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Working tax efficiency into your financial strategy

Illustration of a man with money gears in brain, holding a pencil to mouth

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 Thrivent Retirement Readiness Survey*, the most valuable piece of advice that current retirees would have given their younger selves would be to learn about tax implications for their retirement savings. We'll discuss strategies you can put to work that could help reduce what you pay now and in retirement. Let’s start with the basics.

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 2024 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 seven tax brackets at these marginal tax rates for single filers:

  • 10% for incomes of $11,600 or less ($23,200 for married couples filing jointly).
  • 12% for incomes over $11,600 ($23,200 for married couples filing jointly).
  • 22% for incomes over $47,150 ($94,300 for married couples filing jointly)
  • 24% for incomes over $100,525 ($201,050 for married couples filing jointly)
  • 32% for incomes over $191,950 ($383,900 for married couples filing jointly)
  • 35% for incomes over $243,725 ($487,450 for married couples filing jointly)
  • 37% for incomes greater than $609,350 ($731,200 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? It's been six years since the Tax Cuts and Job Act (TCJA) overhauled the federal tax code and lowered marginal rates for most individual tax brackets. However, after 2025, many of the act's tax law changes are scheduled to expire and those rates may return to their previous levels.

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Tax Efficiency - Thrivent

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.

Time diversification
When and how you'll use your money
Investment diversification
Spreading investments across different asset classes
Income tax diversification
The timing of when you'll be taxed

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

Investment diversification can help you minimize the taxes you will eventually pay in retirement by allocating your assets across a variety of asset classes. Diversification alone does not assure a profit nor can it protect against losses in a volatile or declining market, but it can be an effective way to minimize market risk and protect you from inflation.

Depending on your age, you might be more interested in choosing investments that align with your goals and risk tolerance than in how any earnings might be taxed decades from now. After all, the markets could bounce up and down several times before you need retirement income.

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.

Pay taxes upfront
Pay taxes later when you start taking withdrawals
No tax liability

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.


  • 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.


  • 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.


  • 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 taxes in retirement could be a mistake since you may have fewer deductions at that time, such as no mortgage interest or children to claim as dependents. And, you will no longer be making tax-deferred contributions to retirement accounts. Being strategic now could help you reduce or even eliminate some tax consequences in later years.

Give yourself a tax-efficiency checkup

Use our tax-efficiency checklist to get a good idea of the tax diversification of your assets today. You may identify ways to reduce eventual tax consequences. As you consider your options for tax-efficient moves, consult with your financial advisor and tax advisor to help you make informed financial decisions both during your working years and in retirement. While Thrivent financial advisors do not provide specific legal or tax advice, they can partner with you and your tax professional or attorney.

*Methodology: This research was conducted in June 2022 among a national sample of 1,500 adults in order to measure their sentiments, financial planning, knowledge, and issues regarding retirement. The interviews were conducted online and the data was broken into three sample groups; Saving, Nearing, and Retired. Results from the full survey have a margin of error of plus or minus 3 percentage points.

While diversification can help reduce market risk, it does not eliminate it. Diversification does not assure a profit or protect against loss in a declining market.

2Any interest, dividends or capital appreciation is subject to taxation when realized.

3U.S. Treasuries are generally exempt from state and local income tax.

Gains/income subject to income tax when withdrawn.

5Generally funded with pre-tax dollars.

6Withdrawals made prior to the age of 59½ may be subject to a 10 percent federal tax penalty.

Distributions prior to age 59½ may incur a 10% premature distribution penalty; all distributions may incur surrender charges.

Generally exempt from state income tax. Special tax benefits may apply.

9 Funded with after-tax dollars; gains may be tax-free.

10 Interest is free from federal income tax; may be subject to state income tax, federal alternative minimum tax and capital gains tax.

11 The primary purpose of life insurance is for the death benefit protection. Withdrawals may be available income-tax-free to the extent of basis. Lifetime distributions of the cash value are subject to possible income taxation and penalties, could reduce the death benefit, and could cause the contract to lapse.

CDs offer a fixed rate of return. The value of a CD is guaranteed up to $250,000 per depositor, per insured institution, per insured institution, by the Federal Deposit Insurance Corp. (FDIC). An investment in a money market fund is not insured or guaranteed by the FDIC or any other government agency. A money market fund seeks to maintain the value of $1.00 per share although you could lose money. The FDIC is an independent agency of the US government that protect the funds depositors place in banks and savings associations. FDIC insurance is backed by the full faith and credit of the United States government.