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Six Steps You Can Take to Financial Prosperity

Six Steps You Can Take to Financial Prosperity

USA Today

Develop a plan for tapping assets

A general rule is to withdraw your taxable money before your tax-deferred accounts. The tax-advantaged money can then continue to grow, free of taxes, thereby boosting your retirement assets.

There are, however, exceptions. If you own appreciated stock in a brokerage account, you might plan to withdraw it last, rather than first. That way, if you never sell the stock, it will pass to your heirs once you die. And they’d have to pay tax only on the stock’s gains after they’d received it.

Also, if you think income tax rates will rise in the future, you might consider tapping tax-deferred retirement accounts before brokerage assets, says Dallas Salisbury, chief executive of the Employee Benefit Research Institute.

True, you’d sacrifice tax-deferred growth. But you’d pay lower income tax on the retirement money than if you took it out after income tax rates had risen.

Or say you’re working in retirement and are temporarily in a high tax bracket. In that case, consider withdrawing assets from a Roth IRA before you pull assets from a 401(k) account. Wait till you’re in a lower bracket to tap the 401(k); you’ll pay less tax on that money.

In a Roth, no matter when you pull your money, your withdrawals will be tax-free. You already paid tax on the contributions. The earnings are also tax-free.

Social Security should also be factored into your withdrawal strategy. You can choose to take Social Security as early as age 62. But if you can wait, your monthly payouts will increase for every year that you waited, up to age 70.

By Kathy Chu

Next: Beware of scams that target seniors


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