A Different Degree of Wealth

Smart Tax Strategies for Retirement

Retirement planning is a multifaceted endeavor that involves not only accumulating enough savings but also strategizing to reduce your tax liability. The goal of these strategies is to ensure that you retain as much of your hard-earned money as possible, making your retirement years more financially secure and comfortable.

This article delves into various tax-efficient strategies that, when used wisely, can help optimize your retirement savings and minimize your tax burden.

Understanding Tax-Deferred and Tax-Free Retirement Accounts

401(k) and Traditional IRA

401(k) plans and traditional Individual Retirement Accounts (IRAs) offer an effective way to reduce your taxable income during your working years. In these accounts, your contributions are made with pre-tax dollars, which means that every dollar contributed reduces your taxable income by the same amount for that year. This provides immediate tax savings and allows for greater investment growth potential due to the larger initial investment amount.

The money in these accounts grows tax-deferred, meaning you don’t owe taxes on the income and gains each year as you would with a standard investment account. Instead, taxes are due when you withdraw funds in retirement. At that point, the withdrawals are taxed as ordinary income.

However, it’s important to remember that these accounts come with required minimum distributions (RMDs). Starting at age 711/5-73 (depending on birth year), the IRS mandates that you begin withdrawing a certain percentage of your account balance each year, on which you will pay income taxes.

Roth IRA and Roth 401(k)

Roth IRAs and Roth 401(k)s work differently from their traditional counterparts. Rather than contributing pre-tax dollars, you contribute after-tax income to these accounts. While this doesn’t provide an immediate tax deduction, it offers significant tax benefits down the road.

The contributions in a Roth account grow tax-free, and qualified withdrawals in retirement are also tax-free. This can be especially advantageous if you expect to be in a higher tax bracket in retirement or if tax rates rise in the future. However, to enjoy the tax-free withdrawal benefit, you must meet certain criteria. For instance, a Roth IRA requires that the first contribution be at least five years before the first withdrawal, and the account holder is at least 59.5 years old.

Roth accounts can also provide more flexibility in retirement as they do not have required minimum distributions during the account holder’s lifetime. This allows the potential for tax-free wealth to be passed on to heirs.

Utilize Health Savings Accounts (HSA)

Health Savings Accounts (HSAs) are often overlooked as a retirement savings tool, yet they offer triple tax advantages. For individuals with high-deductible health insurance plans, HSAs are a versatile option for both healthcare and retirement planning.

First, contributions to an HSA are tax-deductible, which reduces your taxable income for the year. Second, the account grows tax-free, meaning you won’t owe any taxes on the interest, dividends, or capital gains accrued within the account. Finally, withdrawals for qualified medical expenses are tax-free, providing a direct way to cover healthcare costs in retirement.

At age 65, the scope of your HSA broadens. While you can continue to withdraw funds tax-free for medical expenses, you also gain the flexibility to withdraw funds for non-medical expenses. Though these withdrawals will be taxed as ordinary income, they don’t carry the typical 20% penalty that applies to non-medical withdrawals before age 65. Thus, an HSA effectively transforms into a traditional IRA upon reaching 65, providing another vehicle for retirement income.

Convert Traditional IRAs to Roth IRAs

Another tax-savvy strategy is a Roth conversion, which involves transferring funds from a traditional IRA into a Roth IRA. The converted amount is considered taxable income in the year of the conversion, which means you’ll owe income tax on it.

However, paying tax now can save money in the long run if you expect to be in a higher tax bracket in retirement. The reason: future withdrawals from the Roth IRA, including earnings, will be tax-free, provided certain criteria are met. This can also be advantageous if you expect tax rates to rise in the future.

Another benefit of a Roth conversion is to avoid required minimum distributions (RMDs). Unlike traditional IRAs, Roth IRAs don’t require you to take distributions at a certain age. This gives your investments more time to grow, provides more flexibility in your retirement planning, and can be a way to leave tax-free wealth to your heirs.

Implement Tax-Efficient Withdrawal Strategies

The sequence in which you withdraw from your various accounts in retirement—also known as a withdrawal strategy—can significantly impact your overall tax liability and the longevity of your savings. A tax-efficient withdrawal strategy considers both the tax implications and potential growth of your various accounts.

In general, it’s often recommended to first draw down your taxable accounts, like brokerage accounts. The reasoning is two-fold: long-term capital gains tax rates—which apply to investments held for more than a year—are typically lower than income tax rates, and this approach allows the money in your tax-advantaged retirement accounts to grow.

Next, you would move to your tax-deferred accounts, such as a 401(k) or traditional IRA. Withdrawals from these accounts are taxed as ordinary income.

Finally, you would tap into your tax-free accounts, like a Roth IRA or Roth 401(k). This approach gives these accounts the most time to grow and provides tax-free income later in retirement.

Of course, individual circumstances can dictate a different approach, and it’s always advisable to consult with us when devising your strategy.

Capital Gains Tax and Asset Location

The tax efficiency of your investments can have a significant impact on your retirement savings, and understanding how capital gains taxes work is a key component of this. The tax rate applied to long-term capital gains – which refers to profits from selling investments that were held for more than one year – is generally lower than the ordinary income tax rates.

