Withdrawal Location with Progressive Tax Rates

Posted: 21 Dec 2006

Abstract

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)

CFA Institute ( email )

915 East High Street
Charlottesville, VA 22902
United States

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