The Bird’s Eye View:
Do you know what the four tax liability buckets are and what you have in each bucket? Scott Dougan explains why it’s important to know this information.
Do you know where your tax liabilities fall? You may not realize it, but your tax situation likely falls into one of four buckets, and you may have a little bit in each bucket. On this episode of Your Retirement Elevated Podcast, Scott Dougan explains what the four buckets are and why it’s important to know this information.
We spend a lot of time talking about how to save and grow your money, but we don’t talk as much about tax efficiency.
“I think it’s one of those things that’s overlooked, is that tax planning portion of most retirement plans,” said Scott.
This bucket contains money you earn from CDs, checking accounts, money market accounts, after-tax stocks, bonds, mutual funds, your dividends and the capital gains you earn from your stocks and bonds.
This is where you should keep your emergency fund.
“Most experts say that we should have about six months worth of essential expenses in our emergency fund,” said Scott.
Tax-deferred assets bucket
This is the largest bucket and contains things such as your 401K, IRA, 403B, 457 or TSP.
You get a tax deduction when money goes in and you are taxed when you take it out. At age 72, you will have required minimum distributions.
This bucket includes Roth IRAs, most municipal bonds, appreciation of capital assets, properly structured life insurance policies, etc.
How much should be in this bucket? “As much as possible,” said Scott.
A lot of work is focused on getting money from the tax-deferred assets bucket to the tax-free bucket.
Estate tax-free assets
This bucket requires more advanced planning and includes things such as irrevocable life insurance trusts and charitable trusts. The goal is to do some higher-end planning so you don’t have to give a large portion of these assets to the federal government due to bad planning.
Thanks for checking out the Your Retirement Elevated Podcast. Listen to the full episode or use the time codes below to listen to a specific segment. We’ll talk to you again on the next show.
1:30 – Tax liabilities
3:29 – Taxable bucket
7:10 – Tax-deferred assets bucket
10:08 – Tax-free bucket
Thanks for checking out the Your Retirement Elevated Podcast. We’ll talk to you again on the next show.
Scott Dougan, RFC, Investment Advisor – Contact