The 3 Tax Buckets In Retirement

Retire Ready with Kyle Hammerschmidt

Summary
In this episode, Kyle and Kolin discuss the three tax funnels that can be used to build a tax-efficient retirement plan. The first funnel is the tax later bucket, where contributions are made with pre-tax dollars, such as employer plans and IRAs. Distributions from this account are taxed as income. The second funnel is the tax now bucket, where contributions are made with after-tax dollars, such as brokerage accounts. The growth or income from this account is subject to taxes. The third funnel is the tax never bucket, which includes Roth plans where contributions are made with after-tax dollars and distributions are tax-free. The hosts also provide a case study to illustrate how these tax funnels can be applied in practice.

Takeaways

• There are three tax funnels to consider when building a tax-efficient retirement plan: tax later, tax now, and tax never.
• The tax later bucket includes contributions made with pre-tax dollars, such as employer plans and IRAs. Distributions from this account are taxed as income.
• The tax now bucket includes contributions made with after-tax dollars, such as brokerage accounts. The growth or income from this account is subject to taxes.
• The tax never bucket includes Roth plans, where contributions are made with after-tax dollars and distributions are tax-free.
• It's important to understand the tax implications of each funnel and consider the best withdrawal strategy to minimize taxes and maximize income in retirement.

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