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Changes in tax rules, much like the stock market, can be unpredictable. But tax diversification may help counter the ever-changing tax environment and provide flexibility in retirement.
To achieve tax diversification, we generally believe investors should maintain balance by contributing to traditional and Roth IRAs. But the focus of your contributions may change, depending on your life stage and tax situation:
How much you withdraw from your investments may be the most influential factor in how long your money will last. Since every dollar you spend on taxes is one less you have to spend in retirement, the goal is to increase after-tax income. Tax diversification can help structure withdrawals to potentially reduce taxes and increase the amount of after-tax spendable income.
Generally, we recommend taking withdrawals in the following order:
Since where you take withdrawals should depend on your tax and financial situation, it’s important to discuss your expected income and withdrawals with your financial advisor and tax professional each year.
We also recommend considering the following regarding your investments: municipal bonds, dividend-paying stocks, annuities and advisory programs that offer tax management features. You may also want to consider other actions, including:
Tax diversification can help provide flexibility and sustainability for retirement savings. While tax codes may be complex and ever-changing, the solution doesn’t have to be. Talk to your Edward Jones financial advisor about how tax diversification can play a part in your long-term retirement goals.
Edward Jones, its employees and financial advisors are not estate planners and cannot provide tax or legal advice. Please consult your estate planning attorney or qualified tax advisor regarding your situation.
* Before investing, an investor should consider whether the investor’s or designated beneficiary’s home state offers any state tax or other state benefits such as financial aid, scholarship funds, and protection from creditors that are only available for investments in such state’s 529 qualified tuition program.
Diversification does not guarantee a profit or protect against loss in declining markets.