There’s a retirement account that many retirees and pre-retirees often overlook, and not having this type of account often restricts their options when it comes to helping save on taxes. The first option you could miss out on is tax efficient withdrawal planning, tax loss harvesting, or optimizing their charitable giving. Secondly, Roth conversions; planning those out over a long period of time. What’s the best strategy over my retirement or even before I retire? Number three, those one-time, big ticket items in retirement can have a big impact on the plan. Whether that’s purchasing a second home, giving annual gifts to family members, etc.

Non-Retirement Accounts

It’s important to have options for paying for those that aren’t just retirement accounts. The reason this is so overlooked is because it’s technically not a retirement account like your 401k, IRA, 403 , Roth, or even HSA. This account is your individual, joint, or trust investment account. For today’s purpose we’ll call it your taxable investment account.

I want to share all the many wonderful things you can do if you have a funded taxable investment account versus those who have limited options of having just retirement accounts in their retirement years. I’ll also talk about the roadblocks that keep people from taking advantage of these benefits. 

Roth Conversion Strategies

This past year we spoke with many soon-to-be retirees that weren’t too worried about running out of money, but they wanted to optimize what they were doing so they didn’t have to pay more tax than what they needed to. One couple who came to us was excited about this period between age 60 and 70 where they heard that could be a sweet spot for converting some of their IRA money to Roth IRA money.

As we talked, we realized they had some money at the bank, but they had very little in their taxable investment account. They were excited about Roth IRA conversion strategies but their current plan didn’t have enough cash flow to pay that extra tax they were going to incur when they did the conversions.

It’s one reason to be really careful when you hear ideas, like here on YouTube, around Roth conversion strategies. Remember, it’s going to cost you some tax now to save on tax later, and that’s okay if it makes sense but you need cash to pay for that tax. A taxable investment account is one of those buckets that can really help. The good news for this couple was that they had a few years until retirement, so we looked at how much was projected to be in their pre-tax IRA by age 72 and what the required distribution would be.

It was going to be a substantial forced pay raise that would kick them into an even higher tax bracket for income that they weren’t going to need. The plan for them was to start funding the taxable investment account more than what they’d been doing in the past to build up that bucket and be ready for this Roth conversion sweet spot.

Case Study – Investment Accounts

Let’s say we’re talking to Mark, and Mark has $5,000,000 in his overall investment accounts; it’s all in his IRA, and he wants to buy a new camper for $200,000. So he’s planning on moving out of the house, camping around North America. He’s already taking out $100,000 from his IRA each year to cover living expenses. That, plus his social security as a single filer puts him in the 24% tax bracket. To fund the camper he will need to take out about $270,000 so that he can withhold about $70,000, set that aside for taxes and then be able to pay for his $200,000 camper.

So his $200,000 camper is going to cost him an extra $70,000 than it should because he has to pay for taxes. This is going to bump him from the 24% tax bracket up to the 35% tax bracket when he takes out this extra $270,000. One option for somebody like him is to anticipate those needs and split up your distributions over two years. Even with that though, he’s still in the 35% tax bracket when he splits it up over the two years it would save him some taxes. So let’s look at Diane instead.

Diane also has $5,000,000 in her investment accounts but she has a taxable investment bucket and that has $1 million in it. When she pulls out of that taxable investment account, she’s only going to be paying taxes on the capital gains or losses, the dividends and interest on that account. Let’s say she wants the same exact camper for $200,000. In her situation, selling the $200,000 from her taxable investment account, let’s assume she’s about 25% in positive capital gains in that account. What she’ll have to pull out of that. So that means there’s $50,000 in gains. That $50,000 of gains taxed at 15%, when she pulls out that $200,000, it’s only going to be $7,500 in tax.

So $7,500 in tax versus $70,000. Diane is literally paying 1/10 the taxes that Mark is paying for that one-time, big ticket purchase. Not to mention, Diane can use her taxable bucket to do tax loss harvesting for tax deduction purposes while maintaining her same asset allocation, she can sell a fund or stock at a loss, buy a similar fund or stock with the proceeds (careful with the wash sale rule here); she can also give appreciated assets to charity or her donor-advised fund, and that’s going to help her to not pay capital gains on those assets that are given away. Diane can also use her taxable account for income in those first few years of retirement and keep her taxable income and her tax bracket low so she can explore more Roth conversion opportunities. 


Hopefully you can see the power of having a taxable investment account and the options that it gives you. Three of the roadblocks that we see that keep people from taking advantage of a solid taxable investment account come retirement. Number one, maybe you didn’t know it was possible. We see a lot of folks with extra savings after maxing out their 401k’s who don’t know what to do, so they’ll purchase a larger home, buy nicer cars, and start to sink excess cash into liabilities rather than investments for the future. While there’s nothing wrong with those things, you might miss out on the benefits that we just talked about.

Number two, maybe you own a business and you want to reinvest all your capital into that endeavor. First of all, I love your passion and your drive around that. Being all in says a lot about you as a leader. However, when we work with a business owner, we help create what’s called the over-the-wall portfolio where you split your profits in between reinvesting in the business and a portfolio that’s there for you and your family as a plan B.

Number three, maybe you like investing in income-producing real estate. While that can be a worthwhile investment strategy, it’s not for everyone. It’s hard to actually diversify your real estate portfolio across zip codes, countries, different kinds of real estate, different industries. Most people have very concentrated real estate portfolios.

Three Action Steps

If this has been helpful, here’s a quick action step. Number one, take stock of what’s in each of your buckets. Model out what you have IRA, tax free accounts like Roth IRA, and your taxable bucket. If you’re close to retirement and you’re thinking about tax strategies or Roth conversion strategies, you could use the DIY retirement planner, and you could model out some Roth conversions. Option number two, talk with a CFP certificate and model out your buckets, and see what your options are for your retirement withdrawal strategy. And number three, if taxes are important to you, spend a few minutes trying to model this out by yourself, like a Roth conversion strategy over a long period of time, or have somebody help you.

This is a topic that we talk about frequently on this channel. If you haven’t subscribed, do so, and you don’t miss out on future tax planning strategies. We’ll see you in the next one!

Investment Advisory Services offered through LaSalle St. Investment Advisors, LLC, a SEC Registered Investment Advisor (LSIA). Securities offered through LaSalle St. Securities, LLC (LSS), a Broker/Dealer and Member FINRA/SIPC. LSS is a Subsidiary of LSIA.  Streamline Financial Services is not affiliated with LSS or affiliates.  Investing involves risk, including loss of principal. This video content is not a recommendation to buy or sell specific securities or investment company products.  Any third party software future performance and/or projection services are neither provided nor endorsed by LaSalle St. Securities, LLC LSS affiliates, or Streamline Financial Services.

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