On this episode of Better Money on WFSB Channel 3, Joel Johnson, CFP® and Kara Sundlun discuss the Bucket Strategy that Johnson Brunetti follows.
Bucket 1: Taxable Assets
We pay taxes on these assets today; there is no tax deferral. This bucket is beneficial when you need to get your hand on money quick or when you need money in the short-term.
This bucket includes CDs, stocks and bonds, and Nonqualified Mutual Funds.
Bucket 2: Tax-Deferred Assets
This bucket holds 401(k)s, 403(b)s, and IRAs.
We do not pay taxes as the money grows.
Bucket 3: Income Tax Free/Estate Taxable Assets
The third bucket is home to Roth IRAs and municipal bonds. These assets are free of income tax but not estate tax.
Having tax-free income is a good thing, especially if you are in a higher tax bracket and living in a state with high income tax. With municipal bonds, you do not pay tax on interest. With a Roth IRA, you pay an initial tax, but it then grows and withdrawals tax-free.
Bucket 4: Income Tax Free/Estate Tax Free Assets
The fourth and final bucket holds life insurance trusts and charitable trusts, which are free of both income and estate tax. Usually, the people who utilize Bucket 4 are on the wealthier side and have money they’d like to pass on.
When it comes to trusts, the money grows tax-free and passes on to beneficiaries tax-free as well.
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Johnson Brunetti is a marketing name for the businesses of JB Capital and JN Financial.
Investment Advisory Services offered through JB Capital, LLC. Insurance Products offered through JN Financial, LLC.
