Taxable Accounts

In addition to special retirement plans, you may also want to include regular taxable accounts, such as a savings account or investment account, in your retirement portfolio. The one drawback is that you will owe taxes each year on any account earnings and on any capital gains, or profit from selling an investment for more than you paid for it. But there are also potential advantages that may outweigh owing some tax now:

• There are no limits on the amount you can add to your taxable investment accounts each year

• There are no limits on the kinds of investments you can make

• There are no required withdrawals

Taxed at a lower rate

What's more, taxes on most stock dividends and most long-term capital gains on investments you've owned more than a year are calculated at a lower tax rate than your regular tax rate, which applies to withdrawals from tax-deferred accounts. And you owe no tax on the increasing value of assets you hold in your taxable accounts until you sell them.

Another point to consider is that you may pay less in fees and other charges to buy, sell and hold investments in a taxable account than you do in some tax-deferred accounts designed specifically for retirement savings. And if you need to use some of your taxable retirement savings to meet an immediate financial need, there is no 10% federal tax penalty to worry about.