By: John P. Napolitano, CFP®, CPA, PFS, MST

For those who saved and invested, one of the toughest decisions to make during your retirement may be which accounts to use to fund your spending. Many savers have traditional retirement accounts, possibly a Roth retirement account and after tax money from savings or investments.

The initial reaction by many retirees is to spend the non-taxable money first. That would be savings or after tax investments that you’ve made. While this may leave you with a lower tax bill come year end, there may be other strategies that can hedge your choices in light of possible future tax changes.

For example, if you have retirement accounts, and you have not yet reached the magic withdrawal age of 70 ½, you don’t need to withdraw anything from them. But if your retirement accounts are large, and you know that you’ll be burdened by larger taxable distributions later in life there is again the possibility that those larger retirement contributions alone will push up your tax bracket to something higher than you’d like. Consider withdrawing some retirement money now, using up some of the lower tax brackets that you may not be using if you are only spending after tax money. If you make withdrawals that are above and beyond your living needs, consider shifting these assets to a Roth IRA where they’ll remain tax and withdrawal free for life.

This combination of starting to reduce your retirement accounts earlier along with some Roth conversions will make your ultimate required minimum distributions smaller later. It is important to note that Traditional IRA account owners should consider the tax ramifications, age and income restrictions in regards to executing a conversion from a Traditional IRA to a Roth IRA. The converted amount is generally subject to income taxation. The truth is that we don’t know if tax rates will be higher this year, next year or in ten years. As a result, any strategy to hedge against possible future adverse changes may be helpful or harmful in the long run.

A similar decision may need to be made with respect to your savings and investments. For example, if your lifestyle requires $100,000 of income this year and you are retired, the inclination for many is to spend your cash and not dip into investments that may have a capital gains tax should you sell. Doing so could leave you with an uncharacteristically low taxable income for the year. That may be fun come filing time, but in future years where you may have significantly larger income, you may regret not paying some taxes on gains this year while in a low tax bracket. In fact, if you are married and your taxable income is less than $75,900, you’ll pay zero federal tax on capital gains.  This could be a material opportunity for early retirees with little to no taxable income.

If there are pension decisions to also make at retirement, consider your options for single life or joint life payouts, and consider delaying any payments to you if you have any of the above tax planning opportunities.  Start your 2017 forecasting now so that you’ve got the next three months to enact the plan that is right for you.

"Making Cents" is published weekly in Gatehouse Media publications including the Patriot Ledger

John P. Napolitano CFP®, CPA is CEO of U. S. Wealth Management in Braintree, MA. Visit JohnPNapolitano on LinkedIn and follow him on Twitter

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. This information is not intended to be a substitute for specific individualized tax advice.

We suggest that you discuss your specific tax issues with a qualified tax advisor. U.S. Wealth Management, U.S. Financial Advisors and LPL Financial do not offer tax advice.

John Napolitano is a registered principal with and securities offered through LPL Financial, Member FINRA/SIPC. Investment advice offered through US Financial Advisors, a Registered Investment Advisor. US Financial Advisors and US Wealth Management are separate entities from LPL Financial. He can be reached at 781-849-9200.