This discrepancy presents an opportunity for strategic asset location. The idea is to place investments that generate substantial income or short-term capital gains (which are taxed as ordinary income) in tax-advantaged accounts, such as your 401(k) or traditional IRA. This way, these earnings are either tax-free (Roth accounts) or taxed upon withdrawal (traditional accounts) when you might be in a lower tax bracket.

Conversely, investments expected to generate long-term capital gains, like stocks, can be held in taxable brokerage accounts. Here, the favorable long-term capital gains tax rates apply, making these investments more tax-efficient when held outside retirement accounts.

Final Thoughts

Tax planning is an essential part of retirement strategy, and its importance only grows once you enter retirement. By understanding the different tax attributes of your retirement accounts and using them strategically, you can help ensure a smooth transition into retirement and maximize your income.

Remember, everyone’s financial situation is unique, and what works for one person may not work for another. It’s always advisable to consult with our team. We can provide guidance tailored to your individual circumstances, helping you navigate tax laws and make the best decisions for your financial future.

Have a great weekend!

Source: Ballentine Capital Advisors 

Golf Tip of the Week

Major Champ Explodes An Old Golf Myth: ‘If You Say That, You Have No IQ’

You’ve almost certainly heard it before. Every golfer has. It’s one of the most common phrases in golf.

That the game of golf is “90 percent mental.”

Well Bernhard Langer, the two-time Masters champion and the most successful player in the history of the PGA Tour Champions, has some thoughts.

Speaking ahead of this week’s Bridgestone SENIOR PLAYERS Championship, Langer, who won the U.S. Senior Open in his last start, refuted the “90 percent mental” notion:

“If you say that you have no I.Q., I’m sorry. If you put two players together with the same level of technique and experience and capability then it becomes very much mental, because what is going to differentiate those two guys who are playing at the very top of their game? But if I take you on tomorrow, I don’t know how good you are, but it doesn’t matter. You could be one of the best mental in the world, I could be the worst, and I’m still going to beat you out there just because of the different technique we have, and the different experience we have.”

Why golf is NOT 90% mental

It’s an interesting take from Langer especially considering he was a player who battled the mentally-scarring yips at the height of his career. But he’s right.

Learning to commit to the shot at hand; to focus; to prevent bad shots from turning into bad rounds; all of that stuff is important. But ultimately, the deciding factor between golfers isn’t their mind, it’s their skill. Their ability to get the clubface square at impact. To swing with speed. To hit different shots around the greens.

That’s not an excuse to have a bad attitude, but it merely serves as a reminder of the true priorities. There’s no quick fix in golf. The key is understanding your problem areas, and improving them slowly.

Tip adapted from golfdigest.comi

Recipe of the Week

Watermelon-Strawberry Sangria

8-10 Servings


  • 1 small seedless watermelon, rind removed, flesh cut into large chunks (about 4 cups)
  • 1 pound strawberries, hulled and sliced, 1 cup reserved for garnish
  • 1 bottle rose wine, cold
  • 1 cup vodka
  • 1 cup fresh orange juice
  • 1/2 cup orange liqueur
  • 1 orange, sliced
  • 1 lime, sliced


  • Combine the watermelon and strawberries in a blender and blend until smooth; add a splash of the vodka if needed to get the fruit pureed.
  • Strain into a large pitcher; you will need about 4 cups total juice. Add the rose, vodka, orange juice and liqueur and stir to combine. Add the orange and lime slices, cover and refrigerate for at least 1 hour and up to 24 hours. Just before serving, add the reserved strawberries. Serve in glasses over ice.



Recipe adapted from Foodnetwork.comii

Health Tip of the Week

How Much Sleep Do I Need?

The amount of sleep a person needs depends on many things, including their age. In general:

  • Infants (ages 0-3 months) need 14-17 hours a day.
  • Infants (ages 4-11 months) need 12-15 hours a day
  • Toddlers (ages 1-2 years) need about 11-14 hours a day.
  • Preschool children (ages 3-5) need 10-13 hours a day.
  • School-age children (ages 6-13) need 9-11 hours a day.
  • Teenagers (ages 14-17) need about 8-10 hours each day.
  • Most adults need 7 to 9 hours, although some people may need as few as 6 hours or as many as 10 hours of sleep each day.
  • Older adults (ages 65 and older) need 7-8 hours of sleep each day.
  • Women in the first 3 months of pregnancy often need several more hours of sleep than usual.


But experts say that if you feel drowsy during the day, even during boring activities, you haven’t had enough sleep.

Sleep Deprivation and Sleep Debt

The amount of sleep a person needs goes up if they’ve missed sleep in previous days. If you don’t have enough, you’ll have a “sleep debt,” which is much like being overdrawn at a bank. Eventually, your body will demand that you start to repay the debt.

We don’t really adapt to getting less sleep than we need. We may get used to a schedule that keeps us from getting enough sleep, but our judgment, reaction time, and other functions will still be off.

