To achieve flexibility in retirement, it’s not just about saving enough—it’s also about where you save. I’m not referring to which advisory firm you partner with or which bank holds your deposits, but rather the types of accounts that hold your money. There are three main account “buckets” used in retirement planning:

• Pre‑Tax (Tax‑Deferred)
• Post‑Tax (Tax‑Free)
• Taxable (After‑Tax)

Saving across all three of these buckets—pre-tax, post-tax, and taxable—gives you options for when and how much you pay in taxes, ultimately providing the best flexibility and long-term savings potential.

Bucket 1: Pre-Tax (Tax-Deferred)

This bucket holds your typical pre-tax retirement plan like a 401k or IRAs. During the earning years, contributions to these plans reduce your taxable income and grow tax-deferred. Once you reach a certain age (59.5) you can take withdrawals penalty free, but all distributions are taxed at ordinary income rates. You are forced to take a required minimum distribution (RMD) once you reach a certain age (73 or 75 depending on your birth year). Most heirs other than spouses must empty these accounts within 10 years of inheritance.

Bucket 2: Post-Tax (Tax Free)

The Tax Free bucket will be Roth IRAs, Health Savings Accounts and Roth 401ks. Contributions are made with after-tax dollars (no deduction for contributions), but qualified withdrawals after a certain age (59.5) are tax-free! Roth accounts also do not have an RMD, and heirs’ withdrawals generally will remain tax free.

Bucket 3: Taxable

Accounts that belong in this bucket are your traditional brokerage accounts or investment accounts funded with after-tax dollars. Dollars in these accounts are taxed yearly based on interest and dividends, and when you sell assets in a brokerage account, you will be subject to capital gains (or losses). These are the ultimate “flex” dollars as you can use them anytime you’d like, no required withdrawals and typically more favorably taxed. This is the ideal account to invest in once retirement account limits have been reached.

Each bucket can serve a different purpose, but used together, they can give you ultimate flexibility over taxes, withdrawal strategies and even can be an estate planning tactic. Future spending needs, life circumstances, tax laws and policy changes may all be unknowns today. However, by giving yourself more control and flexibility to adapt to what is ahead, you may find a smoother and financially resilient future ahead.

Example

A retired couple, both 65, holds substantial pre-tax IRAs (rolled over from 401(k)s) and a sizable joint investment account. With no earned income and a low tax bracket, they convert portions of their traditional IRAs to Roth IRAs annually, using the investment account to cover taxes and living expenses. They limit conversions to stay within a low tax bracket, investing the Roth IRA for potential tax-free growth to pass on or for future use. This strategy aims to reduce future RMDs, minimizing long-term taxes. Further, they can focus on asset location from a holistic view by placing their bonds (or tax in-efficient) investments in the traditional IRA, the growth oriented investments in the Roth IRA and manage their short term liquidity needs in their taxable account.