You may have heard the saying, “It’s not always how much you earn—it’s about how much you keep!” If you’re retired or you plan to retire in the future, you may have questions about tax efficiency in your investing and retirement planning. If you have assets in individual retirement accounts (IRAs), 401k plans, and taxable retirement plans, you need to identify from what accounts you should take distributions. Then, you must prioritize the order in which to plan your distributions to lessen the impact of taxes and maximize tax efficiencies.

Consider three possible solutions to achieving tax savings in retirement:

#1. Pro-Rata Strategy in Retirement Planning

The Pro-Rata Strategy or Pro-Rata Rule is an important consideration if you plan to take distributions in pre-tax and after-tax amounts from a SEP, traditional, and/or SIMPLE Individual Retirement Account (IRA). Amounts in Roth IRAs aren’t subject to this rule because after-tax funds were used in this retirement plan account. You may also have questions about tax efficiency strategies in an inherited retirement plan or IRA accounts in which you’re the beneficiary.

The Internal Revenue Code (IRC) rules are often confusing. Contact Master Plan Tax Services in Flower Mound, TX to learn more about how to maximize your tax efficiency strategies now or in retirement.

#2. Use Account Sequencing.

Account sequencing answers the question, “How do I make systematic withdrawals?” Clearly, retirees must be strategic about the accounts from which they draw funds.
The optimal sequence for withdrawing money in retirement is the one that maximizes tax efficiency and allows invested money to continue to grow in long-term “buckets” throughout the investor’s lifetime.

For this reason, your tax bracket plays a big role when it’s time to take distributions from your tax-advantaged funds. Many people are in a lower tax bracket later in life, but that isn’t always the case.

For many retirees, tax efficiency is achieved by withdrawing funds from investment and savings plans. Master Plan Tax Services in Flower Mound, TX uses proprietary software to help clients decide the best order and method to dip into retirement funds.

#3. Sequential with Roth Conversion Strategy in Retirement Planning

Nobody in America wants to live frugally for years to find themselves spending too much in taxes in retirement. Unfortunately, this scenario happens all too frequently.

If you have multiple retirement accounts, you may have questions about Roth conversions. It’s not always a simple choice. To avoid missing tax efficiency opportunities, you may have questions like, “What is a Roth conversion?” and “Is it a good idea to convert my 401k and traditional IRAs to a Roth account?”

Tax efficiency is a key consideration. It may be best to use smaller sequential retirement plan conversions to achieve the greatest advantage of your Roth plan’s benefits to avoid entering a higher tax bracket. In addition, there are good times to make these retirement plan conversions. You may need more information about Roth conversion and benefit from a Roth conversion analysis.

In addition, failing to take 401k plans and pensions into account can derail tax efficiency in retirement. Tax planning is all about saving money after-tax over a long time period. That’s why retirement planning should begin as soon as possible during your prime earning years.

Taxes in Retirement Can Be Surprising

It’s possible to actually have more taxable income in retirement when you consider required minimum distributions and Social Security retirement income. If your goal is to smooth the impact of taxes over retirement to achieve tax savings, we’re here to help. Contact Master Plan Tax Services in Flower Mound, TX now.

on’t Wait! Call or text us today at Master Plan Tax & Bookkeeping at (682) 444-7526 or go to