Why You Need REM Sleep and Deep Sleep

There are four stages of sleep, based on how active your brain is. The first two are light.

Stage three is “deep sleep,” when your brain waves slow down and it’s harder for you to wake up. During these periods, your body repairs tissues, works on growth and development, boosts your immune system, and builds up energy for the next day.

Rapid eye movement (REM) sleep, or stage R, usually starts about 90 minutes after you fall asleep. Brain activity increases, your eyes dart around quickly, and your pulse, blood pressure, and breathing speed up. This is also when you do most of your dreaming.

REM sleep is important for learning and memory. It’s when your brain handles information you’ve taken in during the day and stores it in your long-term memory.

Signs of Sleep Deprivation

Common signs that you haven’t gotten enough sleep include:

  • Feeling drowsy or falling asleep during the day, especially during calm activities like sitting in a movie theater or driving
  • Falling asleep within 5 minutes of lying down
  • Short periods of sleep during waking hours (microsleeps)
  • Needing an alarm clock to wake up on time every day
  • Feeling groggy when you wake up in the morning or throughout the day (sleep inertia)
  • Having a hard time getting out of bed every day
  • Mood changes
  • Forgetfulness
  • Trouble focusing on a task
  • Sleeping more on days when you don’t have to get up at a certain time


How to Know if You’re Getting Enough Sleep

To find out whether you’re getting enough sleep at night, ask yourself:

  • Do you feel healthy and happy on your current sleep schedule?
  • Do you feel like you get enough sleep to be productive?
  • Do you ever feel sleepy when going about your day?
  • Do you rely on caffeine to get through the day?
  • Is your sleep schedule fairly regular, even on weekends?


The Effects of Sleep Deprivation

Too little sleep can cause:

  • Memory problems
  • Feelings of depression
  • Lack of motivation
  • Irritability
  • Slower reaction times
  • A weakened immune system, raising your chances of getting sick
  • Stronger feelings of pain
  • Higher chances of conditions like high blood pressure, diabetes, heart attack, or obesity
  • Wrinkled skin and dark circles under your eyes
  • Overeating and weight gain
  • Trouble solving problems and making decisions
  • Bad decision-making
  • Hallucinations


Studies make it clear that sleep deprivation is dangerous. People who missed some sleep before getting into a driving simulator or doing a hand-eye coordination task perform as badly as or worse than people who had been given alcohol.

Sleep deprivation also changes how alcohol affects your body. If you drink while you’re tired, you’ll be more impaired than somebody who got enough rest.

Driver fatigue caused about 83,000 car accidents between 2005 and 2009 and 803 deaths in 2016, according to the National Highway Traffic Safety Administration.

Some researchers say the numbers are actually much higher. Since drowsiness is the brain’s last step before falling asleep, driving while drowsy can — and often does — lead to disaster. Stimulants like caffeine can’t stop the effects of severe sleep deprivation.

The National Sleep Foundation says you’re probably too drowsy to drive safely if you:

  • Have trouble keeping your eyes focused
  • Can’t stop yawning
  • Can’t remember driving the past few miles
  • Are daydreaming and have wandering thoughts
  • Have trouble holding your head up
  • Are drifting in and out of lanes


How to Get the Sleep You Need

Healthy habits can help you sleep better and longer.

  • Give yourself time to sleep. A busy schedule can make it hard to get a good night’s sleep.
  • Keep a sleep schedule. Go to bed and get up at the same time every day, even on weekends.
  • Create a sleep sanctuary. Keep your bedroom dark, quiet, and at a comfortable temperature. Use it only for sleep and quiet activities like reading. Don’t bring in electronic screens like TVs or cell phones.
  • Have a bedtime routine. Avoid bright lights, large meals, caffeine, and alcohol before bed. Try things to help you relax, like a hot bath.
  • Exercise. Get about 30 minutes a day, at least 5 hours before bed.
  • Nap if you must. Aim for no more than 30 minutes so you don’t wake up groggy or mess up your sleep schedule.
  • Don’t force it. If you find yourself lying awake, get up and do something quiet, like reading, until you feel sleepy. Journaling may put nagging thoughts to bed.
  • Talk to your doctor. A medical condition might be causing your sleep problems.



Tip adapted from WebMD.comiii 

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Ballentine Capital Advisors is a registered investment adviser. The advisory services of Ballentine Capital Advisors are not made available in any jurisdiction in which Ballentine Capital Advisors is not registered or is otherwise exempt from registration.

Please review Ballentine Capital Advisors Disclosure Brochure for a complete explanation of fees. Investing involves risks. Investments are not guaranteed and may lose value.

This material is prepared by Ballentine Capital Advisors for informational purposes only. It is not intended to serve as a substitute for personalized investment advice or as a recommendation or solicitation or any particular security, strategy, or investment product.

No representation is being made that any account will or is likely to achieve future profits or losses similar to those shown. You should not assume that investment decisions we make in the future will be profitable or equal the investment performance of the past. Past performance does not indicate future results.

Advisory services through Ballentine Capital Advisors, Inc.


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