Tax Management – Highlight on Sequencing
Continuing on in the tax management series, this month we’ll look at account sequencing during wealth accumulation and retirement withdrawal periods. The basic questions are:
1) When accumulating funds, what accounts (tax-deferred, taxable, etc.) should be funded first?
2) When withdrawing funds, in what order should funds be withdrawn?
Individual circumstances may constitute different strategies, but the following examples demonstrate two common approaches. The first is based on someone in the accumulation phase who pays taxes in the highest bracket, and the second is a retiree in the withdrawal phase who will leave behind some amount of inheritance:
Following logical strategies for adding and withdrawing funds ensures that you accumulate and retain the maximum after-tax amount possible.
Next month, we’ll look at matching investments with the most appropriate account types.