Today. I want to talk about the three buckets that go into having a diversified tax portfolio which ultimately provides for more options in retirement. But first I want to introduce myself. My name is Warren Berger. I'm the owner of luminary financial advisors. And we work with people that are approaching retirement. We're recent retirees to create and implement a plan for retirement that really focuses on tax efficiency. Normally, when we're talking about diversification and investment, we're talking about owning a broad range of asset classes. In this example, we're really talking about three different buckets that lend itself to tax diversification and tax diversification allows us in retirement and even before retirement to have more options. So the first bucket we're gonna talk about is a tax deferred bucket. So we have 401ks in there, 4 0 3 BS, IRAs. These are accounts where money was not taxed going into it and will be taxed as income when they come out.
Now that tax range, as we sit here today in 2022 is gonna range anywhere from 10 to 37% depending on where your income is as you're taking this money out. So just keep that in mind. Our second bucket is a tax free bucket. That's gonna be a Roth IRA. Also in that bucket is municipal bonds. There are some other things as well, but the idea being that these investments are distributed without tax, they grow tax free and they are returned to you tax free. Our third bucket is a taxable investment account or a brokerage account. This account can be investments in stocks or mutual funds or electronically traded funds. And they are taxed at the capital gains rate of tax, which is anywhere from zero to 20% as we sit here in 2022. So why do we want tax diversification in our retirement accounts?
The fact is, as I said before, it gives us more options. Some of which can happen before retirement. For example, the money that you have in your taxable account can be withdrawn at any time without penalty that's because it's not within the framework of some of these other retirement accounts, where there are penalties. If you take money out before age, 59 and a half, and there are some other rules that apply to those as well. So if you are younger than retirement age, and at some point you need to have liquidity or access to readily available cash. This is an account that you could use without incurring those penalties. Now, once you get into retirement, you're gonna be starting to deal with taxation issues that you never had to deal with before. For instance, if all or most of your income is derived from your tax deferred account, you're gonna be paying income taxes on all of that, depending on how much you're taking out of that account, you can be increasing your tax brackets therefore increasing the amount of tax that you're paying on that. Whereas if you are tax diversified, you may find yourself in a situation where you can take a combination of your tax deferred money, which is tax debt, ordinary income tax rates.
You may have some tax free money coming out of say a Roth IRA that now can be used for your income, but doesn't necessarily push up your tax threshold. And then you could even add in the taxable accounts that are taxed between zero and 20%, depending on what your capital gains rate is. Applying a mixture of these three accounts can put you in a situation where you're paying the least amount of taxes to have the most amount of benefit in terms of accessing your money. There's a couple of other issues there as well. For instance, at age 65, where all eligible for Medicare, there are certain tax thresholds that can be triggered depending on how much income you have coming in. So you don't find yourself paying higher Medicare premiums than you had originally anticipated. Another big factor are required. Minimum distributions required, minimum distributions or RMDs start at age 72 and require you to take a certain percentage of income from your tax deferred accounts, whether you need it or not.
And so what happens is over time many of us have been Seing into a 401k or a 4 0 3 B or some tax deferred vehicle that's been growing over the years. And all of a sudden you find yourself at age 72, where you're now required to take a certain amount out, which can push you into higher tax brackets. So one thing we might consider is the time period between when you retire and that age 72, converting some of that tax deferred money into tax free Roth money, which now grows tax free and lowers that required minimum distribution that you're going to be subject to at age 72. So these are just a few of the things to think about, I guess, ultimately what I'm trying to get across is that having tax diversification, number one, can't take place right away. It takes time to build up these accounts, but you want to start as early as possible to build up the percentages in those counts.
By the time you retire. Ultimately, the number of options that you're going to have in retirement are gonna be determined by the actions that you took well before retirement. So these are the things that need to be thought of now, so that you can set yourself up to be able to make better decisions in the future. I hope this has been helpful. If it has please subscribe to the channel where like the video, I do have a number of free retirement resources that you can access below. And if you feel like you'd like to have a conversation with me about your financial situation, I also have a link for a free conversation to talk to me about that. Thanks for listening and have a great day.