Asset Location Strategies – Save on Taxes in Retirement

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TRANSCRIPT: 

We have all heard of asset allocation. However, have you heard of another planning topic called asset location? Hi, I'm Alex Wolfe, Certified Financial Planner and head of financial planning at Base Wealth Management. Stay with me today on this video where we talk about ways to save on taxes today and in the future. Asset location is where you have money saved in various types of accounts. Some of these accounts are tax deferred like IRAs and 401ks. Some are in taxable accounts like brokerage accounts or savings and checking accounts and you may even have some in Roth IRAs or Roth 401ks which someday will be tax-free when you take that money out. This is the premise of asset location. You ideally want your assets spread out between different tax styles of accounts. I heard an advisor describe this to a recently retired couple as the ability to choose your tax bracket when you're no longer working. What they meant by this is with the help of us or your financial planner, we can help you plan for your retirement income and withdrawal strategy. There are ways to pull money out creatively and legally of your savings and retirement assets to stay in a low tax bracket or even pay no taxes on a large portion of your retirement income. While working, it may make more sense to take the tax deduction now for your retirement contributions if you're a high income earner and in a high tax bracket versus someone in a lower tax bracket that may want to contribute to a Roth IRA.
IRA or Roth 401k now and receive the tax-free withdrawals in the future. The advantage to a lower or modest income earning getting a tax deduction is not as enticing as future tax-free distributions. There are also advantages to putting certain types of assets in certain types of accounts. For example, if you have a tax-inefficient investment like a mutual fund that kicks off lots of capital gains at the end of the year, you want this type of investment inside of a tax-sheltered account like an IRA. However, if you have a tax-efficient ETF or a REIT that you can defer the income as that real estate gets depreciated, you will want those inside of a taxable account like a brokerage account to take advantage of the tax treatment of those investments. At the end of the day, anytime you can save money and invest is a good time to do so. There are ways to better position yourself to decrease taxes now and in the future. If you found this video helpful and want to be notified with more videos as they drop, please subscribe and hit the notification bell. Also, be sure to check out our website at basewealthmanagement.com. I'm Alex Wolfe, Certified Financial Planner, and we will see you on the next one.

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