The Chicago Asset Manager’s Guide to Multi-Year Tax Strategy for High Earners
For many high earners, tax planning feels compressed into the final weeks of the year. December arrives, your CPA reaches out about estimated taxes, and decisions get made quickly — charitable contributions, retirement contributions, or potential Roth conversions — all with the goal of reducing this year’s tax bill.
The challenge is that a year-end approach often focuses on tax compliance rather than long-term tax efficiency.
For families with multiple income sources, equity compensation, business income, or significant investment portfolios, tax strategy works best when viewed across multiple years rather than a single tax return. Investment decisions, withdrawal timing, charitable giving, and retirement planning all interact with the tax code in ways that only become clear when viewed over time.
This guide explains how multi-year tax planning works, why it matters for high earners in the Chicago area, and how coordinated planning can help improve long-term after-tax outcomes.
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Why a Multi-Year Tax Planning Horizon Matters
Taxes are filed annually, but many financial decisions unfold over decades. When planning occurs across a three-to-five-year horizon, investors gain flexibility that simply does not exist when decisions are made one year at a time.
Multi-year planning may allow families to:
- Coordinate income timing across high- and low-income years
- Evaluate when Roth conversions may be more tax efficient
- Realize capital gains strategically rather than reactively
- Align charitable giving with higher income years
- Prepare for retirement income before required distributions begin
For example, someone planning to retire within the next several years may experience a temporary reduction in income before Social Security or Required Minimum Distributions begin. Those years can present opportunities for tax-efficient portfolio repositioning that are often missed when planning focuses only on the current year.
The distinction is simple: tax compliance focuses on reporting what already happened. Tax strategy focuses on planning what happens next.
Asset Location: A Foundation of Tax-Aware Investing
One of the most overlooked components of tax efficiency is asset location — meaning which investments are held in which account types.
Different investments generate different types of taxable income. Interest income, dividends, and capital gains are not all taxed the same way. As a result, placing investments thoughtfully across taxable, tax-deferred, and tax-free accounts can help reduce long-term tax drag.
In general terms:
- Investments that generate ordinary income may be more appropriate in tax-deferred accounts
- Investments designed for long-term growth may be more appropriate in taxable accounts
- Tax-free accounts can be reserved for assets expected to experience higher long-term growth
The goal is not to eliminate taxes, but to manage when and how they occur over time.
Estate Planning Considerations: High-Growth Assets and Step-Up in Cost Basis
Asset location decisions are not only about current taxes — they can also affect how assets are transferred to the next generation.
Under current tax law, most taxable investment accounts receive a step-up in cost basis at death. This means the cost basis of inherited investments is adjusted to their market value at the date of death. As a result, if heirs choose to sell shortly after inheriting the assets, little or no capital gains tax may be owed on prior appreciation.
This treatment can make taxable accounts an important consideration when allocating long-term growth assets as part of a broader estate and tax strategy.
By contrast, inherited retirement accounts such as Traditional IRAs are generally treated differently. Under current rules, most non-spouse beneficiaries must withdraw inherited IRA assets within ten years. Those withdrawals are typically taxed as ordinary income, which may result in higher taxes for beneficiaries during their peak earning years.
This difference does not mean taxable accounts are always preferable for growth assets. Retirement accounts provide valuable tax deferral during the owner’s lifetime, and the appropriate allocation depends on factors such as spending needs, charitable intentions, expected longevity, and overall estate goals.
However, when viewed through a multi-year and multi-generational lens, investors may benefit from considering:
- Which assets are most likely to experience long-term growth
- Which accounts receive favorable treatment at death under current law
- How withdrawals may affect beneficiaries’ future tax brackets
Because tax laws and estate planning rules can change, these decisions are typically revisited periodically as part of a coordinated financial and estate planning process.
Financial Planning for High Net Worth Families
Fiduciary Financial Advisor in Chicago
Tax-Loss Harvesting as a Year-Round Process
Tax-loss harvesting involves realizing investment losses that can offset realized capital gains elsewhere in a portfolio. Losses beyond current gains may be carried forward for use in future years, subject to IRS rules.
Many investors think of tax-loss harvesting as a December activity. In reality, market volatility occurs throughout the year. Monitoring portfolios consistently allows losses to be captured during temporary market declines rather than waiting for year-end.
When implemented carefully and in accordance with wash-sale rules, this approach can help create flexibility in future high-income years, such as when selling a business, exercising stock options, or rebalancing concentrated positions.
Tax strategy in this context is less about predicting markets and more about responding thoughtfully to changing conditions.
Roth Conversions and Timing Considerations
Roth conversions allow investors to move assets from tax-deferred accounts into Roth accounts, paying taxes at today’s rates in exchange for potential tax-free growth and withdrawals in the future.
The effectiveness of a Roth conversion depends heavily on timing. Situations that may warrant evaluation include:
- Years with temporarily lower income
- Early retirement periods before other income sources begin
- Market pullbacks that reduce account values
Because conversions increase taxable income in the year they occur, they are typically evaluated alongside broader income projections rather than as standalone decisions.
A multi-year framework allows conversions to be implemented gradually, helping investors avoid unintentionally moving into higher marginal tax brackets.
Charitable Giving Strategies for Tax Efficiency
For families who give charitably, planning ahead can improve both tax efficiency and philanthropic impact.
Donor-Advised Funds (DAFs) allow individuals to make a charitable contribution in a higher income year while distributing grants to charities over time. Contributing appreciated securities instead of cash instead of cash may also help reduce capital gains exposure, depending on individual circumstances.
For retirees over age 70½, Qualified Charitable Distributions (QCDs) allow charitable gifts to be made directly from IRA accounts, potentially reducing taxable income while satisfying Required Minimum Distribution requirements.
As with other strategies discussed here, timing and coordination matter more than last-minute decisions.
Why Coordination Between Advisor and CPA Matters
Investment management and tax planning are often handled by separate professionals, each focused on their own area of expertise. However, many tax decisions involve investment consequences, and vice versa.
Coordinated planning may include:
- Evaluating when to realize gains or losses
- Managing income thresholds tied to Medicare premiums or surtaxes
- Aligning withdrawal strategies with tax brackets
- Planning ahead for retirement income transitions
A fiduciary advisor working alongside a client’s CPA can help ensure that investment decisions and tax planning are aligned rather than occurring independently.
Financial Planning for High Net Worth Families
Building a Multi-Year Tax Strategy
While every situation is different, a structured approach to multi-year tax planning often includes:
- Forward-looking income projections
- Thoughtful asset location across account types
- Ongoing evaluation of tax-loss harvesting opportunities
- Periodic review of Roth conversion opportunities
- Coordinated charitable planning when applicable
- Regular reviews as tax laws, markets, and personal circumstances evolve
For many high earners, the objective is not minimizing taxes in a single year, but managing lifetime tax exposure while supporting long-term financial goals.
Final Thoughts
High earners in the Chicago area often face increasing financial complexity as income grows, investments expand, and retirement approaches. A multi-year tax strategy helps connect investment management, financial planning, and tax considerations into a single coordinated framework.
The earlier this process begins, the more flexibility typically exists.