Why traditional retirement accounts have become the worst asset for estate planning

One way to avoid this is to take distributions long before they are required to take advantage of the low tax rates, including the 22% and 24% tax rates, and the large tax brackets, Slott said.

For account owners who only take the minimum required distribution, Slott offered this: The tax bill doesn’t go away by taking the minimum; in fact, it might get even larger.

“Minimums shouldn’t drive the tax planning,” he said. “The tax planning should drive the distribution planning, not the minimum.”

The question account owners should ask is this: How much can you take out at low rates?

“Start now,” Slott added. “Start getting that money out.”

Slott also advised traditional IRA account owners to convert those accounts into Roth IRAs.

The account owner would pay taxes on the distribution from the traditional IRA, but once in the Roth IRA, the money would grow tax-free, distributions would be tax-free, and there would be no required minimum distributions.

“Take that money out into Roths using today’s low rates,” Slott said. “That’s how you beat this game. That’s how you make the tax rules compound in your favor rather than against you.”

Converting to a Roth IRA essentially places a bet on future tax rates, Slott explained. Most people think they’ll be in a lower bracket in retirement because they won’t have a W-2 income.

But that’s actually the No. 1 myth in retirement planning, Slott said, and if you ignore this issue, the IRA continues to grow like a weed, and the tax bill compounds against you.

“The benefit for the Roth is you know what today’s rates are,” he said. “You’re in control. … You avoid the uncertainty of what future higher taxes do.”

Slott also advised those saving for retirement to stop contributing to a traditional 401(k) and start contributing to a Roth 401(k).

While workers contributing to a Roth 401(k) won’t reduce their current taxable income, Slott explained that that benefit is only a temporary deduction anyway. Contributions to a traditional 401(k) can be more accurately described as “an exclusion” from income, in which your W-2 income is reduced by the amount you put into the 401(k).

In essence, it’s “a loan you’re taking from the government to be repaid at the worst possible time in retirement when you don’t even know how high the rates might go,” Slott said. “So that’s a trap.”

Read more: 401(k) vs. IRA: The differences and how to choose which is right for you

Another way to reduce the tax trap that comes with being a traditional IRA account owner is to consider a qualified charitable distribution.

Individuals aged 70 and a half or older can donate up to $105,000 directly from a traditional IRA to qualified charities. This strategy helps donors avoid increasing their taxable income, which can keep them out of higher tax brackets.

“If you’re charitably inclined, you can get money out at 0% if you give it to charity,” Slott said. “That’s a great provision. The only negative with that is that not enough people can take advantage of it. It’s only available to IRA owners who are 70 and a half years old or older.”

Slott also noted that the income tax exemption for life insurance is the single biggest benefit in the tax code and is not used nearly enough. And life insurance can help people achieve three financial goals: larger inheritances for their beneficiaries, more control, and less tax.

“You can get to the ‘promised land’ with life insurance,” Slott said.

Click here for the latest personal finance news to help you with investing, paying off debt, buying a home, retirement, and more

Read the latest financial and business news from Yahoo Finance