Did you know that there are three different tax buckets you can use to save for your future? There is a taxable bucket, a tax-deferred bucket, and a tax-exempt or tax-free bucket.
A taxable bucket you’re going to pay tax on that account every single year, on the gains. You typically get a 1099 tax form that shows what your gains were for that account and then you’re going to pay capital gains rates, whatever they are for that year.
A tax-deferred bucket is typically good for your taxes today because you get a tax deduction when you add money to them, these types of accounts are 401(k)’s, Traditional IRA, or a SEP IRA. You’re deferring the taxes to a later time so you will pay taxes on those dollars later on in your lifetime when you actually pull the money out of those accounts.
The third bucket is tax-free or tax-exempt, that type of account is a Roth IRA or Roth 401(k). In these types of accounts, you don’t get the tax benefit today when you contribute the money, but it grows tax-exempt or tax-free, and then when you go to pull the money out there are no taxes owed at that time.
If you’re curious about which tax bucket you’re utilizing and what the impact is for you today or down the road or whether or not you’re even using the right tax bucket for you then feel free to give us a call, we’d love to talk with you. Give us a call at Next Step Financial Transitions at 832-856-2825.