Financial Journey Articles
Financial Planning: Tax-Wise Moves to Apply to Your Retirement Withdrawals
Just because you've retired, there is no reason to set aside the general investing idea that you should defer paying taxes on your assets as long as you can. By doing so, you give your money growth and compounding potential.
Generally, if you are under age 70 1/2, you would first spend down your assets from your taxable accounts, then your tax-deferred accounts - IRAs, 401(k)s and other employer plans - then your tax-free accounts - Roth plans.
There is sound reason at work here. Taxable assets may include long-term capital gains (taxed at a maximum of 15%) while tax-deferred asset withdrawals are considered ordinary income and taxed at your regular rate. Roth products provide the greatest compounding potential because, generally, their earnings are not taxed.
Once you reach 70 1/2, you may want to skew these priorities because you'll be required to withdraw a portion of your traditional IRA or employer plan according to IRS tables. You'll want to use those assets first.
It's worth studying how and when taxes are likely to be applied to your retirement savings distributions - whether from taxable or tax-deferred accounts - before making specific withdrawal decisions.
Material prepared by Raymond James for use by its financial advisors.
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