Tax Law Shouldn't Alter Your Behavior

"We've looked at this issue several ways," says Alan Cohen, a financial planner with Sage Financial in Bala Cynwyd, Pa. "And most people probably shouldn't move their money around as a result of this tax law."

There may be some merit to allocation swapping. If you currently have a chunk of money in a bond fund in a taxable account, it might pay to sell that fund and repurchase a similar fund in your 401(k) or IRA. (If selling will incur a loss, though, don't purchase the same exact fund within 30 days, or you won't be able to claim a deduction for that loss, as per the dreaded wash-sale rule.)

Likewise, it might pay to keep dividend-paying stocks (or stocks you plan to sell long before you start making withdrawals) in a taxable account, rather than in a retirement account. (Because you're not allowed to ever claim a loss on a security sold inside of a tax-advantaged account, there's nothing to trigger the wash-sale rule -- so you can do so and repurchase the same exact fund or stock within 30 days.)

But before you start a frenzy of buying and selling, know that there's more than the wash-sale rule to keep in mind.

First, consider why you have those bond funds in a taxable account -- and not your IRA or 401(k) -- to begin with. "Typically, people want more liquid investments outside their retirement plans," Cohen says. "Bond funds are often for shorter-term needs, and if that's the case, they're better held in taxable accounts." Given the restrictions on how and when distributions from retirement plans can be made, taxable accounts are generally the best route for short-term savings.

Also, your options are far more limited in a 401(k) plan than in a taxable account. If your employer's plan doesn't offer a good, low-cost, broad-market bond fund, it's unlikely that the tax deferral will make switching worth your while. Being tax savvy can't make up for a poorly managed fund.

Save Smart

There are other, better ways of taking advantage of the new tax law. Retirees can lessen the overall amount they need to withdraw from their retirement accounts without sacrificing any net income. One of Clemans' clients typically netted $8,600 a month after paying tax on dividend income and IRA distributions. But under the new tax law, this client will net $9,000 a month. But instead of drawing down unneeded cash, the client can reduce IRA distributions by $600, leaving another $3,600 a year to grow tax-deferred.

Also, those of you who aren't contributing the maximum to your 401(k) -- that's the lesser of 15% of your salary or $12,000; $14,000 for those 50 and older -- should be able to find the cash to boost your contribution. If the new, lower income tax rates mean you'll get another $100 a month in your paycheck, you can contribute another $130 to your 401(k).

"There's a window of opportunity to save more," Clemans says. "and not have it affect your bottom line."

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