October 2, 2025 • 7 mins
“Hey, Mike, how do you plan income between your different tax buckets?” Discover how timing withdrawals and picking the right bucket can help you pay less in taxes.
Text your questions to 913-363-1234
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Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Mike (00:00):
It's not a little bit from each bucket.
David (00:02):
Okay.
Mike (00:02):
It's which bucket are you gonna focus on and which tax
which tax equation on your tenforty are we gonna account for?
Welcome to How to Retire OnTime, a show that answers your
retirement questions. We're hereto move past that oversimplified
advice you've heard hundreds oftimes. Instead, we do want to
(00:23):
dive into the nitty grittybecause well, it matters.
There's no such thing as aperfect investment product or
strategy.
Heck, there's no such thing as aperfect or riskless retirement.
That's why these details matter.Text your questions to (913)
363-1234, and we'll feature themon the show. David, what do we
got today?
David (00:40):
Hey, Mike. How do you plan income between your
different tax buckets?
Mike (00:47):
Yeah. This is a great question because a lot of people
will just take a little bit fromeach bucket, and that's
inefficient.
David (00:54):
So when they're taking income out, like, oh, I'll take
some from my Roth, some fromIRA, some from my brokerage.
Mike (00:59):
Well, it's like they've got, let's say, some money in a
brokerage account, non qualifiedUh-huh. And they're just taking
the dividends out as income.That's taxes income. So what's
your what's your adjusted grossincome look like? What's your
ordinary income tax look like?
That's kind of what it's gonnalook like. Is that efficient?
And then you've got your IRA. Soanytime you take a distribution
out of it, your taxes ordinaryincome as well. And then maybe
(01:21):
you have your RMDs to worryabout, so maybe use some IRA to
Roth conversions and maybe thatdisrupts your your ordinary
income as well.
And you might think, well Mike,we need income. Yeah, that's
that's fine. Mhmm. But you couldstructure it in different ways
to where your brokerage accountis set up to more of a growth
vehicle with less dividends, forexample. And maybe you've got
(01:42):
the your IRA to Roth and IRA toRoth conversions happening in a
different season or a couple ofyears, you're converting over,
maybe use the non qualifiedlater on and optimize the zero
to 15% long term capital gainsbrackets
David (01:57):
Mhmm.
Mike (01:57):
Which is often way more tax efficient than, you know,
paying the 25%, whatever theeffective tax rate is for you.
And some people, it's maybe ten,twelve. Everyone's different,
but you have to understandwhat's your income level look
like? What's your net incomereally expected to be? Mhmm.
What is your account values forall of your pre tax IRA
(02:23):
accounts? All of your brokerageaccounts, so they're subject to
capital gains, and all of yourRoth accounts. And then how do
you take advantage of thevarious tax codes without
tripping a lot up along the way?So here's an example. We have we
have a client that that I'vebeen working on a plan.
(02:43):
Young guy, retiring, you know,early sixties, got plenty of
time for his RMDs. We want togrow his IRA account with how
much income he wants. A lot ofhis income we can work within
mostly the standard deduction,which is a great deal. Okay? So
what do we want to do?
Well, we don't want to takeincome from the retirement
(03:04):
account, at least not at first,because we don't have to. Okay?
So we want to grow the accountas best we can, so we're not
even gonna touch it for thefirst couple of years, and we're
gonna utilize his brokerageaccount for the first couple of
years. Why is this important?Whenever you pay taxes, that's
that that's a distribution.
You're you're lowering youroverall amount of money in your
(03:26):
portfolio. It's harder to growless money.
David (03:29):
Okay. Yeah.
Mike (03:30):
So if you're taking income out and you're paying taxes and
it's on the ordinary income taxand you're doing conversions,
you're kinda getting hit from acouple of different angles.
However, if if in this situationhe takes, like, maybe his first
four years from non qualified, alot of his income then comes
(03:51):
from the 0% long term capitalgains, and then if you cross the
threshold, some of it will be atthe 15% level. That's a pretty
good tax situation to where he'sgetting more out of his assets
because he's paying less intaxes. And so we've delayed the
Social Security a little bitbecause we don't want Social
Security is ordinary income.Long term capital gain starts at
(04:13):
the end of your ordinary income.
So we're kicking out theordinary income for a season,
optimizing his long or his longterm capital gains for the first
couple of years, making hismoney stretch further because
the 0% long term capital gainsbrackets very nice if you can
tap into that, while his otheraccounts grow. And then we turn
(04:36):
on social security, we're alsoturning on other things, and
then we're manipulating theordinary income tax.
David (04:40):
Okay.
Mike (04:42):
There's a reason why they put long term capital gains on
top of ordinary income tax. Theydon't want you I shouldn't say
they don't want you. The IRSisn't conspiring against you.
These are politicians that wroterules that seemed reasonable.
But it's our job to takeadvantage of the inefficiencies
that they put together.
Our efficiencies are theirinefficiencies.
David (05:02):
Okay.
