Control your tax burden
Distribute investments across tax-deferred, tax-free, and taxable accounts to reduce tax impact and provide flexibility in withdrawals.
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Maximize your wealth with a strategic tax diversification plan
Taxable, tax-deferred and tax-free accounts, working together.
Book a consultationWhat is tax diversification?
Tax diversification is a strategy that spreads your investments across different types of accounts that are taxed in various ways. This enables you to strategically manage when and how you pay taxes, giving you more control over your wealth.
The three main types of tax treatment for investment accounts are tax-deferred accounts (such as Traditional IRAs and 401(k)s), tax-free accounts (such as Roth IRAs and Roth 401(k)s) and taxable accounts. By combining these accounts, you can optimize your tax liability based on your goals, age and future needs.
Why tax diversification is essential for you
Maximize investment growth
Tax-advantaged accounts can reduce the tax drag on dividends and capital gains, so more of your money stays invested and compounding.
Minimize risk in retirement
Avoid placing all retirement savings in one account to reduce the risk of unexpected tax bills affecting your retirement income.
Flexibility for life’s unexpected events
Adapt to life changes by adjusting withdrawals from various accounts to minimize tax exposure for major events like buying a home or covering education or health expenses.
Frequently asked questions
How does tax diversification work in retirement?
Tax diversification helps you manage your retirement income more efficiently by allowing you to withdraw funds from different types of accounts, minimizing taxes in any given year.
Do I need a tax advisor for tax diversification?
While it’s not mandatory, working with a tax professional or financial advisor can provide valuable guidance in creating a tax diversification strategy tailored to your needs.
Can tax diversification help reduce estate taxes?
It can play a part. How assets are held affects what your heirs owe in income tax when they inherit, and Roth accounts in particular can pass on without income tax to beneficiaries. Estate tax itself only affects larger estates; for those, we work alongside your tax and legal advisors.
What types of accounts should be included in a tax diversification strategy?
A well-rounded tax diversification strategy typically includes a mix of taxable accounts, tax-deferred accounts (like traditional IRAs), and tax-free accounts (like Roth IRAs). This variety helps optimize withdrawals and manage taxes effectively during retirement.
How can tax diversification affect my required minimum distributions (RMDs)?
Tax diversification can help manage RMDs by providing more flexibility in choosing which accounts to withdraw from. With the right strategy, you can minimize the impact of RMDs on your tax situation and maintain more control over your retirement income.
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