Withdrawal Location with Progressive Tax Rates

Posted: 21 Dec 2006

See all articles by Stephen Horan

Stephen Horan

CFP Board of Standards; University of North Carolina Wilmington


Optimal withdrawal strategies are developed for retirees with multiple types of tax-advantaged savings accounts. In an environment of progressive tax rates, the ability to convert pretax funds in traditional IRAs at low tax rates substantially increases investors' residual accumulations and withdrawal sustainability. Specifically, informed withdrawal-location strategies, in which traditional IRA distributions can be applied against exemptions, deductions, and lightly taxed tax brackets, can increase residual accumulations by more than $1 million. In these strategies, the optimal tax bracket through which an investor should take distributions is directly related to the investor's wealth level.

Keywords: Private Wealth Management, Tax-Efficient Investing

Suggested Citation

Horan, Stephen, Withdrawal Location with Progressive Tax Rates. Financial Analysts Journal, Vol. 62, No. 6, pp. 77-87, November/December 2006, Available at SSRN: https://ssrn.com/abstract=953067

Stephen Horan (Contact Author)

CFP Board of Standards ( email )

1425 K Street NW #800
Washington, DC 20005
United States

University of North Carolina Wilmington ( email )

601 South College Road
Wilmington, NC 28403
United States
4342272281 (Phone)
28405 (Fax)

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