03/18/2025
There are technically 4 different tax buckets that you can save money into. However I generally focus on only 3 of them.
The 4 are:
- Tax Deferred (Qualified Money)
- After Tax (Non-Taxable or “Roth” Money)
- Capital Gains (Non-Qualified Money)
- Fully Taxable (No fun terminology here)
Fully taxable I try to avoid when it comes to wealth accumulation. Examples of this would be savings accounts, money markets, and CD’s.
You pay full federal, state, and local tax on all interest you earn in these accounts. Even if you don’t have access to your deposits.
I like seeing people save money into some combination of Tax-Deferred, Non-Taxable and Capital Gains type accounts. Which ones specifically will very person to person, and how much money should be saved into each bucket will very as well.
The most important concept to embrace here is we want to think of our savings vehicles as players on a team.
No one player is necessarily the “best” player on the team. What we are really striving for is to work together to create the best overall results.
Each savings vehicle plays a role. Each type of tax has pros and cons to it.
Consider diversifying yourself from a tax perspective, and you may notice that you don’t become as dependent on the IRS to determine how much of your money you get to keep.
