One of the daunting issues that hangs over many people’s picture of their ideal retirement is the tax implications when they start withdrawing funds from their 401(k) plan or IRA.
If you’ve been diligent about socking money away in your retirement plans, your income distributions will be taxed at the going rate at the time. If you’ve been especially dedicated to saving, you could end up retiring at your current marginal tax rate or a higher one.
If you are in this category, you may want to set time aside to study the tax efficiency of your portfolios in order to gauge how much you’ll be paying the feds and if you have some wiggle room to reduce your tax obligations.
To get to that point, you’ll first need to understand the difference between pre-tax and after-tax investments, and their advantages. Moves That Can Reduce Your Taxes in Retirement