Smart investing involves choosing the right assets to meet your specific needs. It also involves holding those investments in the right types of accounts — particularly when it comes to retirement savings. When managing your retirement savings, aim for tax efficiency, recommends Bev Doolin, IRA Product Manager at Wells Fargo Advisors. “And make sure you involve your tax professional as well as your Financial Advisor in assessing the tax

[caption id="attachment_8419" align="alignleft" width="150"]<a href="http://www.yourislandnews.com/wp-content/uploads/2012/10/Wells-Fargo-Wendy_Zara.jpg"><img class="size-thumbnail wp-image-8419" title="Wells Fargo-Wendy_Zara" src="http://www.yourislandnews.com/wp-content/uploads/2012/10/Wells-Fargo-Wendy_Zara-150x150.jpg" alt="" width="150" height="150" /></a> Wendy Zara.[/caption]

implications of any investing strategy you’re considering.”

Here are a few considerations to help you make the most of the accounts available to you:

<strong>Tax deductions.</strong> Some investors delay making a traditional IRA contribution until they know whether it will qualify for a tax deduction. If there’s any doubt, Doolin suggests contributing to a Roth IRA. “It’s a no-brainer,” she says. You can contribute directly to a Roth IRA if you earn less than $125,000 (single) or $183,000 (married filing taxes jointly) in 2012. Otherwise you can contribute to a traditional IRA and then convert it to a Roth. One benefit of Roth IRAs: They don’t require minimum distributions after you reach age 70½.

<strong>Growth versus income.</strong> As a general rule, it’s wise to keep investments with strong growth potential in Roth accounts, which shield you from tax on any appreciation. Taxable accounts can also be a good option for growth stocks, as long as you hold the stocks for the long haul. The reason: The capital gains tax you’ll pay when you sell the shares is likely to be lower than the income tax you’d pay if you held them in a traditional IRA, sold them and then distributed the cash — but be sure to review such a strategy with your own accountant and Financial Advisor to make sure that would be the case for you.

<strong>Estate planning.</strong> A Roth IRA is the undisputed champion of accounts when it comes to passing down assets. You won’t have to take withdrawals during your lifetime, and while your heirs will have to distribute a required minimum amount each year, they generally won’t pay any tax on it. Securities in taxable accounts come in second, at least in terms of tax efficiency: The inheritors won’t have to take required minimum distributions, and they’ll pay capital gains tax only on appreciation that occurs after your death. On the other hand, if you pass a traditional IRA or 401(k) to your heirs, they will be required to take minimum annual withdrawals and pay taxes on those distributions.

<strong>Distribution strategy. </strong>The rule of thumb for retirement distributions is to start tapping your taxable accounts first, your traditional IRAs second and your Roth IRAs last. But that’s not always the most effective order, Doolin says: “Liquidating an asset in your taxable account might push you into a higher tax bracket, which could affect everything from the taxes you owe to the cost of your Medicare Part B premium.”

Her suggestion: Lay out a general distribution strategy that reflects your anticipated income needs, then adjust your withdrawals depending on your situation in any given year. Again, consult with your Financial Advisor and your tax professional to make sure the strategy you develop takes into account all relevant changes in tax regulations as well as your own needs.

<em>Wells Fargo Advisors is not a legal or tax advisor. This article was written by Wells Fargo Advisors and provided courtesy of Wendy Zara, Financial Consultant  in Beaufort, S.C. Investments in securities and insurance products are: NOT FDIC-INSURED/NOT BANK-GUARANTEED/MAY LOSE VALUE. Wells Fargo Advisors, LLC, Member SIPC, is a registered broker-</em><em>dealer and a separate non-bank affiliate of Wells Fargo &amp; Company.</em>