For decades, conventional wisdom dictated maxing out tax-deferred retirement vehicles. Investing in taxable accounts for retirement savings was, if anything, an afterthought – something that should only happen once tax-deferred plans were filled.

However, taxable accounts possess some distinct potential advantages and can provide flexibility as a useful complement to tax-deferred accounts. By saving in both types of accounts, clients and their families may be able to reap benefits before retirement while setting themselves up to potentially gain additional benefits during the retirement distribution phase and in legacy planning.

3 Pre-Retirement Advantages

  1. Enjoy a wide variety of investment choices: In many cases, your investments in a company-sponsored tax-deferred retirement plan are limited by type of investment, asset class, and provider. When you set up a taxable investing account, you may be completely free to choose whatever investments you and your advisor see fit to. Not only that, but you can move your money to a different provider and set up as many taxable accounts as you like.
     
  2. Use losses to offset gains and income: Losses in retirement accounts are just that – losses, because they can’t be used to offset gains or ordinary income. However, you, your financial advisor and your tax advisor may be able to use losses in taxable accounts to offset gains and offset up to $3,000 in ordinary income, which can result in a lower bill.
     
  3. Gain close to tax-free compounding: Through careful portfolio construction, you and your advisor can create a taxable portfolio that may be unlikely to generate significant capital gains, dividends or income. For example, on the equity side, investments in some broad-market index funds or exchange-traded funds or tax-efficient mutual funds may make it possible to hold stocks for many years without significant tax consequences. On the fixed-income side, an investment in municipal bonds is free from federal income tax and, in some cases, state income tax.
These potential benefits aren’t limited to pre-retirees, as retirees who employ taxable accounts along with tax-deferred accounts in the distribution phase may also share in these potential benefits. Investors can consult with an investment professional and a tax professional in order to better understand the risks and opportunities available to them as they prepare for retirement.

More information on retirement planning and investing is available on our Retirement Insights page.


This material is provided for informational purposes only and should not be construed as investment advice. The views and opinions expressed above may change based on market and other conditions. There can be no assurance that developments will transpire as forecasted.

Natixis Global Asset Management does not provide tax or legal advice. Please consult with a tax or legal professional prior to making any investment decisions.

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