The Value of Investing in Taxable Accounts

Many people invest in their retirement years through various tax-deductible/pre-tax (Pay Later) retirement plans such as 401(k)s, 403(b)s, IRAs, and annuities. These accounts are great for reducing taxes today, but because they grow tax-deferred, many people may face a tax bomb in retirement when they start taxable distributions at future unknown tax rates. On the other hand, the after-tax, taxable (Pay Now) accounts can be valuable for tax planning later in your retirement to provide tax-efficient distributions and income. Gains and income are taxed in the year earned, reducing the taxable amount when distributed.

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