Musicians always hit a familiar chord with fans when they sing about life’s mysteries, like love, loss, growing up, looking back—and taxes. The Beatles and Johnny Cash, among many other familiar artists, made hits about taxes that still find their way on to playlists because everyone can relate.
Aside from humming along to the music, what can you do about taxes? It can be a confusing topic. In fact, according to the
Manage your withholding
Being strategic about taxes begins with your paycheck. If a tax refund is a consistent windfall every year, consider changing the income tax withholding on your paycheck. It could result in more take-home pay for you throughout the year, of which you can invest the difference. The IRS isn’t providing any return on your extra money they’ve held on to throughout the year.
Understand how tax brackets work
For proof that taxes can be complicated, just look at the tax brackets in the current federal income tax system. There are
- 10% for incomes of $11,000 or less ($22,000 for married couples filing jointly).
- 12% for incomes over $11,000 ($22,000 for married couples filing jointly).
- 22% for incomes over $44,725 ($89,450 for married couples filing jointly)
- 24% for incomes over $95,375 ($190,750 for married couples filing jointly)
- 32% for incomes over $182,100 ($364,200 for married couples filing jointly)
- 35% for incomes over $231,250 ($462,500 for married couples filing jointly)
- 37% for incomes greater than $578,125 ($693,750 for married couples filing jointly).
With this system, you pay taxes at progressively higher rates as your income moves from one bracket to the next. The top federal tax rate today of 37% is nowhere near the 70% range in the 1970s when Johnny Cash was crooning on the topic.
Will taxes ever go back up like that? No one knows what will happen next year, much less in the decade you retire. But mindful planning can help you minimize what you owe over time.
Current retirees noted that the most valuable piece of advice they would have given their younger selves would be to learn about tax implications for their retirement savings.
3 helpful diversification strategies
Time diversification, investment diversification and income tax diversification are three strategies you can use as you juggle multiple goals over time. Whether your retirement is decades from now or so close you feel it with every stock market swoon, these strategies can help guide you.



1. Time diversification
Time diversification plays a role throughout your life as you set out to achieve various short- and long-term goals—buying a home, traveling the world, sending your kids to college, retiring early. As you choose the most tax-efficient type of investment account to help you reach your goals, when and how you plan to use the money will be factors.
Early in your working years, time is on your side, and increasing the amount you save every year may be a financial priority. Generally, the more you contribute to your qualified retirement plan each year, the less you owe in taxes now.
2. Investment diversification
Depending on your age, you might be more interested in choosing investments that align with your goals and
3. Income tax diversification
Income tax diversification involves investing in a variety of tax-advantaged accounts to help minimize how you’re taxed on those accounts now and in the future. This concept advocates that you should diversify your holdings into three different buckets: some taxable money, some tax-deferred money and some non-taxable money. We call these buckets "tax now," ‘"tax later" and "tax never" (which leads us into our next concept).
Tax now, tax later, tax never: Exploring the 3 tax buckets
Income tax diversification is about saving more money in the long term. It involves the process of investing in a variety of tax-advantaged accounts … commonly referred to as buckets. Essentially, these three income tax buckets show how different types of investments are taxed at different times.



Tax now
"Tax now" accounts are ones in which you've paid taxes on upfront. These types of accounts are typically suited for current or short-term needs.
Examples:
- Savings2
- Checking accounts2
- Certificates of deposit (CDs)2
- Mutual funds2
- U.S. Treasuries2,3
Tax later
"Tax later", or tax deferred, assets are ones where your tax liability will come once you withdraw funds. "Tax later" assets are generally earmarked for longer-term needs, like college and retirement.
Examples:
- Qualified employer-sponsored retirement plans like 401(k)s, 403(b)s and other pension plan assets4,5,6
- Traditional IRAs4,5,6
- Variable & fixed annuities4,7
- Stocks2
- U.S. Savings Bonds8
Tax never
Tax-free assets in the "tax never" bucket generally offer preferential income-tax treatment on the accumulated value and distribution of funds.
Examples:
- Roth IRAs6,9
- Roth 401(k)s6,9
- Roth 457(b)6,9
- Roth 403(b)6,9
- Municipal bonds10
- Life insurance11
- Health savings accounts (HSA)s & flexible spending accounts (FSA)s
Assuming you’ll pay fewer
Give yourself a tax-efficiency checkup
Use our