You know that you should diversify your investments to reduce your investment risk, but did you know you should also diversify your investments for tax purposes?
401K and IRA accounts are taxed at your ordinary income tax rate, so if you’re in the 25% tax bracket when you retire, you’ll pay 25% (plus state income taxes) on every dollar you withdraw from your retirement accounts.
This can really put a dent in your budget, especially in your later retirement years. To avoid paying taxes on every dollar of income during retirement, why not start investing in Roth IRAs and taxable accounts now, instead of socking all of your money away in tax-deferred retirement accounts?
That way, when you are retired, you can decide which account to pull money out of first to keep your income taxes at a minimum and to make the most out of every retirement dollar.
Resources for furthur discussion on diversifying for tax purposes:
Ask the Expert ~ Taxing Withdrawals
Cut Your Taxes In Retirement – CNNMoney.com