Make the Introduction
For the past thirty years, you have put on your shoes and gone to work,
attending school functions
learning new technologies
and generally giving it all you’ve got.
You’ve done the hard part, saving diligently over your working life. Now, the fun begins.
How do you spend it? How do you draw down from your various asset sources in the most tax-efficient way possible?
Coffeehouse Investors are keenly aware that the biggest drain on a portfolio in retirement is likely to be taxes. The intricacies of minimizing your taxes can be overwhelming but it doesn’t have to be.
It is time to introduce your CPA and your estate planning attorney to your investment advisor. They should be working in harmony for you, not in silos.
You probably have a mix of the following asset types and income streams that are taxed at various levels:
Taxable accounts: Income generated on these investments is taxed annually. Capital gains realized on sales of long-term assets (held for more than a year) are taxed at 0%, 15%, or 20%, depending on your marginal tax bracket.
Tax-deferred accounts like 401(k), 403(b), Traditional/Rollover, SEP, or Simple IRAs: These pre-tax contributions grow tax-deferred, and withdrawals are taxed at an investor’s ordinary income tax rates upon withdrawal. Mandatory distributions are required by age 72 and can be earlier for those with Inherited IRAs.
Tax-free accounts like Roth IRA: These after-tax contributions can be withdrawn tax-free after age 59 ½ and a five-year holding period.
Social Security: Payments are available at age 62, at full retirement age (generally age 67), or delayed at age 70. Each year you delay taking Social Security beyond your full retirement age, your benefit increases by about 8%.
Pensions: Payments generally begin at retirement, and typically allow the employee to select a beneficiary benefit option, anywhere from 100%, 75%, 50%, or no benefit at all.
Six questions for your investment advisor, CPA, and estate planning attorney:
- Which account should I draw from first to minimize taxes?
- Does it make sense to initiate a Roth conversion?
- Does it make sense to take distributions from my IRA prior to age 72?
- When should I start taking Social Security?
- Should I take a lump sum from my pension, or take the annuity?
- Does my estate plan minimize taxes while reflecting the legacy I want to leave?
Smart Withdrawal Strategies
Let's work together to create a smart withdrawal strategy during your retirement years. If you have generated $1 million or more of investible assets and are in or close to retirement, let's strategize a plan that maximizes your opportunities and minimizes your tax impact.