You spent decades building wealth. But in retirement, the real question is: How do you spend it wisely?
This is where most people get tripped up. Not because they picked the wrong investments, but because they didn’t plan how to pull from them.
Tax bucketing is a simple yet powerful framework to help you decide where to take money from, so you can control your tax bill, ride out market dips, and avoid costly mistakes like selling low or triggering unnecessary taxes.
If you’re in your 30s or 40s, now is the time to build the right foundation. If you’re approaching retirement, it’s time to start using it.
What is tax bucketing, and why does it matter?
Tax bucketing means spreading your assets across four “buckets”—each with different tax rules:
- Taxable
- Tax-deferred
- Tax-free
- Cash
Each bucket gives you a different lever to pull depending on what the market’s doing, what your income looks like, and what life throws your way.
If markets are down, you don’t want to be forced to withdraw from a Traditional IRA and realize income taxes on depressed assets. If you’re in a high-income year, it might make more sense to draw from your Roth IRA or use your cash buffer.
The more balanced your buckets, the more flexibility you have to stay in control—no matter the environment.
How are the buckets taxed?
Here’s a cheat sheet:
Bucket
Example Accounts
Tax Treatment
Best Use Case
Taxable
Brokerage
Capital gains, dividends taxed
Flexibility, tax harvesting
Tax-Deferred
Traditional IRA, 401(k)
Fully taxed as ordinary income
Long-term withdrawals, RMDs
Tax-Free
Roth IRA, Roth 401(k)
No tax on qualified withdrawals
Down markets, high-tax years
Cash
Checking, HYSA, money markets
No tax (already taxed)
One-time expenses, peace of mind
How we use tax buckets at Titan
When we build retirement plans, we don’t just look at your portfolio—we look at your withdrawal power.
Some key questions we ask:
- What’s your annual income need?
- What’s the current mix of your tax buckets?
- When will RMDs (Required Minimum Distributions) kick in?
- Have you started Social Security or Medicare?
- Are you planning to leave assets to heirs or donate?
Each of these inputs shapes how we sequence withdrawals to reduce taxes, avoid cliffs (like IRMAA or Social Security taxability), and keep your financial life smooth and predictable.
What does smart withdrawal strategy look like?
Here are a few best practices we often recommend:
- Build all 4 buckets early. Especially for high earners in their 30s and 40s, starting now gives you more room to maneuver later.
- Use taxable and Roth buckets early in retirement. This keeps your taxable income low and opens space for strategic Roth conversions.
- Convert pre-tax to Roth before RMDs. Partial Roth conversions in your 60s can reduce future RMDs and tax drag.
- Use Roth buckets when markets are down. This lets your pre-tax investments recover while you spend tax-free dollars.
- Keep a healthy cash buffer. This is your emergency brake—great for surprise expenses or when the market’s rocky.
A mental model: Buckets = Brakes, Not Gas
Imagine driving in a storm. Roads are slick, visibility is low. Do you want to be forced to accelerate? Of course not. You want good brakes.
That’s what tax bucketing gives you. The ability to slow down, choose your path, and wait out the storm—without making a panic move that wrecks your retirement.
Why most people get this wrong
Because they only optimize for growth on the way in—not efficiency on the way out.
A 65-year-old with $2M in a Traditional IRA and nothing else might look “rich”—until the IRS starts demanding five-figure RMDs and the market drops 15%.
We’ve seen how painful it is to sell at the wrong time, trigger unexpected taxes, or hit Medicare premium cliffs. With a tax bucket plan, you don’t have to.
Want help building your buckets?
This is what we do at Titan. We help high-earning professionals build a retirement plan that’s not just diversified—it’s tax aware, market aware, and behavior aware.
Whether you’re early in your career or nearing retirement, we’ll help you lay the groundwork to stay in control later. Talk to a Titan advisor.
About Titan
Titan is a modern Registered Investment Advisor (RIA) helping high-earning professionals navigate complex money decisions. With a dedicated advisor and access to proprietary strategies and alternative investment options, we're your go-to wealth team for everything from RSUs to retirement. Learn more at www.titan.com.
