Which retirement account should you withdraw from first when you need funds? You might have assets in pretax accounts, Roth accounts, or plainold joint and individual accounts.

The choices you make can have a dramatic impact on your taxes and other costs, so it’s worth making a strategy.

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In general, the idea is to manage your pretax accounts. For instance, you may have traditional IRAs, pretax 401(k) or 403(b) accounts, or other workplace plans. You’ll have to pay taxes on those funds someday, but the temptation is to avoid taxation for as long as possible.

Ultimately, you pay taxes on those accounts sooner or later. So, when should you spend that money in retirement?

It might make sense to draw from pretax accounts—even when you don’t need to—when you can do so in relatively low tax brackets.

While you can form a strategy, you can’t really know in advance how it will play out. So go ahead and try to quantify the impact, but recognize that there’s no way to predict the future accurately.

Related resources:
How Much to Convert to Roth:    • How Much to Convert to Roth Each Year  
What Taxes Do You Pay in Retirement?    • Taxes in Retirement: Why You Still Pa...  
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Consider Roth conversions as well. If you don’t need to spend money from pretax accounts, it could make sense to convert a portion of your account to Roth. If you are able to meet all IRS requirements, it might be possible to get funds out of the Roth taxfree later in life.

Ultimately, these strategies might not pay off. There’s no guarantee that you’ll come out ahead, and any action you take could potentially turn out to be a mistake in hindsight. So, evaluate your situation, make some educated guesses with the information available today, and then do what you think is best.

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Justin Pritchard, CFP® is a feeonly fiduciary advisor who can work with clients in Colorado and most other states.

CHAPTERS:
00:00 Important Question
00:54 Example: Why it Matters
09:34 Which Account Should You Spend First?
11:44 ProRata Withdrawal Strategy
13:51 Sample Scenarios and Tips

IMPORTANT:
You can run out of money with any strategy. Verify tax rules and details with a tax expert before making any decisions. This video may show information from companies that are not associated with Approach Financial, Inc. It's impossible to cover everything you need to know in a video like this. The only thing that's certain is that you need more information than this. Always consult with a CPA before making decisions or filing a tax return. This is general information and entertainment, and is not created with any knowledge of your circumstances. As a result, you need to speak with your own tax, legal, and financial professional who is familiar with your details. This video is not a substitute for individualized, personal advice. Please verify with your plan administrator when employer plans are involved. This information may have errors or omissions, may be outdated, or may not be applicable to your situation. Investments are not bank guaranteed and may lose money. Opinions expressed are as of the date of the recording and are subject to change. “Likes” should not be considered a positive reflection of the investment advisory services offered by Approach Financial, Inc. The Comments section contains opinions that are not the opinions of Approach Financial, Inc., and you should view all comments with skepticism. Approach Financial, Inc. is registered as an investment adviser in the state of Colorado and is licensed to do business in any state where registered or otherwise exempt from registration.