Taxable Accounts Can Win Near Retirement Investor's Business Daily (02/16/01) No. 3719 p.B5; Weinstein, Grace W.
Generally, it is better to invest on a tax-deferred basis, but
two things should be considered. First, is tax-deferred investing still
advantageous when retirement is near? Second, if so, do growth or
income investments belong in your tax-sheltered accounts? If the time
until retirement is short, tax-deferred earnings growth are minimized.
According to Martin Nissenbaum, Ernst & Young's director of retirement
planning, the key issue is the potential conversion of capital gains
into ordinary income. Typically, when you invest in a taxable account,
capital gains on assets held more than one year are taxed at a top rate
of 20 percent. If money comes out of a tax-deferred account, it is
taxed at ordinary income rates as high as 40 percent.