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You’ve likely heard the conventional wisdom regarding qualified retirement accounts like 401(k)s, 403(b)s and IRAs: To defer tax liability for as long as possible.READ THE ARTICLE
However, this strategy may not be as advantageous in the face of potential future tax rate increases and uncertainties. Here are some key considerations:
📌 Uncertain tax rates: Tax rates are currently relatively low due to the Tax Cuts and Jobs Act of 2017, but if Congress doesn't extend existing rules, tax rates may increase starting in 2026.
📌 Life events: Changes in personal circumstances, such as the death of a spouse or divorce, can lead to higher tax liabilities in retirement. Planning for these possibilities is essential.
📌 Capital gains: Not selling appreciated assets to limit your tax liability in a given year can lead to an over-concentration in a single stock. Consider settling a tax liability at a reasonable rate rather than a potentially higher future rate.
📌 Tax location: Match investment assets generating ordinary income with accounts taxed as ordinary income and consider holding capital-gain-oriented assets in accounts with favorable capital gains tax rates.
📌 Roth IRA advantage: Roth IRAs provide tax-free growth and withdrawals, making them suitable for assets with high, long-term growth potential.
If you want to minimize the dollars you owe Uncle Sam, it’s crucial to focus on limiting your long-term tax liability, versus only minimizing taxes in the current year. Planning for future tax rates, considering life events and optimizing the tax treatment of your investments is key.