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You Can’t Keep it Locked Up Forever

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Investing is great. Not losing money on your investments is even better. Making a mountain of money from those investments is awesome. Developing and executing a strong investment strategy is difficult and takes a great deal of knowledge. If you’ve gotten to the point where your investments are dialed in and you’re accumulating capital, preferably in tax-deferred savings accounts, take a moment to congratulate yourself. But don’t get too comfortable because the tax man cometh.

Previously, we outlined our Multi-Pillar Tax Strategy to help protect your investment income. The first pillar, which will be of paramount importance in retirement, is to use Required Minimum Distributions (RMDs) to your advantage. Just to reiterate: when you turn 70 ½, the IRS requires that you begin taking yearly disbursements from your retirement accounts. When any of your tax-deferred savings is distributed to you, it’s counted (and taxed) as income. The idea is that Uncle Sam depends on that tax revenue, so you can’t keep it locked up forever.

You need to use these RMDs as wisely and tax-efficiently as possible. Once you reach retirement, you’ll likely have a clearly-defined budget that provides you with the lifestyle you want. Since you’ll be required to take a certain amount out of your retirement account annually, you need to make sure that amount is calculated as part of your budgeted annual income. That way, you can draw from your other sources of income only what you need with the goal of staying in the lowest tax bracket possible to avoid any unnecessary taxation.

Let’s say you’re not keeping tabs on your yearly income streams during retirement (we know you’re too smart for that but just indulge us here). You draw and pay tax on enough money from various income streams to cover your annual budget then at the end of the year, you remember “oh, right. I have to take my RMD also!” Then you’re paying unnecessary taxes for the year. What’s even worse is if this additional income bumps you up into the next tax bracket. Then you’re really paying more than your fair share to Uncle Sam.

So while wise investments are a critical part of your wealth-building strategy, they’re only one piece. If you’re smart (and we already know you are), you’ll look a little further down the road and consider how and when those returns will be used. Timing is everything. We always recommend that you work closely with a financial advisor because wealth management strategies are dynamic. They need to be reviewed and adjusted on a regular basis to make sure any changes in the regulatory environment, along with a wealth of other factors, don’t change the outcome of your strategy.

If you’d like to learn more, join Noble Capital at our quarterly State of the Company event where we’ll take a deeper dive into our Multi-Pillar Tax Strategy.

 

The information discussed in this blog is provided for informational purposes only, and should not be construed as legal, tax or investment advice on any subject matter. Information provided in this blog is provided “AS IS” without warranty of any kind, either expressed or implied, including, but not limited to, the implied warranties of merchantability, fitness for a particular purpose, or non-infringement.
Past performance is not indicative of future results. Neither Noble Capital nor any of its affiliates and/or subsidiaries guarantees any specific outcome or profit. You should be aware of the real risk of loss in following any strategy or investment discussed in this blog. No recipient of content from this blog should act or refrain from acting on the basis of any content included in this blog without seeking the appropriate financial, investment, or other professional advice on the particular facts and circumstances at issue from professional qualified to practice in the recipient’s state. Strategies or investments discussed may fluctuate in price or value. Investors may get back less than invested. Investments or strategies mentioned in this blog may not be suitable for you. The information and strategies discussed in this blog do not take into account your particular investment objectives, financial situation or needs and are not intended as recommendations appropriate for you. You must make an independent decision regarding investments or strategies discussed. Before acting on any information, you should consider whether it is suitable for your particular circumstances and strongly consider seeking advice from your own financial or investment adviser.
Noble Capital makes available financial and investment adviser services through its affiliate Acute Financial. Acute Financial and its agents may only provide services in a particular state after licensure or satisfying qualification requirements of that state, or only if they are excluded or exempted from the state’s requirements, as the case may be. Follow-up, individualized responses to clients in a particular state that involve either the effecting or attempting to effect transactions in securities or the rendering of investment advice for compensation, as the case may be, shall not be made without first complying with the state’s requirements for providing such services, or pursuant to an applicable state exemption or exclusion.

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