Wealth Management in Boston, MA: Protecting Your Wealth

As a high-net-worth individual in Boston, taxes can be a major source of erosion for your wealth if it is not managed wisely. At SFA, we focus on three effective wealth management strategies to deal with tax liabilities: 

• Roth conversions
• Direct indexing
• Municipal bonds using Separately Managed Accounts (SMAs).

Roth Conversions

Roth conversions shift traditional IRA funds into tax-free Roth accounts during lower-income years—say, pre-retirement—reducing future tax liabilities until RMDs (Required Minimum Distributions) kick in at age 73. 

Here’s an example of the tax difference between a Required Minimum Distribution (RMD) from a traditional IRA and a Roth IRA conversion, assuming 2025 rules stay intact:

• Traditional IRA RMD: You’re 73 with a $500,000 IRA. Your RMD is $20,000 (based on IRS life expectancy tables). Withdrawn as ordinary income in the 24% tax bracket, you owe $4,800 in federal taxes. It’s added to your AGI, possibly bumping Medicare premiums or taxes on Social Security benefits.
• Roth IRA Conversion: At 65, you convert $20,000 from a traditional IRA to a Roth IRA in a low-income year (12% bracket). You pay $2,400 upfront. Post-conversion, $20,000 grows tax-free, and future withdrawals (no RMDs apply) mean you owe $0 in taxes.

Difference: The RMD costs $4,800 now; the conversion costs $2,400 once, with no future tax. Timing and brackets should drive your decisions.

Direct Indexing

Direct indexing, a tax-loss harvesting technique, lets us sell losing positions in a portfolio mirroring an index, offsetting gains elsewhere while maintaining market exposure. It’s a hands-on way to trim taxable income without disrupting growth. 

Suppose you own a portfolio mirroring the S&P 500 via direct indexing, holding individual stocks instead of a fund. If one stock—say, a tech company—drops 10% while the index stays flat, you sell that stock at a loss ($5,000), offset it against gains elsewhere (e.g., a $5,000 gain from another sale), and replace it with a similar stock to maintain your desired allocation. This nets taxable gains to zero, reducing your tax bill—say, $1,100 at a 22% rate—all while keeping your portfolio aligned with the market.

Municipal Bonds - Separately Managed Accounts

Municipal bond SMAs, meanwhile, offer tax-exempt income, ideal for Boston residents in high brackets seeking steady, tax-sheltered returns.

Say you are in the 35% federal tax bracket with $500,000 in a municipal bond SMA yielding 3% annually. That’s $15,000 in interest. Unlike corporate bond income, which would incur $5,250 in federal taxes, municipal bond interest is exempt from federal (and often state) income tax if issued in-state. This saves you $5,250 yearly, keeping more wealth intact—especially valuable if you are facing a hefty tax bill or anticipate RMD-driven income spikes.

SFA Insights: It’s important to understand that these aren’t one-size-fits-all solutions. We analyze your income, assets, and goals to deploy them more effectively while seeking to keep a higher percentage of your wealth intact.

Insurance isn’t just protection from risks that have financial consequences—it’s a cornerstone of wealth preservation. At SFA, we use tools like Irrevocable Life Insurance Trusts (ILITs) to shield your estate from taxes, ensure liquidity for heirs, and smooth generational wealth transfers, especially for business owners navigating succession planning.

An ILIT holds a life insurance policy outside your taxable estate, dodging hefty estate taxes in the future—crucial if your net worth exceeds the 2025 federal exemption (around $13.99 million, subject to change). 

Upon passing, the death benefit provides immediate cash to heirs to cover taxes or expenses without forcing asset sales. This liquidity can also fund buy-sell agreements for business owners, ensuring a seamless transition if a partner exits or dies.

ILITs are complex and require precise setup, but the payoff is a tax-efficient bridge to the next generation. Our team of Boston financial planners can assist you in coordinating with an estate attorney to make an ILIT work for you.

By blending generosity with smart financial planning, you can support your community and/or organizations you want to support today while ensuring your nest egg remains protected to pass on to family members, all in line with current tax regulations.

Here are three charitable giving strategies to consider as part of your overall wealth management plan: 

Qualified Charitable Distributions (QCDs)

Qualified Charitable Distributions allow individuals aged 70½ or older to donate directly from their IRA to a qualified charity, up to a limit of $108,000 in 2025, without counting the amount as a taxable distribution. 

This strategy can satisfy required minimum distributions (RMDs)  while generating significant tax benefits. As part of a wealth management strategy, you could use QCDs to reduce your taxable income by donating $50,000 from your IRA to a favorite charity, lowering your tax bracket, and preserving wealth for heirs by minimizing future tax liabilities.

