Tax efficient techniques for drawing down your portfolio

Vanguard retirement expert Maria Bruno explains the importance of using tax efficient techniques when drawing down your retirement portfolio. 

Other highlights from this webcast:

Notes:
All investing is subject to risk, including the possible loss of the money you invest. Diversification does not ensure a profit or protect against a loss. There is no guarantee that any particular asset allocation or mix of funds will meet your investment objectives or provide you with a given level of income.

This webcast is for educational purposes only. We recommend that you consult a tax or financial advisor about your individual situation.


TRANSCRIPT 

Amy Chain: This question came in from Denise from Rockport, and Denise says, “How do I draw down on my savings to optimize income while minimizing taxes?

Maria Bruno: Okay, we get that question quite frequently, and it’s a good one. And I think it’s a good one to start with. I think it depends in terms of, as a retiree, what type of accounts you first have. So we talk a lot about tax diversification and that is when the portfolio has different account types, be they taxable, nonretirement assets or tax-deferred traditional IRAs or 401(k)s or Roth accounts. And it’s important because those accounts are taxed differently with contributions as well as when the monies are withdrawn. So to optimize the most flexibility would be in a situation where you’ve got different account types and to be able to draw down strategically to minimize annual tax liability, for instance. The flip side to that is you can also maximize the tax-advantaged growth as well. But generally speaking, you want to do it in terms of a way to minimize the current tax rates. Oftentimes, when you look into taxable accounts first, that allows tax-advantaged accounts to continue to grow. But it is a balance. I mean, obviously, once you reach age 70-1/2, for instance, you are required to start taking IRA distributions from traditional accounts. So, obviously, you need to take that. That might be a first source. But if your goal, for instance, is legacy planning, for instance, then you want to think about passing along the most tax-advantaged accounts. Those would be Roth, for instance, or maybe taxable accounts that could enjoy stepped-up basis at death for the beneficiaries. But generally speaking, I think a good practice is really think about it on an annual basis, think about the account types. And if you can be strategic, sometimes it makes sense to work with an advisor or financial planner to help. Those are some of the things that you can be an active participant in how you manage your portfolios.

Notes:
  • All investing is subject to risk, including the possible loss of the money you invest. Diversification does not ensure a profit or protect against a loss. There is no guarantee that any particular asset allocation or mix of funds will meet your investment objectives or provide you with a given level of income.
  • This webcast is for educational purposes only. We recommend that you consult a tax or financial advisor about your individual situation.