Mike (05:03):
So, yeah, the debt might be a problem, but it's not our
job to fix their debt. Our jobis to get the most out of our
money based on the tax code asit's currently written. Sure.
And so when you start to sectionoff what you're gonna take and
where you're gonna take it andwhat time, what your income
needs are, you can find a lot ofefficiencies. Mhmm.
(05:24):
That's why I don't like thealright. Here's your and I I
kicking this dead horse over andover again. But, you know, hey.
Alright. So here this is actualtax planning, quote unquote tax
planning I've heard otheradvisers do.
Alright. Well, here's the incomeyou need. Here's the annuities
that you need. It's gonnaguarantee the income you want,
and this will pay the taxes, andit'll give you the income you
want, and you're good to go.That's not tax planning.
(05:47):
Tax planning is getting more outof your money by paying less
than taxes.
David (05:52):
Yes. So it sounds like what you're saying is where you
draw your income from, likewhich accounts you draw your
income from matters. Yeah.Because the
Mike (06:02):
And it's not a little bit from each bucket.
David (06:04):
Okay.
Mike (06:04):
It's which bucket are you gonna focus on and which tax
which tax equation on your$10.40 are we gonna account for?
Uh-huh.
David (06:15):
And that could be different during various ages of
your life or seasons or
Mike (06:20):
Yeah. And it's if you have a pension, that's gonna change
things. If you've already filedfor Social Security, that's
gonna change things. If youhaven't, that's gonna change
things. How much you have ineach bucket is gonna change
things.
The purpose of your money isgonna change things. Mhmm. Maybe
you don't want to ever touchyour non qualified assets
because that's growing forlegacy purposes, or maybe you're
you're doing that in a way forbecause that's what you want to
tap for. The plan together firstMhmm. Then you find the risks
(06:43):
you are willing to take and therisks you're not willing to
take, and then you're divinginto the portfolio and the
details that would allow you tofulfill that plan and find those
efficiencies.
Those details really do matter,and I don't think they're paid
attention to enough. It's notjust about growing your wealth.
It's not just about having moremoney. It's about creating more
(07:06):
and also finding additionalefficiencies. That's all the
time we've got for today's show.
If you enjoyed the show,consider telling a friend,
leaving a rating, and mostimportantly, that you are
subscribed to it so that youdon't miss a thing. For more
resources, including a copy ofmy book, on demand courses, and
so much more, just go towww.retireontime.com. If you
(07:28):
want help putting yourretirement plan together, go to
retireontime.com and click thebutton that says get started.
But seriously, from all of ushere at Kedrick Wealth, we wanna
thank you for spending yourtime, your most precious asset
with us today. We'll see you inthe next episode.
It's not a little bit from each bucket.
David (00:02):
Okay.
Mike (00:02):
It's which bucket are you gonna focus on and which tax
which tax equation on your tenforty are we gonna account for?
Welcome to How to Retire OnTime, a show that answers your
retirement questions. We're hereto move past that oversimplified
advice you've heard hundreds oftimes. Instead, we do want to
(00:23):
dive into the nitty grittybecause well, it matters.
There's no such thing as aperfect investment product or
strategy.
Heck, there's no such thing as aperfect or riskless retirement.
That's why these details matter.Text your questions to (913)
363-1234, and we'll feature themon the show. David, what do we
got today?
David (00:40):
Hey, Mike. How do you plan income between your
different tax buckets?
Mike (00:47):
Yeah. This is a great question because a lot of people
will just take a little bit fromeach bucket, and that's
inefficient.
David (00:54):
So when they're taking income out, like, oh, I'll take
some from my Roth, some fromIRA, some from my brokerage.
Mike (00:59):
Well, it's like they've got, let's say, some money in a
brokerage account, non qualifiedUh-huh. And they're just taking
the dividends out as income.That's taxes income. So what's
your what's your adjusted grossincome look like? What's your
ordinary income tax look like?
That's kind of what it's gonnalook like. Is that efficient?
And then you've got your IRA. Soanytime you take a distribution
out of it, your taxes ordinaryincome as well. And then maybe
(01:21):
you have your RMDs to worryabout, so maybe use some IRA to
Roth conversions and maybe thatdisrupts your your ordinary
income as well.
And you might think, well Mike,we need income. Yeah, that's
that's fine. Mhmm. But you couldstructure it in different ways
to where your brokerage accountis set up to more of a growth
vehicle with less dividends, forexample. And maybe you've got
(01:42):
the your IRA to Roth and IRA toRoth conversions happening in a
different season or a couple ofyears, you're converting over,
maybe use the non qualifiedlater on and optimize the zero
to 15% long term capital gainsbrackets
David (01:57):
Mhmm.
Mike (01:57):
Which is often way more tax efficient than, you know,
paying the 25%, whatever theeffective tax rate is for you.
And some people, it's maybe ten,twelve. Everyone's different,
but you have to understandwhat's your income level look
like? What's your net incomereally expected to be? Mhmm.
