Michael Kitces has suggest some new strategies for tax efficient spending methods from retirement accounts. Conventional advice tends to stress liquidating taxable investment account first while letting other tax deferred accounts compound over time. Kitces thinks there is a more efficient strategy and begins,
The optimal approach is actually to preserve the tax-preferenced value of retirement accounts and to fill the tax brackets early on, by funding retirement spending from taxable investment accounts but doing systematic partial Roth conversions of the pre-tax IRA to fill tax brackets in the early years.
The result is that the retiree will tap investment accounts for retirement cash flows in the early years, a combination of taxable IRA and tax-free Roth accounts in the later years, and in the process avoid ever being pushed into top tax brackets, now or in the future!
Continue reading the full opinion here: Tax-Efficient Retirement Portfolio Spending Strategies
Posted by Allison Trupp, Associate Editor, Wealth Strategies Journal