Experts suggest that the right combination of retirement accounts can minimize future tax liabilities.

• Experts advise that it is crucial to understand the implications of your investments on future taxes, whether you are in the mid-career or approaching retirement.
• By combining pretax, after-tax Roth, and taxable brokerage accounts, retirees can reduce their tax burden through flexibility.
• Your tax balance depends on your goals, risk tolerance, and timeline.

Experts advise that it is crucial to understand the implications of your investments on future taxes, whether you are in the mid-career or approaching retirement.

Numerous employees invest heavily in tax-deferred savings through a pretax 401(k) plan or individual retirement accounts, which result in future withdrawals being subject to federal tax brackets.

Many retirement advisors recommend a combination of pretax, after-tax Roth, and taxable brokerage accounts for greater retirement flexibility.

Judy Brown, a certified financial planner at SC&H Group in the Washington, D.C., and Baltimore area, explained that "a lot of different levers can be pulled to manage adjusted gross income."

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A certified public accountant, Brown, explained that post-tax distributions could lead to a higher tax bracket or increased Medicare Part B and D premiums.

Medicare Part B and Part D premiums are calculated using modified adjusted gross income, which is your adjusted gross income plus tax-exempt interest from two years ago.

Generally, after-tax account distributions, such as Roth 401(k) plans or Roth IRAs, do not incur taxes and can increase your earnings.

Capital gains from holding taxable brokerage investments for more than one year are taxed at 0%, 15%, or 20%, based on your taxable income.

Although higher earners may face an additional 3.8% tax on brokerage assets, the overall rate remains lower than the 37% top marginal tax rate on pretax account distributions.

To better manage withdrawals and taxes, CFP Alyson Basso, managing principal of Hayden Wealth Management in Middleton, Massachusetts, suggests having a mix of pretax, after-tax Roth, and taxable assets.

The perks of a brokerage account

If you're planning to retire early before age 59½, your brokerage assets can be particularly advantageous, according to Houston-based CFP Abrin Berkemeyer with Goodman Financial.

Withdrawals from workplace retirement plans and pretax IRAs before age 59½ are subject to a 10% penalty, but you can withdraw funds from your brokerage account at any age without penalty.

A brokerage account can aid in achieving other objectives before age 59½, such as paying for a second home down payment or a child's wedding, according to Berkemeyer.

To build your brokerage account, you may have to give up certain tax benefits, such as tax-free growth or upfront deductions for contributions, he stated.

The optimal combination of pretax, Roth, and taxable investments depends on your financial objectives, risk tolerance, and time horizon.