When planning your retirement income, it is important to remember to factor investment gains and expenses when deciding what type of investment vehicles you want to buy. Sometimes an attractive investment appears to be tax efficient, but the fees and expenses might negate the tax benefits.

Many retirees have invested in annuities or other products sold with attractive tax-deferred potential growth. However, some insurance and investment products have exorbitant fees. These fees can quickly negate half or more of your expected gains. Adding insult to injury, those gains and principal distributions are usually taxed as regular income at the highest tax rate.

This is not to say that you shouldn’t invest in an annuity, but it is important to understand the potential impact and expenses you may incur when you’re ready to start taking withdraw your retirement funds. The ideal retirement portfolio consists of a diversified mix of tax-deferred, tax-free, and taxable investments. You can combine a variety of retirement vehicles to create this portfolio. Each element of your portfolio should be evaluated individually as well as a part of your whole entire investment strategy for retirement.

Don’t overlook the importance of asset location, meaning which means making careful decisions about what accounts you use to hold different types of investments. This is important because different types of investments come with different tax implications. These can be:

– Municipal Bonds
– Growth Stocks
– Real Estate Investments
– Annuities

Each of these are taxed differently and ideally your least tax-efficient vehicle should hold the most tax-efficient investments should be held in the least tax-efficient vehicle. Your choice of Aasset location can positively impact the tax efficiency of your overall investment portfolio. Working with a skilled wealth advisor and your accountant, you can look at each element of your portfolio and structure investments in a way that is designed to give you the most favorable tax treatment in your retirement years.

ORT Consulting is are experts at tax preparation. Please feel free to contact us with any questions you may have.