Maximizing tax efficiency in Northern Virginia isn’t just about saving money—it’s about smart financial choices that support your long-term wealth goals. As a Northern Virginia resident, you have specific considerations when it comes to tax planning strategies.
Let’s explore three methods commonly used to manage taxes while building and preserving wealth.
The Importance of Tax Efficiency — And Working With an Advisor
For business owners, retirees, and high-net-worth individuals in Northern Virginia’s dynamic economy, taxes can significantly impact wealth accumulation. With federal rates capping out at 37% for high earners, plus Virginia’s state taxes, effective tax planning is essential to preserve your hard-earned assets. Given the complexity of current regulations (and their frequent changes), it makes sense to work hand in hand with a financial advisor and tax professional to help you understand how best to minimize your tax liability over your lifetime.
A knowledgeable advisor will help keep you informed on the potential downsides and benefits of each strategy. They can help you navigate the nuanced options, identify any risks or tradeoffs, and develop a customized plan that helps leverage the advantages for your specific financial situation and long-term wealth goals. Proactively working with the right advisor can help ensure your planning supports your overall wealth-building efforts.
Some general approaches may shape your planning:
Strategy 1: Optimize Retirement Contributions
Maximizing contributions to tax-advantaged retirement accounts can be an effective strategy for Northern Virginia residents. Some potential retirement accounts to consider when curating your plan:
401(k) or TSP Contributions
In 2025, you can contribute up to $23,500, plus a $7,500 catch-up contribution if you’re 50+. These contributions can potentially reduce your taxable income significantly. Additionally, according to the IRS website, a higher catch-up contribution limit is about to come into play for employees ages 60, 61, 62, and 63. Starting in 2025, the catch-up contribution limit for employees at these ages will be $11,250 instead of $7,500.
Traditional IRA Contributions
If you don’t contribute to an employer-sponsored plan, you may be able to deduct contributions to a traditional IRA. For 2025, traditional and Roth IRA contributions can’t be more than $7,000 ($8,000 if you’re 50 or older) or, if less, your taxable compensation for the year. There are phase-outs based on income, so make sure you discuss this with your financial advisor and tax professional before making contributions.
Roth Conversions
Converting funds to a Roth IRA lets you pay taxes now for future tax-free withdrawals, which is ideal if you expect a higher taxable rate in retirement. Roth conversions can play an important role in lifetime tax planning. There are a number of considerations that you must consider when deciding whether or not a Roth IRA is right for you. Some factors include how you will pay the tax due, what the impact will be on your marginal rate, and how long you plan on keeping the converted funds invested before you need them. Roth conversions are not a one-size-fits-all proposition, so work carefully with your advisor to determine if this strategy makes sense for you.
Backdoor Roth IRA
High-income earners exceeding Roth income limits may be able to use a “backdoor” Roth IRA strategy. Here is how it works: Make a non-deductible traditional IRA contribution, then convert it to a Roth IRA. This is a powerful tool but is loaded with details. You should be very careful if you decide to pursue this on your own. If your 401k offers the ability to make after-tax contributions, you can follow a similar process in what is commonly known as a “super Roth.” However, there are a lot of details involved with this as well, so work with your advisor or make sure you get in the weeds on the details for your specific situation.
Health Savings Accounts (HSAs)
An HSA offers triple tax advantages: tax-deductible contributions, tax-free growth, and tax-free withdrawals for qualified medical expenses. After 65, you can withdraw funds for nonmedical expenses without incurring penalties; however, it’s important to note that withdrawals for nonmedical expenses after 65 are still subject to income tax. Moreover, you must be eligible to contribute, which means you need to be a participant in a high-deductible health plan. In 2025, HSA contribution limits are $4,300 for self-only coverage (up $150 from 2024) and $8,550 for family coverage (up $250 from 2024).
Strategy 2: Leverage Tax-Efficient Investments
Your investment returns are only part of your wealth story—it’s what you actually get to keep that counts in your financial planning approach. A tax-efficient portfolio can be pivotal in preserving your wealth over your lifetime. Some investment strategies to consider include:
Municipal Bonds
Virginia municipal bonds offer federal and state income exemptions, which may be ideal for high-income earners. All else being equal, you should compare the yield you get on any sort of municipal bond to what you would get after-tax on a taxable bond like a corporate bond, treasury, or even CD.
Exchange-Traded Funds (ETFs)
ETFs tend to be more tax-efficient than mutual funds due to their structure, making them a viable option for long-term investors aiming to minimize tax drag. The mechanics of this are beyond the scope of this article, but it suffices to say that it is rare for ETFs to pay capital gains distributions to end investors.
