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Gold, Silver, & Bronze: Olympic Medals of Tax Planning Thumbnail

Gold, Silver, & Bronze: Olympic Medals of Tax Planning

As tax season draws to a close, consider how much of your recent efforts to file this year's taxes went toward confirming last year's actions. Most likely, most of it! That's natural.

Tax preparation and reporting is inherently backward-looking. However, over the years, all that backward-looking tax reporting adds up. You can bet that the IRS is keeping track. So, if you want to come out ahead on taxes next year (and in the years to follow), make sure you're being just as forward-looking about your money as the IRS is.

Medals of Tax Planning

One way to come out ahead on taxes is to realize that not all your income and savings are created equal in the eyes of the IRS.

In reality, there are three separate tax buckets. At Open Window, we track these three buckets using the Olympic medal system of gold, silver, and bronze. 

Bronze is the least rare — third place. 

Silver is rarer than bronze — second place. 

Gold the rarest of the three — first place.

To come out ahead on taxes, we need a plan for how and when we fill these buckets, and how and when we empty these buckets.

Bronze Medal Bucket

Tax Rate of 0-37%+

Future Taxes

This is the bucket of inaction — where most of your income and saving ends up without a plan. 

Your income and investment growth in this bucket can be taxed at a rate between 0% and 37%+.

Commonly called "ordinary income" or "tax deferred", examples of this bucket include:

  • Earned income
  • Traditional retirement accounts [Traditional IRA, SEP-IRA, 401(k), 403(b), 401(a), etc.]
  • Short-term investment gains (assets held less than one year)
  • Ordinary dividends
  • Some forms of interest (e.g., from bank accounts, taxable investments, etc.)

You're commonly forced to pay tax in this bucket upon receipt. However, you can often defer some of your tax bill to tomorrow. Regardless, taxes will be paid someday by you (or after your death, paid by your heirs). The tax code makes this tax bill a certainty unless you give the money away to a qualified charity.

Deferring taxes on this bucket can be a powerful tool, but it also creates risk based on how tax rates might change in the future.

Silver Medal Bucket

Tax Rate of 0-20%+

Tax On Gains

Having a plan for money in this bucket can have a big impact on how much tax you ultimately pay. 

While your initial deposit and withdrawals are not taxed, the IRS has set up preferred rates in this bucket of between 0% and 20%+.

Commonly called "capital gains taxes", examples of this bucket include:

  • Taxable investment accounts (joint, individual, family trust)
  • Long-term gains (assets held more than one year)
  • Qualified dividends

Aside from qualified dividends, taxes on this bucket are paid when holdings in this bucket create income and especially when investments are sold at a gain.

Holdings sold at a loss in this bucket can present a special tax benefit called a "tax loss". This benefit is only available within this bucket. Read more here under, "Tax-loss harvesting".

Note that the tax burden in the Silver Medal Bucket can be as much as half of the previous Bronze Medal Bucket. 

Gold Medal Bucket

Tax Rate of 0%


Our favorite bucket, where all withdrawals, income, dividends, and growth can be tax-free (once a few timing requirements are met). 

Commonly called "after-tax", examples of this bucket include:

  • Roth
  • Health savings accounts
  • 529 college savings plans
  • Life insurance death benefit
  • Tax-exempt interest (e.g., qualifying municipal bonds)

How do your assets stack up?

It's not just the amount of savings that matters, it is how your savings are divided among these three different tax buckets.

How do your savings stack up with the example below?


Now that tax preparation season is coming to an end, consider the benefit of having someone on your financial team who knows you and is thinking about the future of your taxes. Good tax planning can save you money when it is intentional with the choices the tax code provides. 

For too many people, April 18th is the finish line on taxes. Others know that it's only the beginning of the valuable tax planning season.

Could you use an experienced hand to keep your complete financial picture in focus? We’re here to help!

We hope to hear from you if we can help you sand off the rough edges of your lifetime tax bill.

You can reach us at (775) 827-0670 and advice@openwindowFS.com. Send us a quick note at www.openwindowFS.com/quicknote or schedule some time with us at www.openwindowFS.com/connection.