The 3 Bucket Strategy: How Much Should You Invest in Each Bucket?

We have a new question, he says, "Is there an ideal ratio of Roth, traditional, and taxable investments? Currently, I'm at a critical mass level with 20-60-20. Thanks." Yeah, we get asked this question all the time, and we talk about the three buckets, our three buckets that we talk about in the accumulation phase. Right? It'd be great to be like 33.3, 33.3, 33.3, because that way you have all this flexibility, you can pick and choose. I disagree. I'd rather 50% Roth, 80% Roth, 20% after-tax brokerage account. You know, I don't even know you anymore. I agree. It'd be wonderful to have all this tax-free money, it'd be wonderful to have all this after-tax money, but in reality, for most of us, as we're building our wealth, as we're growing our wealth, we have to kind of dance with the one that brung us. We have to be taking advantage of the things that are there for us to take advantage of. So, as your income increases, as in you really get excited about pre-tax benefits and saving on your tax bill in the current year, start building your pre-tax assets. Well, as you build up Roth, you want to max out your IRAs, and you want to do the Roth 401k. But then you start getting limited, and you can only put so much in there, so then you go to the after-tax. So, I think most people, when they're building their buckets, absent of being able to do Brian's 80-20, since that's apparently the percentage that he would prefer, you do the best that you can given your financial situation because you have to. It's really interesting when you're making financial decisions. You have to do this thing where you're making a great decision for today and also a great decision for tomorrow. And sometimes there's friction between those things. You can be a very young person where Roth makes all the sense in the world, but if you're a very young person in the 37% marginal tax bracket, it's really, really hard to walk away from that pre-tax benefit. So, you have to figure out how do I manage and navigate building those two. Yeah, I mean, you kind of were hitting all around it, and that's why I'll just kind of put the whipped cream and the cherry on top of it. And the fact that I wasn't kidding that the ideal is if you go the Roth, it's not the apex predator, but it's definitely at the top of the food chain on how you want your assets. There's a reason the government restricts how much you can put into Roth accounts because it really is valuable because it's growing and compounding tax-free. So, if you ask me, yeah, I want you to have a ton of that. However, and this is where Bo is right, the journey that you're on to go through the Financial Order of Operations, the government's incentivizing and the tax code is incentivizing all kinds of different behaviors. Like, you know, think about step two of the Financial Order of Operations, which is to get that employer free money. That's the employer match's step two. Well, currently, now look, they're changing this. This could change over the years because a new legislation passed. But we haven't seen how this is all gonna play out. But currently, employer match money is going to go into a tax-deferred account, meaning that it's going to be in that bucket that will grow without being taxed until you actually start pulling it out, and then it's going to be taxed as ordinary income. It's the stray dog that follows you home. You don't design it, you don't try to get there, it just kind of happens because you're trying to avoid current taxation. So that's how that tax-deferred happens all over the place because guess what? Not only is your employer doing that to build up tax-deferred, but as you start making big bucks, say you're in your 30s, 40s, and you start hitting your peak earning years, you're gonna be like, "Man, I'm between the 37% income tax bracket between living here in the state of California where they're charging me 13%. I mean half my money is going to taxes right now. I gotta figure out a solution." Well, the solution is you're going to go into those tax-deferred traditional accounts where you take a tax deduction now with the hope that when you're retiring, you can control your wages coming in because you won't have any anymore. Hopefully your taxes will go way lower, you'll be in a much lower tax bracket. That's how you end up with that money. You're also going to find out that Roth is a time certain meaning that when you're earlier in your career, you're gonna load up all those accounts that the government lets you. But as you make more and more money, you're not going to be able to do Roth IRA is easily. You're going to maximize the Roth 401k or 403b, but still, you're going to need to save more. And that's when you're going to start saving into that after-tax account, building up the brokerage account. I always find it interesting when somebody comes to us as a prospect, it is the quilt of their financial life. Because the person that shows up with, like yourself, Frank, with the 60 20 20, there's gonna be another person that sold a business or a piece of land that might be, you know, 10 10 80 because they sold, you know, it's all taxable money. I don't look at these and go, "This person did it right, this person did it wrong." I look at it as their quilt of life, is that probably financial opportunities or decisions they had to make on their forks of life, because remember, there's not just one path to success. There's thousands of paths to create success. That's why I get so excited about you guys learning and applying this, the abundance cycle. You will be successful and need somebody to help you take all these different paths and then figure out what's the best, most efficient way to maximize the opportunity you have from a tax standpoint, from a growth standpoint, from a keeping your wealth standpoint, for making sure your kids aren't ruined by this. That's where I love that we kind of get to come in there, sprinkle the salt of our talents to maximize your potential. You're going to be able to do that, Frank, and I hope that helps out, knowing I gave you the hierarchy of these things. Definitely, you know, Roth is the top of the food chain, then taxable brokerage accounts, and then deferred, kind of like the stray dog that follows you home, but more than likely, you're going to end up with all three of these in some shake, like you had 60, 20, 20 because the decision at the time warranted that to maximize the opportunity.