Description
An important aspect of creating retirement efficiencies is to make sound decisions with respect to their tax implications. When should taxes be paid to generate the most after-tax spending and legacy for a given asset base? Answering this question requires digging into the intricacies and nonlinearities of our progressive tax system. In this presentation, I will consider the different tax advantages available in the tax code and how to create tax diversification as a foundation for retirement. Then I describe asset location, or how to position assets between these different types of accounts. I also discuss how to obtain tax advantages for taxable assets that go beyond the space available in tax-deferred or tax-exempt retirement plans. Then I dive into tax-efficient retirement distributions, including effective marginal tax rate management with strategic Roth conversions. I also cover pitfalls with generating more taxable income, including the Social Security tax torpedo, increased Medicare premiums, and the impacts of tax-preferential sources of income. I finish with a detailed example to show how more tax-efficient retirement distributions using strategic Roth conversions can significantly extend retirement portfolio longevity.
Learning Objectives
1. Use tax diversification and asset location techniques to better position assets for retirement.
2. Take advantage of the progressive tax code to pay taxes when in lower tax brackets using techniques of effective tax rate management with strategic Roth conversions.
3. Understand the interactions between taxable ordinary income and Social Security taxation, Medicare premium surcharges, and the stacking of preferential income on top of ordinary income.
4. Apply this knowledge to design distribution strategies that extend portfolio longevity.