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Tax-Efficient Withdrawal Strategies in Retirement

by AOG Wealth Management

It is essential to have enough money for your retirement years, but keep in mind that taxes can have an impact on your retirement savings. To help you make the right decision, AOG Wealth Management recommends developing a withdrawal strategy. This way, you can minimize the effects of taxes on your investments.

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Here are some tax-efficient strategies to consider:

Follow the Basic Retirement Withdrawal Sequence

For investment management in Washington, DC and Northern Virginia, you can have different retirement accounts, which are deferred or exempted from tax. The traditional IRA, for example, are contributions that are taxed when distributed. The Roth IRA, on the other hand, is a special account where you pay taxes on deposits and all future withdrawals are then tax-free. If you are 70 years old or above, you are entitled to minimum required distributions (MRDs). These are mandatory minimum yearly withdrawals you must make once you turn 70.

When taking assets from your accounts, you can follow this withdrawal sequence: MRDs first, then taxable accounts, tax-deferred accounts, and tax-exempt accounts.

Avoid Withdrawals That Bump You to Higher Tax Brackets

Proper asset management in Washington, DC and Northern Virginia, involves taking simultaneous withdrawals from taxable, tax-deferred, and ROTH accounts. This allows you to understand the effect of your withdrawals on the tax rate, avoiding higher tax brackets.

Here are some steps to take when managing taxable income:

  • Before making any withdrawal, identify expected gross income, income gap, and living expenses for the incoming tax year.
  • Determine expected level of deductions and exemptions then subtract them from gross income.
  • Choose a marginal tax rate you’d like to target in the coming tax year.
  • Fill in the income gap using a taxable account or ROTH account.

Limit Your Taxation on Social Security Benefits

The government considers up to 85% of your Social Security benefits as taxable. If you actively manage your distribution strategy properly, your Social Security benefits will have a smaller percentage taxable amount.

Make the Most of Lower Capital Gain Rates

Every year, the IRS adjusts the tax provisions for inflation, so your tax bracket may increase or decrease. If your taxable income does fall on one of the two lowest brackets, the selling stocks that you have held longer than a year have a higher chance of generating cash flow tax-efficiently.

These strategies can help you manage your savings and deal with taxes at the same time. If you need more financial advice from the professionals, AOG Wealth Management is here to help. We offer asset management, wealth management, and financial planning services in Great Falls and the surrounding Metro DC and Northern Virginia area. We will help you make informed financial decisions to increase and safeguard your wealth.

To learn more financial tips, you can call us at (866) 993-0203.

Category: Wealth Management