Charitable Remainder Trusts (CRTs)

A Charitable Remainder Trust is an irrevocable trust that provides income to the donor or other beneficiaries for a set period or the lifetimes of both spouses. The remaining assets eventually go to charity after the surviving spouse passes away. 

CRTs offer tax deductions and avoid capital gains taxes on appreciated assets sold inside the trust. For wealth protection, if you own highly appreciated stock worth $1 million, you could transfer it to a CRT, sell it tax-free, receive a 5% annual income stream for life, and provide the remainder to a nonprofit organization you want to support. You avoid capital gains and estate taxes while generating an income for life.

Charitable Lead Trusts (CLTs)

A Charitable Lead Trust is an irrevocable trust that pays income to a charity for a specified term. After that, the remaining assets pass to non-charitable beneficiaries, often heirs, potentially tax-free. 

This setup provides immediate charitable deductions and can reduce estate taxes. In a wealth management strategy, a high-net-worth individual could fund a 10-year CLT with $500,000, directing $50,000 annually to a charity for a tax deduction, then transfer the remaining assets to heirs, thereby preserving more wealth by lowering estate taxes.

One thing is certain: life can produce curveballs—job changes, divorce, catastrophic illness, premature death, and, on a more positive note - sudden windfalls. A comprehensive wealth management plan serves as a financial roadmap, equipping you to navigate life’s various changes—whether expected, like retirement, buying a home, or unplanned, such as a medical emergency or job loss. 

The right plan provides flexibility and resilience by integrating investment strategies, tax planning, estate considerations, and insurance, ensuring your assets are protected and goals remain intact. For instance, it can adjust your portfolio during market downturns or redirect funds for sudden healthcare costs, offering confidence and stability through many uncertainties.

At SFA, we recommend five steps to navigate them financially:

1. Consult a Financial Professional: A fiduciary asset manager, such as SFA, can provide clarity and spot avoidable risks you may have missed.
2. Get Organized: Gather statements, policies, legal documents, and other records—chaos clouds decision-making.
3. Assess Risks: Understand how a change (e.g., losing employer benefits) may impact pursuing your plan’s goals.
4. Adjust Your Strategy: Rebalance investments or tweak savings rates to match your new reality.
5. Plan Ahead: Anticipate taxes or expenses tied to a significant event like selling a business.

If you are an executive who receives equity compensation from your employer, such as Non-Qualified Stock Options (NSOs) or Incentive Stock Options (ISOs), you should plan to incorporate these benefits into your overall wealth management strategy to reduce your risk of a concentrated portfolio, and excessive tax liabilities. 

For example, NSOs, taxed as ordinary income upon exercise, offer flexibility but can impact you if you are already in a higher tax bracket. 

On the other hand, ISOs can help limit your tax liabilities if held long enough, though Alternative Minimum Tax (AMT) can apply. 

Both can balloon your portfolio’s concentration—say, 60% in company stock—leaving you vulnerable if the firm underperforms at some point in the future.

At SFA, we advocate a phased sell-off: exercise options, sell shares incrementally, and reinvest in a diversified asset strategy—for example, ETFs, stocks, bonds, income-producing real estate, etc.

Your retirement readiness should hinge on assets, preservation, and income—how much you’ll have access to, where it comes from, and what risks you may have to deal with once you are retired.

Rising longevity has created a new risk - outliving assets and income. You and your spouse may be retired for 30 or more years. 

At SFA, we weigh two approaches: maintaining the principal versus spending it down while factoring in Social Security, taxes, and a declining tolerance for risk. Let’s break this down with a real-life example. 

Suppose you’re focused on preserving your principal. In that case, you might lean toward safer options like bonds or annuities, which can generate steady income—4% of a $1 million nest egg, generating $40,000 a year—without touching your principal amount. 

On the other hand, if you’re okay with spending down your assets, you might pull out more, like $60,000 annually, from that same $1 million (income + principal). However, your savings may shrink over time - the principal may be capital appreciation. 

Then, consider how much Social Security will provide, say $30,000 a year. From there, we can determine what kind of gap exists, and where additional income will come from.

Tax-free sources like Roth IRAs or Qualified Charitable Distributions can ease the burden. In contrast, taxable withdrawals from a 401(k) or traditional IRA need careful planning—especially since required minimum distributions kick in at age 73. 

Your risk tolerance may shift from growth during working years to preservation in retirement years, but you still need to fund your lifestyle. This need could last for decades. 

Managing your wealth during retirement years is a balancing act between risk and reward. The goal is to generate enough after-tax income to fund your lifestyle without taking any more risk than necessary. This can feel overwhelming at times because there are so many variables you have control over. That’s why having the services of retirement planners in Boston, MA, can be a real convenience.

At SFA, we simplify it, ensuring your income aligns with your lifestyle in your early, mid, and late retirement years. 

Ready to discuss your wealth management strategies with the team of SFA? Connect with us today.