Diversify Retirement Accounts To Help Save on Taxes

Diversifying¹ your investments can help reduce risk. But it’s also important to diversify your retirement accounts so you have the flexibility to manage your tax bill and save money.²

Most workplace retirement savings are often in the form of contributions to tax-deferred accounts such as 457(b), 401(a), or 403(b) plans. After you retire, withdrawals from these accounts will be taxed as regular income. And those withdrawals, along with any pension or other income, could be enough to increase the portion of a retiree's Social Security benefits to be taxed, raise their Medicare premiums, or even push them into a higher tax bracket.

This is where diversifying retirement accounts can help. By spreading savings over accounts that are taxed differently — tax-deferred, taxable, and tax-free — you can make strategic withdrawals to minimize taxes later.

To diversify beyond a tax-deferred workplace retirement plan, consider adding a taxable brokerage account and a tax-free Roth IRA.³

Brokerage Account

You pay taxes on interest and dividends as you earn them, along with capital gains tax when you sell an investment for a profit. Capital gains tax rates in 2025 — 0%, 15%, and 20% — tend to be lower than regular income tax rates, which go as high as 37%.

Roth Account

You invest in a Roth IRA with money that’s already been taxed, and your investment grows tax-free. You can withdraw your contributions at any time without triggering taxes or a penalty. And once you’ve reached 59 1/2 years old and have owned the Roth for five years, you can withdraw your investment earnings tax- and penalty-free, too.

Many 457(b) and 403(b) plans also offer a Roth option that’s funded with after-tax dollars and provides tax-free withdrawals in retirement.

Another benefit: Roth accounts don’t have required minimum distributions unlike other tax-deferred retirement accounts with RMDs starting at age 73. RMDs can lead to higher taxes, depending on your income.

Talk With a Professional

Taxes can be complicated. Consider working with a tax adviser to help you make strategic withdrawals and maximize your savings.

¹ Diversification does not protect an investor from market risks and does not assure a profit. An investor must consider the risk associated with all investments used to diversify assets.

² MissionSquare does not offer specific tax or legal advice. The information presented here is for educational purposes only and is not to be construed or relied upon as investment advice. It is recommended that individuals consult with their personal finance advisor prior to implementing any financial or tax strategy.

³ Contributions: If you contribute to a Roth IRA, you can make tax-free withdrawals if you’ve owned a Roth IRA for at least five years (as defined by the IRS) and meet the requirements for a “qualifying event”: age 59 1/2, a “first-time” home purchase, a disability, or death (with withdrawals going to your beneficiaries). Otherwise, you may have to pay income taxes and penalties to withdraw your earnings. Withdrawals: Roth IRA contributions can be withdrawn at any time without taxes or penalties. If you have a traditional IRA, you may not be able to withdraw your money before age 59 1/2 without paying a penalty. There can be many exceptions to the IRS rules, so carefully research all of your options.