If you're an investor, you've surely heard the saying "It's not what you earn, it's what you keep." Minimizing taxes is important when you're growing your savings for retirement—but it's at least as important after you're retired.
That's why retirees with different types of taxable and tax-deferred accounts should carefully plan the sequence in which they will withdraw money from those accounts. At stake is not just tax savings but also the potential for greater investment growth.
The various account types include traditional IRAs and workplace plans such as 401(k)'s, which are funded with pre-tax dollars. In these vehicles, taxes are deferred until withdrawal so that those assets can compound and grow faster. Roth 401(k)'s and Roth IRAs are funded with after-tax dollars, and their assets grow and are withdrawn tax-free. Finally, many investors have taxable brokerage accounts, which are funded with after-tax dollars and accrue taxes on gains, interest, and dividends.