Strategy 3: Use Charitable Giving for Tax Benefits
Charitable giving can help lower taxpayer burden, especially for high-net-worth individuals. Some strategic approaches to consider include:
Donor-Advised Funds
DAFs allow immediate tax benefits, even if the end donations are spread over years. This approach reduces taxes in high-income years and lets investments grow tax-free until you’re ready to allocate them, potentially increasing the impact of your charitable gifts over time. Further, utilizing a DAF to “chunk” charitable giving into a calendar year can often allow taxpayers to itemize in that year and then take a standard deduction in subsequent years. Pro Tip: Donating appreciated securities instead of outright cash can take the tax impact of this strategy to the next level.
Qualified Charitable Distributions (QCDs)
If you’re 70½ or older, you can leverage Qualified Charitable Distributions (QCDs) to make tax-free donations directly from your IRA, with an annual limit of $108,000 in 2025. While QCDs can be used to satisfy your Required Minimum Distribution (RMD) once you reach RMD age, you can also take advantage of them starting at age 70½ to reduce future RMDs. By making these donations earlier, you can lower your adjusted gross income (AGI), which may result in additional savings, such as potentially lower Medicare premiums and reduced taxes on Social Security benefits. Additionally, if you’re already taking RMDs, using QCDs allows you to eliminate the donated amount from your taxable income without the need to itemize deductions. If you’re over 70.5, giving through QCDs is by far one of the most tax-efficient ways to support your favorite qualified charities.
Charitable Remainder Trusts
These vehicles can provide income during your lifetime while benefiting charities and creating tax advantages. Establishing a CRT allows you to claim a charitable deduction based on the current value of the future donation, lowering your taxable income. Additionally, the trust is not subject to capital gains tax.
Charitable Gift Annuities
With a charitable gift annuity, you enter into an agreement with a charity by making a substantial donation in cash or other assets. Part of your contribution qualifies for a charitable deduction, while the rest is treated as an investment that ensures you receive a fixed income for life. This blend of giving and lifetime income makes charitable gift annuities a versatile option for donors looking to support a cause while securing reliable financial benefits.
Implementing a Tax-Efficient Plan in Northern Virginia
Creating an effective strategy requires careful consideration of your specific circumstances and goals. When establishing your approach, it’s important to:
Review Your Current Situation
When building a strategy, start by examining your income sources, assessing your current burden, and identifying potential areas for adjustment.
Develop Your Strategy
Next, focus on maximizing retirement contributions, optimizing investment choices, and exploring charitable giving opportunities that align with your financial goals.
Regular Review and Adjustment
Finally, ensure regular review and adjustment of your plan. Stay informed about changes in legislation, modify your strategies as necessary, and consult with tax and financial professionals to keep your approach practical and relevant.
Contact Good Life Financial Advisors of NOVA Today
Good Life Financial Advisors of NOVA specializes in creating financial planning strategies tailored to your specific needs and vision. Schedule a free consultation with a CERTIFIED FINANCIAL PLANNER® professional today to learn more about how we help Northern Virginia residents navigate the complexities of financial planning, investment, and retirement.
We’ll have a short conversation to see if we’re a good fit for each other.
Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. Traditional IRA account owners have considerations to make before performing a Roth IRA conversion. These primarily include income tax consequences on the converted amount in the year of conversion, withdrawal limitations from a Roth IRA, and income limitations for future contributions to a Roth IRA. In addition, if you are required to take a required minimum distribution (RMD) in the year you convert, you must do so before converting to a Roth IRA. Municipal bonds are subject to availability and change in price. They are subject to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rates rise. Interest income may be subject to the alternative minimum tax. Municipal bonds are federally tax-free but other state and local taxes may apply. If sold prior to maturity, capital gains tax could apply. ETFs trade like stocks, are subject to investment risk, fluctuate in market value, and may trade at prices above or below the ETF’s net asset value (NAV). Upon redemption, the value of fund shares may be worth more or less than their original cost. ETFs carry additional risks such as not being diversified, possible trading halts, and index tracking errors.
Certified Financial Planner Board of Standards Center for Financial Planning, Inc. owns and licenses the certification mark CERTIFIED FINANCIAL PLANNERTM in the United States to Certified Financial Planner Board of Standards, Inc., which authorizes individuals who successfully complete the organization’s initial and ongoing certification requirements to use the certification marks.
