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Control Your Taxes in Retirement

Christine Benz

Note: This video is part of Morningstar's Tax Relief Week special report.

Christine Benz: Hi, I'm Christine Benz for When you're accumulating assets for retirement, you don't have a ton of control over your tax bill. Your taxable income is what it is, for the most part. Retirement is different.

By tapping your least tax-friendly investments first in retirement, while leaving your most tax-efficient in place to grow, you can stretch out those tax benefits. Tax advisors often recommend the following hierarchy for retirement spending: required minimum distributions, followed by taxable accounts, followed by tax-deferred accounts, with Roth accounts bringing up the rear.

If you hold accounts that are subject to required minimum distributions, plan to reinvest those RMDs if you don't need the money or they'll take you over your planned withdrawal rate. You might also take advantage of what's called a qualified charitable distribution. That means that you steer your money directly from your IRA to a charity.

Finally, tax-efficient portfolio management in retirement can get complicated. That's one reason I always advise retirees to get help from a tax-savvy financial advisor or an investment-savvy tax advisor. That advisor can earn his or her fees many times over by helping you pick and choose where to go for distributions in any given year.

Thanks for watching. I'm Christine Benz for