Why Your Retirement Savings Is Smaller Than It Looks: Panera Bread Co (PNRA)

But it’s also important to have a diversified portfolio of assets that includes some investments held in ordinary accounts. While retirement accounts are a great place for high-tax investments like mortgage REITs and high-yield bonds, low-tax investments that you can buy and hold for decades are often better to hold in a taxable account than in a regular IRA. For instance, Priceline.com Inc (NASDAQ:PCLN) continues to dominate the travel-portal space and has started cashing in on the purchasing power of a rising consumer class in international markets. Panera Bread Co (NASDAQ:PNRA) was early in tapping into the trend toward healthier food offerings yet has been able to hold its margins up well despite food inflation pressures. Finally, Netflix, Inc. (NASDAQ:NFLX) has overcome huge challenges and has started lining up the great content it will need to compete against much larger rivals in the years to come. All three of these companies pay no dividend, yet they’ve produced huge capital gains that qualify for low long-term gains rates when held in taxable accounts.

In addition, certain types of assets do better in taxable accounts. Municipal bond investments iShares S&P National Municipal ETF and Nuveen Muni Value Fund Inc (NYSE:NUV), for instance, don’t fit in IRAs because their income is already tax-free. In fact, you can turn tax-free income into taxable distributions if you invest in munis in an IRA.

Another smart hedge is having some money in Roth retirement accounts. With Roths, you can take retirement money out with no tax consequences — a valuable tool to have at your disposal if you need to keep your taxable income down.

Finally, be aware of the overhang of potentially taxable IRA money before you need it. Sometimes, taking withdrawals even before you retire can be smart, if you’ve reached age 59 1/2 and are getting taxed at a low rate.

Don’t get fooled
Even if you have an impressive retirement account balance, it may not give you the financial security that you need. Be tax-smart about your retirement assets, and you’ll have a much better chance of having a comfortable retirement.

The article Why Your Retirement Savings Is Smaller Than It Looks originally appeared on Fool.com and is written by Dan Caplinger.

Fool contributor Dan Caplinger has no position in any stocks mentioned. You can follow him on Twitter @DanCaplinger. The Motley Fool recommends Netflix, Panera Bread, and Priceline.com. The Motley Fool owns shares of Netflix, Panera Bread, and Priceline.com.

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