What is your account values forall of your pre tax IRA
(02:23):
accounts? All of your brokerageaccounts, so they're subject to
capital gains, and all of yourRoth accounts. And then how do
you take advantage of thevarious tax codes without
tripping a lot up along the way?So here's an example. We have we
have a client that that I'vebeen working on a plan.
(02:43):
Young guy, retiring, you know,early sixties, got plenty of
time for his RMDs. We want togrow his IRA account with how
much income he wants. A lot ofhis income we can work within
mostly the standard deduction,which is a great deal. Okay? So
what do we want to do?
Well, we don't want to takeincome from the retirement
(03:04):
account, at least not at first,because we don't have to. Okay?
So we want to grow the accountas best we can, so we're not
even gonna touch it for thefirst couple of years, and we're
gonna utilize his brokerageaccount for the first couple of
years. Why is this important?Whenever you pay taxes, that's
that that's a distribution.
You're you're lowering youroverall amount of money in your
(03:26):
portfolio. It's harder to growless money.
David (03:29):
Okay. Yeah.
Mike (03:30):
So if you're taking income out and you're paying taxes and
it's on the ordinary income taxand you're doing conversions,
you're kinda getting hit from acouple of different angles.
However, if if in this situationhe takes, like, maybe his first
four years from non qualified, alot of his income then comes
(03:51):
from the 0% long term capitalgains, and then if you cross the
threshold, some of it will be atthe 15% level. That's a pretty
good tax situation to where he'sgetting more out of his assets
because he's paying less intaxes. And so we've delayed the
Social Security a little bitbecause we don't want Social
Security is ordinary income.Long term capital gain starts at
(04:13):
the end of your ordinary income.
So we're kicking out theordinary income for a season,
optimizing his long or his longterm capital gains for the first
couple of years, making hismoney stretch further because
the 0% long term capital gainsbrackets very nice if you can
tap into that, while his otheraccounts grow. And then we turn
(04:36):
on social security, we're alsoturning on other things, and
then we're manipulating theordinary income tax.
David (04:40):
Okay.
Mike (04:42):
There's a reason why they put long term capital gains on
top of ordinary income tax. Theydon't want you I shouldn't say
they don't want you. The IRSisn't conspiring against you.
These are politicians that wroterules that seemed reasonable.
But it's our job to takeadvantage of the inefficiencies
that they put together.
Our efficiencies are theirinefficiencies.
David (05:02):
Okay.
Mike (05:03):
So, yeah, the debt might be a problem, but it's not our
job to fix their debt. Our jobis to get the most out of our
money based on the tax code asit's currently written. Sure.
And so when you start to sectionoff what you're gonna take and
where you're gonna take it andwhat time, what your income
needs are, you can find a lot ofefficiencies. Mhmm.
(05:24):
That's why I don't like thealright. Here's your and I I
kicking this dead horse over andover again. But, you know, hey.
Alright. So here this is actualtax planning, quote unquote tax
planning I've heard otheradvisers do.
Alright. Well, here's the incomeyou need. Here's the annuities
that you need. It's gonnaguarantee the income you want,
and this will pay the taxes, andit'll give you the income you
want, and you're good to go.That's not tax planning.
(05:47):
Tax planning is getting more outof your money by paying less
than taxes.
David (05:52):
Yes. So it sounds like what you're saying is where you
draw your income from, likewhich accounts you draw your
income from matters. Yeah.Because the
Mike (06:02):
And it's not a little bit from each bucket.
David (06:04):
Okay.
Mike (06:04):
It's which bucket are you gonna focus on and which tax
which tax equation on your$10.40 are we gonna account for?
Uh-huh.
David (06:15):
And that could be different during various ages of
your life or seasons or
Mike (06:20):
Yeah. And it's if you have a pension, that's gonna change
things. If you've already filedfor Social Security, that's
gonna change things. If youhaven't, that's gonna change
things. How much you have ineach bucket is gonna change
things.
The purpose of your money isgonna change things. Mhmm. Maybe
you don't want to ever touchyour non qualified assets
because that's growing forlegacy purposes, or maybe you're
you're doing that in a way forbecause that's what you want to
tap for. The plan together firstMhmm. Then you find the risks
(06:43):
you are willing to take and therisks you're not willing to
take, and then you're divinginto the portfolio and the
details that would allow you tofulfill that plan and find those
efficiencies.
Those details really do matter,and I don't think they're paid
attention to enough. It's notjust about growing your wealth.
It's not just about having moremoney. It's about creating more
(07:06):
and also finding additionalefficiencies. That's all the
time we've got for today's show.
If you enjoyed the show,consider telling a friend,
leaving a rating, and mostimportantly, that you are
subscribed to it so that youdon't miss a thing. For more
resources, including a copy ofmy book, on demand courses, and
so much more, just go towww.retireontime.com. If you
(07:28):
want help putting yourretirement plan together, go to
retireontime.com and click thebutton that says get started.
But seriously, from all of ushere at Kedrick Wealth, we wanna
thank you for spending yourtime, your most precious asset
with us today. We'll see you inthe next episode.
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