Why Should Add Strategic Tax Diversification to Retirement Portfolio

Have you ever considered the possibility that you may earn a higher income after you retire than you have now? It sounds crazy, I know, but it’s not as uncommon as you might think.

People living longer than they have in the past are also working longer than ever. Many have a substantial income from retirement investment income, Social Security, and income from a job or business.

If that is the case for you – and it is not at all unlikely – you’ll have to add tax diversification to your retirement portfolio. And you’ll have to do it now because such a strategy will require time and steady investment. 

What Is Tax Diversification? Tax diversification is one of the most underrated financial planning concepts. It's a strategy that involves putting your investment funds into multiple types of holding based on how and when they are taxed.

Roth IRA You don’t get a tax deduction for making a Roth IRA contribution as you would if it were a traditional IRA. But that also means the contributions will not be taxable when withdrawn.  

Non-Tax Sheltered Investment We know that money grows much more quickly in a tax-sheltered investment vehicle, like a retirement plan. But since non-sheltered plans are built and accumulate earnings on after-tax money, there is no deferred tax liability.

For this reason, you should never overlook non-tax-sheltered investments as a part of your tax diversification retirement plan. They provide you with a tax-free source of funds that will help you to minimize the amount of taxable money you withdraw from your retirement plans.

Real Estate Real estate is another excellent way to accumulate tax-free capital for retirement. However, this is more true for your primary residence than investment property.

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