What is Tax diversification and How Does it Work?

In this video Ryan addresses tax diversification. 

Tax diversification focuses on having different types of accounts.  For instance, retirement account money includes 401k, IRA, and 403b.  Outside of retirement account money includes brokerage accounts and some annuities.  Bank money includes cash reserve savings at your bank.  Tax free money is money inside of ROTH IRAs and some properly structured cash value life insurance policies. 

It is super important to have money properly diversified in all types of accounts for tax benefits in retirement versus having all of your money in tax infested retirement accounts.  This allows you to have tax control during retirement.

Ryan discusses the concept of tax diversification, which refers to having different types of assets that are taxed differently. Specifically, the speaker mentions that many people have a significant amount of money in their 401(k) or other qualified retirement plans that have never been taxed.

When this money is withdrawn in retirement, it is taxed at ordinary income tax rates. Ryan suggests reducing contributions to the 401(k) once the company match is met and instead building up savings in non-qualified accounts, such as bank accounts or brokerage accounts.

Another option is to convert some of the qualified retirement funds into tax-free funds, such as a Roth IRA. By doing so, individuals can better control their tax liabilities and reduce the risk of triggering higher tax rates when unexpected expenses arise. He believes that tax diversification is an important aspect of retirement planning and encourages people to explore their options for achieving it.


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