Minimize taxes on withdrawals
Finally, if you are retired, then it’s important to minimize taxes on the income you’re taking from investments. This helps you get the most out of your savings.
You might have the option to choose from assets in brokerage accounts, a 401(k), or IRA. Withdrawals from all of these are taxed differently, so take that into consideration. If you are making larger-than-average withdrawals one year to pay for vacations or medical bills, then it would be wise to source that cash from a Roth IRA or brokerage account, because they don’t carry any income tax liability. Roth withdrawals are typically untaxed, whereas regular brokerage withdrawals incur capital gains only when you sell investments to come up with the cash, and then only on the appreciated portion.
Meanwhile, years with low withdrawal or expense totals could be advantageous times to tap into your 401(k) or traditional IRA. A low income tax bracket means that you’ll surrender less of your savings to the government, and you can keep more tax-efficient accounts handy for years when you might move into a higher bracket.
The best moves depend on your individual circumstances, and it’s always impossible to know what the future holds. However, having a tax-sensitive distribution strategy can still make a big difference in your retirement cash flows.