Strategic Moves: Blending Taxable and Tax-Exempt Income

You rarely want to rely on just one type of account in retirement. The most financially secure retirees maintain “tax diversification”—having money spread across taxable accounts, tax-deferred accounts (like traditional IRAs), and tax-exempt accounts.

This diversification allows you to orchestrate your withdrawals each year. You can withdraw from your taxable and tax-deferred accounts up to the limit of the lower tax brackets, and then switch to your tax-exempt accounts to fund the rest of your lifestyle without pushing yourself into a higher tax bracket.