Our Best Tips for Tax Efficiency in Retirement

Planning for retirement requires you to consider a number of different ways to save, invest, and protect your money to ensure a comfortable lifestyle beyond your career. Because there are so many aspects of this process that require an understanding of varied investment opportunities, complicated tax laws and codes, and strategies for budgeting for post-retirement costs, we recommend employing the assistance of our Dallas financial advisors or Fort Worth financial advisors to guide you. Through our many years of experience helping customers in their retirement planning, our financial advisors have learned that one important key to protecting your wealth lies in proper tax efficiency in retirement. That’s why our Dallas financial planning professionals have assembled these tips to help remain tax efficient.

Tip 1: Understand How Your Income is Taxed

Different types of income are taxed at different rates, and our Dallas financial advisors or Fort Worth financial advisors will tell you that it’s crucial you understand these rates in order to remain tax efficient. Here are the most common types of retirement income and how each is taxed:

• 401(k): taxed at the same rate as your income
• Roth IRA or Roth 401(k): tax-free
• Social Security: 85% of this income is taxed at the rate of your income, while the remaining 15% is tax free
• Long-term investments: Taxed at the capital gains rate

Tip 2: Diversify your Investment Portfolio

When investing in retirement accounts, our Dallas financial advisors suggest opening a number of different accounts so you have choices when withdrawing investment funds. Spread your wealth among a traditional savings account, a 401(k), and a Roth IRA., all of which are taxed differently. This enables you to put investments that are taxed at a lower rate, such as stock income, in taxable accounts, while placing those investments that are taxed at a higher rate in a retirement account instead. Our Dallas financial advisors call this asset location.

Tip 3: Make Thoughtful Withdrawals

Since you may have a combination of taxable, tax-deferred, and tax-free accounts, our Dallas financial advisors recommend certain strategies for withdrawing your money in order to remain tax efficient. Typically, it’s suggested that you withdraw first from taxable accounts, then tax-deferred accounts like 401(k)s, then from Roth accounts, which are not taxed upon withdrawal. This allows your tax-deferred and tax-free assets to grow larger over time. 

Our Dallas Financial Advisors Can Guide Your Tax-Efficient Retirement Planning

It’s never too early to begin planning for retirement, and given the complexity of retirement planning options, especially when it comes to taxes, it’s best to hire a professional to help you make the best choices for your money. Our Dallas financial advisors offer tax efficiency services that allow you to make strategic decisions now that will secure your wealth upon retirement. If you’re planning for retirement, make an appointment to meet with one of our Dallas financial advisors. We provide retirement tax assessment, tax income reduction reports, tax strategy comparison, and tax review services, all of which will help your money last longer upon retirement.