Your priorities, how you spend your time, and how you generate money to provide for your essentials are drastically different in various stages of your life.


In your early working years, you’re gaining skills, experience, and knowledge while you build a career and potentially a family. In the middle of your life, you’re experiencing exciting growth and opportunities and moving through your high-earning years. And finally, as you make your way to the career finish line, you start to focus on how you can maximize both your time and money as you make your way to retirement.


These two distinct phases in the wealth-building process are typically known as the accumulation and decumulation phases.


Defining the Terms

Your financial accumulation phase is the portion of your life where you are aggressively saving and investing—it includes your prime working years right up until you retire. The decumulation phase of your life happens when you stop working and start to draw from your amassed wealth to provide for your everyday expenses.

Effective accumulation and decumulation strategies involve strategic tax planning because taxes can have a significant impact on both phases.


Grow Baby Grow: Tax Planning Strategies for Your Accumulation Phase

When you’re working to grow your wealth as quickly and efficiently as possible, it’s important to take advantage of the many great tax strategies available to you. Overall, you’ll want to focus on reducing your tax liability where you can while also reducing your future taxes in retirement. This delicate balance will ebb and flow throughout your working years as your income and expenses fluctuate.

Consider these three tips if you’re in the wealth accumulation phase of your life.


1.  Utilize tax-advantaged accounts.

These accounts offer tax advantages such as being tax-exempt (after-tax contributions not subject to ordinary income tax) or tax-deferred (pre-tax income contributions will be taxed later).

Some common examples of these accounts include:

  • 401(k)s. Your retirement contributions help to decrease your taxable income in the year you This lowers how much you pay now, and allows you to grow your wealth in other ways. You can begin withdrawing money from your 401(k) at age 59.5 without a penalty. If your employer offers a matching contribution, always contribute enough to get the full match.
  • Traditional Similar to your 401(k), your contributions are tax-deductible and will be taxed as ordinary income when you withdraw money in retirement.
  • Health Savings Accounts (HSA). If you are on a high-deductible health insurance plan, you can contribute to an HSA. These accounts allow you to make tax-free contributions, and experience tax-free growth and tax-free withdrawals (when used for qualified medical expenses). Contributing to these accounts yearly can greatly help ease your medical expenses in retirement.

The amount you’re able to contribute to these accounts will vary throughout your working years. While raising a family, your contributions may be leaner, but when your nest is empty, you might be able to ramp up your contributions to the full contribution limits. The important thing is to try to always contribute something. The accumulated contributions year after year can truly add up!


2.  Use investment losses to your advantage.

Reducing your tax liability in the accumulation phase is crucial for building wealth. One way to accomplish this is through tax-loss harvesting. This tax strategy includes selling an asset that has depreciated (capital loss) in order to offset the taxes you owe on any capital gains or income you’ve received.

For example, Asset A has appreciated by $2,000 and Asset B has depreciated by $2,000. You can sell Asset B at a loss to offset the capital gain of Asset A. Your gain and loss have come to a wash, leaving you with no tax liability on these two assets. An experienced financial advisor with tax knowledge can help navigate your portfolio and advise you on this strategy.


3.  Consider Roth conversions.

If you’re in a strong financial position yet earning less than what you expect to make in later years, consider converting some of your contributions from a traditional retirement account into a Roth IRA. You’ll pay taxes on the converted amount now but will enjoy tax-free withdrawals during retirement.

This can be especially beneficial if you expect to be in the same or higher tax bracket during retirement or earn too much ($153,000 for single filers and $228,000 for married joint filers in 2023) to contribute to a Roth IRA the traditional way.


Relax and Enjoy: Tax Planning Strategies for Your Decumulation Phase

As you finally make your way into retirement, your finances will drastically change. You’ll no longer be focused on accumulating and growing but rather preserving and spending (strategically).

Consider these three tips if you’re in the decumulation (retirement) phase of your life.


1.  Strategically manage your withdrawals

How you withdraw your money from your investments can greatly affect how your remaining money can continue to grow.

It’s wise to withdraw from your taxable accounts first (savings accounts, brokerage accounts, etc.) because you’ve already paid income tax on your contributions. Next, withdraw from your tax-deferred accounts (traditional 401(k)s and IRAs). When making withdrawals from these accounts, pay attention to the required minimum distributions (RMDs) so you can avoid nasty tax penalties.

Save your extra special accounts—like your Roth IRA—for the very end because these withdrawals are completely tax-free and should be left to grow for as long as possible. Your Roth IRA withdrawals do not count toward your yearly income, which can benefit you when you start considering your social security benefits.


2.  Optimize your Social Security benefits

Your social security benefits are subject to taxation depending on your annual income (including the income you receive from some of your retirement accounts). Delaying your benefits and instead relying on your retirement accounts and other investments can help prevent you from paying taxes on your social security benefits. Delaying your benefits will also increase the amount you receive each month (until age 70).


3.  Consider the location of your retirement.

Where you choose to settle down and live out the rest of your days can have a significant impact on your retirement income. Some states—Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, and Wyoming—do not tax income at all, including your Social Security benefits, retirement distributions, and pensions. This can help you save significantly in your golden years. Other states tax income but have special provisions for retirees.

Property and sales tax can also vary greatly from state to state. In order to stretch your retirement savings, it’s important to look at how your budget will fare in light of various taxes. Find out the specific tax laws in the state you’re looking at retiring in and plan accordingly.


Strategically Plan Your Taxes with Five Pine Wealth Management

Tax planning is a powerful way to grow and preserve the wealth you work so hard to earn. Our tax planning financial advisors can help you minimize your tax burden, adapt your financial plan when new laws and regulations are implemented, and navigate your retirement contributions and accounts.


We offer comprehensive tax planning services for every stage of life. To connect with us and schedule a free discovery call, visit our website, give us a call at 877.333.1015, or shoot us an email at