One of the first things any good financial advisor should look at and analyze is a client’s buckets of money by type. If you don’t have any buckets of money – you should be getting educated on how to bucket before anyone ever talks about funds, stocks, or alternatives you should invest in.
When we say buckets – we aren’t insinuating we are all going to take a nice vacation day at the beach…but it’s the thought that counts in helping you remember! 😉
Here are the three ways I help clients visualize “BUCKETS.” I try and throw out all the vocabulary one might hear on the street.
*Number 1 – “Pre-Tax / Before-Tax / Traditional Contributions” – this bucket comes out of your paycheck BEFORE taxes are paid if you have a work retirement plan. If you are doing an Individual Retirement Account – you will classify a pre-tax contribution on your annual tax return!
*Number 2 – “After-Tax / Post-tax / Roth Contributions” - this bucket comes out of your paycheck AFTER taxes are paid if you have a work retirement plan. If you are doing an Individual Retirement Account – you will classify an after-tax contribution on your annual tax return!
*Number 3 – “Non-Qualified / Brokerage / Trust Monies” – this bucket comes from monies that you had sitting at the bank. You already paid taxes on them, you don’t have any options left on the buckets above, you need certain types of transfer protection on your assets, or you maybe just want to build your investments with more liquidity before you get to 59.5.
This is my “simple” attempt at explaining buckets to clients. I always try and draw this out on a clean sheet of paper if we are meeting face to face, as pictures can help certain individuals more!
Advisors – how do you explain “Buckets” to your clients?
Non-Advisors – what types of questions do you have about “Buckets”?