Tax Wise Distribution Strategy

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Accumulation Using the Tax Wise Distribution Model

So far the method has been explained in the distribution phase. But can the methodology help a client plan in the accumulation phase? Certainly!

In planning for accumulation, the Tax Wise Distribution Strategy analyzes a client's income needs according to tax bracket. Current accounts can be assigned to specific tax brackets, and then the client can estimate their projected shortfall by tax brackets. This allows the client to strategically plan additional savings in both pre-tax and after-tax accounts.

Additionally, an advisor may show a client the effects of higher marginal tax brackets, and how to prepare for them by moving pre-tax retirement savings into after-tax accounts.

Strategy Summary

The Tax Wise Distribution Strategy analyzes the client's retirement income tax bracket, and then prioritizes distributions from accounts based upon each individual account's taxation status. Pre-tax accounts are used for lower tax tiers, while after-tax and capital gains accounts are saved for higher tax tiers. This may provide the client with a significant reduction in taxation, thereby extending the length of their income.

The natural question is now asked: How does this work in TRAK? The following pages will demonstrate how TRAK can be used to provide your clients with quick illustrations of the Tax Wise Distribution Strategy.