Lessening Tax Impact on Retirement Savings

New advances in modern medicine have extended the average American lifespan to nearly 80 years, making the average retirement much longer than in past generations. There’s obviously no downside to added longevity, but it does pose an important question: how can you ensure that you’ll have the savings necessary to live comfortably well into a long retirement?

Uncertainty about the future of Social Security doesn’t help, and combined federal and state marginal tax rates as high as 43% in some states presents another complication. Luckily, there are a few strategies you can implement to set yourself up for financial security, and Cohen & Burnett can help you put them in place.

Tax Diversification

A large number of retirees place too much of their overall savings in tax-deferred retirement accounts. When they finally decide to make a withdrawal, the funds could be taxed as much as 39.6% plus your state income tax. Having a diversified tax portfolio will give you far more flexibility.
Cohen & Burnett can help you choose the most beneficial tax status for your retirement assets, allocate funds into tax-free, taxable, and tax-deferred sources, and draw income from a variety of sources as your circumstances change. Diversification means flexibility, and when it comes to retirement savings, flexibility means security.
Here are a few specific examples of tax diversification:
• Investing a percentage of taxable, fixed-income assets in municipal bonds
• Funding a Roth 401(k) account
• Converting a traditional IRA to a Roth 401(k)

Tax-efficient Withdrawals

Conventional wisdom states that withdrawals from retirement funds should proceed in the following order: taxable first, tax-deferred second, and tax-free third. There’s a lot of truth to this withdrawal strategy, but it certainly isn’t the most tax-efficient for every retiree. One alternative strategy is to withdraw funds from tax-deferred assets first. Once you reach a lower tax income bracket, the rest can be withdrawn at a lower rate.

Retirement and Tax Planning at Cohen & Burnett

Planning for retirement isn’t easy. If you’re interested working with experts to combine conventional and innovative strategies, look no further than Cohen & Burnett. Because the truth of the matter is that there are as many potential retirement tax strategies as there are retirees. We pride ourselves on finding tailored solutions for every client we see. If you’d like more information about Cohen & Burnett, please visit our homepage.



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