f you’ve been listening to any of my previous podcasts, you know that we talk about a three bucket system. Today we’re going to be talking specifically about the tax free bucket.
Here is a quick review to make sure everyone understands what these three buckets are.
1st Bucket – The Taxable Bucket: This should only contain anywhere from three to six months, my recommendation is six months. Six months of income to be available for emergencies. It’s liquid assets. Biggest problem with this bucket. If you have too much money inside of it, you’re not going to be able to keep up with inflation. If you don’t have enough money when there’s a crisis, you’re going to have an issue.
2nd Bucket – The Tax Deferred Bucket: and the tax deferred bucket has the majority of most people’s retirement assets in it at this time. But what we want to do is make sure we adjust that bucket down to the appropriate amount. So you don’t have provisional income. And so you can also get your required minimum distributions out without paying tax on those that they are under your standard deduction threshold. If you can do that, that buckets filled up correctly, and then all the other assets that we have should go into the tax free bucket.
Now, why do we want to put money into the 3rd Bucket (the Tax Free Bucket)? because we’re in an environment where taxes are expected to go up, in fact, we know right now, the data set at January 1 2026. And I get a lot of kickback from other people saying if administration’s change in the government, that date may get sooner and that possibly could, but we know for now that the date that’s been set as January 1 2026, when we talk to people about whether they’ll go higher or lower after that, the majority of the people believe the taxes are going to go higher and they could go substantially higher because of unfunded liabilities such as Social Security, Medicare and the National Debt. So today I’m going to talk about the various assets that can go into the tax free bucket. And why you want to use as many assets as you possibly can to create as many streams of tax free income as possible.