William Reichenstein’s Income Strategies: How to Create a Tax-Efficient Withdrawal Strategy to Generate Retirement Income peels away traditional assumptions about how to add value to clients’ portfolios.
It does this in two ways: by providing expert guidance on how to make smart Social Security claiming decisions, and through numerous examples showing that percent of returns on stocks and bonds is enhanced by choosing the most tax-efficient savings vehicles, rather than the most conventional.

Reichenstein, a CFA and head of research at Social Security Solutions Inc. and Retiree Inc., doesn’t mince words when he describes the results of his research on best vehicles for best returns:

“One important conclusion from this work was that, properly viewed, the investor receives all returns on funds held in a TDA, just like he receives all returns on funds held in a Roth. Thus, a Roth is not a more tax-efficient savings vehicle than a TDA, even though that is an embedded assumption behind the conventional wisdom withdrawal strategy.

“Therefore, it should not be surprising that the conventional wisdom withdrawal strategy is almost never the most tax-efficient withdrawal strategy.’’

Reichenstein says that financial advisors must understand how Federal programs and laws work, such as Social Security, Medicare and the Tax Cuts and Jobs Act of 2017, to guide clients to save more and attain higher returns.

In his chapter, “Tax-Code Complexities and Their Implications for Retirees,’’ he deftly and clearly explains the thorny issue of the marginal tax rate, the five factors that can cause that rate to exceed tax brackets, and how “households can minimize the damage associated’’ with two factors especially— taxation of Social Security benefits and income-based increases in Medicare Part B and D premiums. The other three factors are increases in the capital gains tax rate, net investment income tax and Medicare surtax.

Here are two options he recommends for minimizing the tax bite when dealing with tax-deferred accounts and their required minimum distribution: A single taxpayer converts enough money from her tax-deferred account into a Roth so that the funds are taxed at a marginal rate of 22%, rather than 40.7%. She can convert more money into another Roth the same year and those funds would be taxed at 24%.

“By making such Roth conversions for one or more years, (she) may be able to substantially reduce her TDA balances, and thus reduce her RMDs for subsequent years,’’ he writes. “This could substantially reduce or even eliminate the portion of future TDA distributions that would be subject to a marginal tax rate exceeding 40%.’’

And the kicker to that strategy: “By providing such advice, her financial advisor may be able to help her portfolio last several years longer.’’

On whether and when to convert from a TDA to a Roth account, he says it depends:

“In general, the investor should compare the marginal tax rate if the funds are converted to a Roth this year to the expected marginal tax rate the investor would otherwise pay if the funds are retained in the TDA, but eventually withdrawn and spent in retirement.

“If the taxpayer believes that this year’s marginal tax rate will be less than or equal to his marginal tax rate in retirement, then he should convert some TDA funds to a Roth this year,’’ he writes.

 Social Security withdrawal strategies get the most space, warranting four chapters and regular mentions throughout the book.

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