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.
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.