It's Not What you Make-It's What you Keep
By Matt Ringle & Brett Roth
Taxes. What can be said about them that hasn’t already been said? Nobody likes them (unless it’s someone else paying them), and—if you’re reading this—you’re definitely paying them.
Here’s the good news: while we can’t escape taxes entirely, we can control how much we pay over a lifetime. And that difference is often substantial. If you understand your end goal—and either master the basics yourself or have someone do it for you—you can keep hundreds of thousands of dollars more over time and ultimately leave more behind for your family.
This reality will mean the difference of hundreds of thousands of dollars of lifetime income difference when done correctly. This is part of the core planning that DLAK does for all of our clients that no one else in the industry is doing.
As Rob has been saying for over 20 years: it’s not what you make, it’s what you get to keep.
When we talk about tax diversification and asset location, we’re not splitting hairs. Done correctly, these decisions can materially change how much you’re able to spend in retirement—and how much remains after you’re gone. Let’s walk through the core ideas pre-retirees need to understand and why they matter.
While You’re Working: The Three Tax Buckets
At a high level, there are three main “buckets” where your money can live:
- Pre-tax
- Roth
- After-tax (brokerage)
If your goal is to pay less tax today, you contribute to a traditional 401(k) or (if eligible) a deductible IRA.
If your goal is to pay less tax in retirement, you contribute to Roth accounts.
But here’s the key point: neither of those goals should stand alone.
The real objective is paying the least amount of tax over your entire lifetime.
Sounds easy…right? Sort of.
As with everything in financial planning, nuance matters—especially how and when you’ll spend your money in retirement. Let’s break down how each bucket is taxed.
How Each Bucket Really Works
Pre-Tax Accounts
You don’t pay taxes when the money is earned. You don’t pay taxes as it grows. But when you withdraw it, every dollar is taxed as ordinary income.
Roth Accounts
Introduced in 1997, Roth accounts flip the script. You pay the tax upfront, but qualified withdrawals in retirement are completely tax-free. There are also ways to access contributions before age 59½. (For more on that, check out our recent podcast where Rob and Brett dive deeper.)
After-Tax Brokerage Accounts
These are available to everyone—no contribution limits, no required withdrawal rules. You may pay some tax along the way, depending on your Modified Adjusted Gross Income (MAGI), but long-term capital gains rates are capped at 20% federally and can be as low as 0% for married couples earning under $98,900 (2026 limits).
You only pay tax on the gains, not the money you originally invested. And with smart planning—like tax-loss harvesting—you can control when those taxes are realized. This is one of the most powerful (and underutilized) wealth-management tools out there, and it’s something we do routinely for all DLAK clients.
A Simple Example: Timing Matters
Let’s say “Sarah” is 52, single, and earns $300,000 per year. That puts her squarely in the 32% federal tax bracket, before state or local taxes.
By maxing out her 401(k) at $24,500, she reduces her federal tax bill by $7,840 this year.
Fast forward to age 63. Sarah is retired and living on $60,000 of taxable income, pulling funds from a combination of her IRA and brokerage account. She withdraws that same $24,500—but now pays only $2,940 in federal taxes.
That’s a $4,900 tax savings with zero market risk. A guaranteed return of roughly 37.5%, simply by changing when taxes were paid.
Did you catch the key detail?
She had a brokerage account to draw from.
Sarah wasn’t just maxing her 401(k); she was also saving after-tax and using catch-up contributions—which beginning in 2026 must be Roth. That flexibility is what made the outcome possible.
Specialty Accounts That Punch Above Their Weight
Beyond the three main buckets, there are tools with unique tax advantages—like Health Savings Accounts (HSAs). HSAs offer a rare triple benefit: a tax deduction today, tax-free growth, and tax-free withdrawals for qualified medical expenses now or in the future.
Used correctly, they can be one of the most powerful retirement accounts available.
The Tax Traps DIY Investors Often Miss
This is where things get tricky—and expensive—if you’re not paying attention.
1. Net Investment Income Tax (NIIT)
Created under the Affordable Care Act, NIIT adds a 3.8% tax on investment income once MAGI exceeds:
- $200,000 (single)
- $250,000 (married filing jointly)
Example:
A married couple with $400,000 MAGI and $100,000 in net investment income owes an additional $3,800 in NIIT.
NIIT often catches people off guard because it:
- Applies even to long-term capital gains
- Stacks on top of other taxes
- Can be triggered by one-time events (selling a business, property, or large position)
Without proactive tax monitoring, this shows up as an unpleasant surprise.
2. IRMAA and Medicare Premium Surcharges
IRMAA adds income-based surcharges to Medicare Part B and Part D premiums.
Example:
John and Mary, both 67, have MAGI of $300,000.
Their Medicare premiums increase by nearly $5,000 per year—purely due to income levels.
Better tax diversification could have reduced their MAGI and potentially avoided the surcharge altogether.
3. Social Security Isn’t as “Tax-Free” as You Think
Social Security is taxed based on provisional income, and it’s surprisingly easy to cross the thresholds.
Recent legislation introduced an additional deduction for retirees over 65:
- $6,000 (single)
- $12,000 (married filing jointly)
But these deductions phase out as MAGI rises—and disappear entirely at higher income levels.
In other words: one unplanned income decision could cost you over $12,000 in lost deductions.
4. Qualified Charitable Distributions (QCDs)
Once you’re 70½, QCDs allow you to donate directly from your IRA to a qualified charity—excluding the distribution from taxable income entirely.
This reduces your Adjusted Gross Income, not just taxable income, and can help avoid IRMAA, NIIT, and other downstream taxes.
For most people, charitable giving after 70½ should almost always be done this way.
5. Capital Gains Aren’t All Created Equal
Long-term capital gains receive preferential tax treatment—but short-term gains, collectibles, depreciation recapture, and certain business activities can be taxed at ordinary income rates.
Understanding what you own and how long you’ve owned it matters more than most people realize.
5. Capital Gains Aren’t All Created Equal
Not all capital gains are taxed the same way. How much you owe depends largely on how long you owned the asset and what type of asset it was. Preferential long-term capital gains rates apply when an investment is held for more than one year and comes from traditional assets like stocks, ETFs, mutual funds, or real estate.
However, not all gains qualify for that favorable treatment. Capital gains can be taxed at ordinary income tax rates in certain situations—most commonly when an asset is held for one year or less (short-term gains). Ordinary income treatment can also apply to gains from specific assets or activities, including depreciation recapture on real estate, collectibles such as art, coins, or precious metals, and certain business or active trading activities.
The Bottom Line
Taxes don’t need to be feared—but they do need to be managed.
The difference between reacting at tax time and planning throughout the year can mean hundreds of thousands of dollars over a lifetime. With proper tax diversification, thoughtful withdrawal strategies, and ongoing monitoring, you can dramatically improve the odds that more of your money ends up where it belongs: supporting your lifestyle and your legacy.
Death and taxes may be inevitable—but how much they cost you is far more negotiable than most people think.