The Benefits of Using a Mix of Pretax, After-Tax Roth, and Taxable Brokerage Accounts for Retirement
Title: Financial Advisors Recommend Diversifying Retirement Accounts for Tax Flexibility
In a recent report, financial advisors are recommending a mix of pretax, after-tax Roth, and taxable brokerage accounts for increased flexibility in retirement planning. This strategy allows individuals to have various options to manage their adjusted gross income effectively.
Certified financial planner Judy Brown from SC&H Group in the Washington, D.C., and Baltimore area emphasized the importance of having a diversified portfolio to navigate potential tax implications in retirement. She explained that pretax distributions could potentially push individuals into a higher tax bracket or trigger higher Medicare Part B and Part D premiums.
On the other hand, after-tax account distributions, such as Roth 401(k) plans or Roth IRAs, typically do not incur taxes and do not impact earnings. Additionally, taxable brokerage investments can offer tax advantages on capital gains, depending on an individual’s taxable income.
Alyson Basso, managing principal of Hayden Wealth Management, highlighted the importance of adapting to changing tax laws and personal financial circumstances by utilizing a mix of different account types. This approach can help individuals better manage withdrawals and taxes as they navigate retirement.
Furthermore, CFP Abrin Berkemeyer from Goodman Financial in Houston pointed out the benefits of utilizing brokerage accounts for early retirement planning. Unlike traditional retirement accounts, brokerage accounts allow individuals to access funds without penalty before the age of 59½, making them a valuable asset for achieving financial goals before traditional retirement age.
While there may be certain tax benefits sacrificed by building a brokerage account, the overall strategy of diversifying retirement accounts based on individual goals, risk tolerance, and timeline can lead to a more secure and flexible financial future.