One is to invest as you did before you had children, with assets in taxable and tax
deferred accounts, under your own names.
The standard advice has been that investments that throw off income taxed at the ordinary income rate belong in tax deferred accounts where investments taxed at more favorable long-term rates belong in taxable accounts.
When thinking of the benefits of tax deferral think of the "Rule of 72." A tax deferred account growing at an annual rate of 7.2 percent will double in 10 years.
"I think the changes we have implemented will allow us to emerge fairly quickly from Chapter 11 and continue to be a profitable and ongoing concern that has capacity, to start repaying members from profits to help liquidate their
deferred accounts, which will be turned into equity," Pape said.
For instance, the client's tax rate should be considered, he says, adding that, in most cases, it makes sense to draw from taxable accounts before dipping into tax
deferred accounts.
All DIAs work fine in non-tax
deferred accounts (accounts other than IRAs or qualified plans).
Basically, there is now an increased incentive to hold dividend-paying and higher-risk/return long-term equity investments outside of tax
deferred accounts, and ordinary income, safety-oriented investments (such as taxable bonds, certificates of deposit, treasuries, etc.) in sheltered retirement accounts (with the exception of Roth IRAs, which can avoid tax entirely).
This contradicts the general wisdom that one should locate heavily taxed assets in the tax-deferred account Asset allocatio n within tax
deferred accounts is quite similar to asset allocation in taxable accounts.
401(k) plans and other
deferred accounts are taxed on withdrawal.
On the other hand, if the individual withdrew $50,000 from a tax
deferred account and $50,000 from a tax-free or fully taxable account, which doesn't count as earned income, the investor would be in the 15 percent tax bracket.
The term "specified tax
deferred account" means an individual retirement plan (as defined in Sec.
