We discussed how to fund your retirement in last blog post, now the third question -
Which retirement accounts will you tap first?
If you have multiple accounts, this is a critical question to address. The answer may also change over time as your situation changes. Some people might automatically tap the accounts with the lowest tax bill first. However, in terms of overall long-term retirement planning, this might not be the optimal answer.
For people who are younger than the age where required minimum distributions kick in (age 70½) it may make sense, for example, to tap tax-deferred retirement accounts at least to some extent. This is especially true if your incomes are relatively low and you have room for more income within your current tax bracket. This will also serve to reduce your RMDs down the road, which is helpful if you really don’t need this income.
Things can change year to year, for example, if you have high medical expenses that allow for part of them to be tax deductible. You may consider taking more from your tax-deferred accounts as the medical deduction can offset the tax due on these distributions.
We will discuss the fourth question next time.
Which retirement accounts will you tap first?
If you have multiple accounts, this is a critical question to address. The answer may also change over time as your situation changes. Some people might automatically tap the accounts with the lowest tax bill first. However, in terms of overall long-term retirement planning, this might not be the optimal answer.
For people who are younger than the age where required minimum distributions kick in (age 70½) it may make sense, for example, to tap tax-deferred retirement accounts at least to some extent. This is especially true if your incomes are relatively low and you have room for more income within your current tax bracket. This will also serve to reduce your RMDs down the road, which is helpful if you really don’t need this income.
Things can change year to year, for example, if you have high medical expenses that allow for part of them to be tax deductible. You may consider taking more from your tax-deferred accounts as the medical deduction can offset the tax due on these distributions.
We will discuss the fourth question next time.
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