Tax-Efficient Investing: Strategies from Louisville, CO Financial Advisors

In mountaineering, reaching the summit is an exhilarating achievement—but seasoned climbers know the real danger often lies in the descent. The journey down demands as much skill, planning, and awareness as the climb up, because mistakes on the way down can be just as consequential.

The same is true in retirement planning. After decades of building your nest egg—the “ascent” of your financial journey—the decumulation, or drawdown, phase is where many investors face the greatest risks. Mismanaging withdrawals, ignoring taxes, or drawing from the wrong accounts at the wrong time can cause your hard-earned savings to erode far faster than expected.

As Louisville, CO financial advisors, we’ve seen how a thoughtful, tax-efficient decumulation strategy can reduce lifetime taxes, keep more of your wealth working for you, and help you maintain the retirement lifestyle you’ve envisioned. At Peak Asset Management, we view investment management in Louisville, CO as more than choosing the right investments—it’s about applying tax-efficient investing principles to preserve wealth, reduce unnecessary taxes, and make your money last through the entire “descent” of retirement.

In Part 1 of our series covering our tax-efficient investing framework, we focused on the accumulation phase. Now, let’s talk about the drawdown phase, and how to keep more of your retirement income in your pocket.

The Drawdown Phase: What Changes in Retirement

The drawdown phase is when you shift from growing your net worth to living off of it. Your investment focus changes during this stage, but the need for tax planning does not. 

Just like during your working years, taxes can be one of your biggest expenses in retirement, sneaking up on you in new ways:

• Required Minimum Distributions (RMDs): Starting at age 73 (for most), the IRS requires withdrawals from tax-deferred accounts like Traditional IRAs and 401(k)s—whether you need the income or not.
• Social Security Taxes: Depending on your total income, up to 85% of your benefits may be taxable.
• Medicare IRMAA Surcharges: Higher reported income can lead to significantly higher Medicare premiums.

A coordinated withdrawal plan can help you avoid unnecessary taxes, manage healthcare costs, and extend the life of your savings.

Key Tax-Efficient Investment Management Strategies for the Drawdown Phase

1. Withdrawal Sequencing

The order in which you tap accounts can have a big impact on your tax bill over time. Depending on the types of accounts you have, and your cash flow needs, a common withdrawal strategy to deploy can be as follows:

• Start with taxable brokerage accounts, letting tax-advantaged accounts continue compounding.
• Move to tax-deferred accounts like Traditional IRAs, managing withdrawals to avoid taxable distributions in higher tax brackets.
• Save Roth IRAs and Roth 401(k)s for last to maximize tax-free growth.

That said, there’s no one-size-fits-all sequence. For some, supplementing taxable and/or Traditional IRA withdrawals with Roth IRA distributions can help create additional income without increasing taxes.

2. Roth Conversions in Early Retirement

The years between your retirement date and Required Minimum Distribution age (73 for most) can be a “sweet spot” for converting pre-tax assets to Roth IRAs due to the potential of being in a lower tax bracket during these years. You’ll pay taxes on the converted amount at a favorable tax rate, and all future growth and withdrawals will be tax-free. Spreading conversions over several years can help keep you in a preferential tax bracket. If there are specific years with special tax situations, such as existing loss-carryforwards or a year where there are large deductions, an even greater conversion amount should be considered.

3. Managing Required Minimum Distributions (RMDs)

Once RMDs start, they can create taxable income you didn’t necessarily plan for. Strategies to mitigate potential unintended tax consequences of RMDs include:

• Qualified Charitable Distributions (QCDs): If you don’t need the income, you can give directly from your IRA to a qualified charity to satisfy your RMD without adding to your taxable income. This strategy keeps your adjusted gross income unaffected, which can help sustain Medicare premiums at lower levels and might keep some available tax credits from phasing out.
• With Roths not subject to RMDs, partial Roth conversions before your RMD age shrink the pool of IRA money subject to future RMDs, lowering the taxable distribution amount required. (See Key Strategy #2 above).

4. Coordinating with Social Security

Your Social Security start date can influence your tax picture for years to come. Delaying until age 70 can boost your lifetime monthly benefit, give you additional low-income years for Roth conversion opportunities, and potentially reduce the amount of Social Security benefits subject to taxes. Your decision to take Social Security should be carefully planned, based on your specific facts, circumstances and objectives.

5. Tax-Efficient Charitable Giving

If giving is part of your plan, consider:

• Qualified Charitable Distributions (QCDs) can be initiated prior to the start of your RMDs, beginning at the age of 70 ½. Not only is the QCD amount excluded from your taxable income, which can result in other tax benefits (Mentioned in Key Strategy #3 above), it also lowers the value of the IRA and corresponding amount of RMDs necessary in future years. The maximum amount to donate as a QCD is $108,000 (2025).
• Donor-Advised Funds (DAFs) are gifting accounts that not only allow you to receive an immediate tax deduction in the year of contribution to the DAF, but also grant you the ability to distribute the money from the account to any qualified charities when you see fit. “Bunching” contributions to DAFs in high-income years can maximize your charitable tax deduction when itemizing, while maintaining the flexibility to gift to charities over time as desired.

6. Asset Location Still Matters in Retirement

Even in retirement, where you hold your investments matters. Keeping tax-inefficient assets like bonds or high-yielding dividend stocks in IRAs and tax-efficient assets like index funds in taxable accounts can help minimize ongoing tax drag. Even a small amount of tax savings, year after year, can add up to a big difference over a twenty to thirty-year retirement. It’s a subtle but effective piece of tax-efficient investment management provided by your Louisville, CO wealth advisor.

Bringing It All Together

While each of these strategies can make an impact on their own, the greatest benefit comes when they work together in a coordinated retirement income plan. Tax-efficient investing in the decumulation phase isn’t just about lowering your tax bill today—it’s about preserving your savings, managing your income, and maintaining flexibility over your lifetime.

If you’re nearing or in retirement, now is the time to make sure your withdrawal strategy is as tax savvy as your savings strategy. Sequencing withdrawals, managing RMDs, timing Roth conversions, and paying attention to asset location can help extend your portfolio’s life, reduce lifetime taxes, maintain more control over your income, and avoid unwanted surprises like higher Medicare premiums.

Getting Professional Guidance

Because the rules around retirement withdrawals, taxes, and investments are complex, missteps can be costly. A Louisville, CO financial advisor can help you design a decumulation strategy for your retirement years that works seamlessly with your overall investment and tax plan. At Peak Asset Management, we work closely with your tax professional to keep your portfolio aligned with your goals—today and in the years ahead.

If you’d like to feel confident that your retirement income plan supports your lifestyle, minimizes taxes, and helps your money last, let’s have a conversation.