enough that you get all the heavy lifting done before tax rates go up for good.

David predicts that, given the trajectory of the American national debt, the window of time to execute that strategy is about ten years.

Beware: just because you believe taxes are going to increase, it doesn't mean that you should reflexively convert all your money to tax-free.

You want to leave enough money in your traditional IRA to take advantage of your standard deduction in retirement.

If you're married and retiring today, your standard deduction is $32,000. Single? Then, it's half that amount.

David shares a couple of strategies that can help you skinny down the $1M in your taxable bucket.