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Bridge over ocean
1 March 2015 Financial Analysts Journal Volume 71, Issue 2

Tax-Efficient Withdrawal Strategies

  1. Kirsten A. Cook
  2. William Meyer
  3. William Reichenstein, CFA

The authors considered an individual investor who holds a financial portfolio with funds in at least two of the following accounts: a taxable account, a tax-deferred account, and a tax-exempt account. They examined various strategies for withdrawing these funds in retirement. Conventional wisdom suggests that the investor should withdraw funds first from the taxable account, then from the tax-deferred account, and finally from the tax-exempt account. The authors provide the underlying intuition for more tax-efficient withdrawal strategies and demonstrate that these strategies can add more than three years to the portfolio’s longevity relative to the strategy suggested by the conventional wisdom.

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