Tax Efficiency: Different retirement accounts are taxed differently. For example, withdrawals from a traditional IRA or 401(k) are taxed as ordinary income
while withdrawals from a Roth IRA are tax-free in retirement. Without a proper strategy, you could end up paying more taxes than necessary.
Required Minimum Distributions (RMDs): Once you reach a certain age, you're required to start taking distributions from your traditional retirement accounts.
Failing to plan for these can result in hefty penalties.
Maximizing Account Growth: Deciding which accounts to withdraw from first can significantly impact the growth potential of your remaining assets.
Withdrawing from taxable accounts first, for example, can allow your tax-advantaged accounts more time to grow.
A well-thought-out withdrawal strategy can help manage these factors, potentially reducing taxes and increasing the likelihood that your savings will last throughout your retirement.
This strategy should be revisited and adjusted as needed, considering changes in tax laws, your financial situation, and market conditions.