In class, I’ll ask people, “Where do you think tax rates are going in the future, up or down?”

Most of the people in the class think that taxes will be going up.

So the next question I ask is, “If you think taxes will be going up in the future – what are you doing about it now?”

People will say, “But I can’t control whether taxes go up or down.”

To which I reply, “Right, but YOU CAN control your tax bracket."

“What?”

“You can control your tax bracket – if you plan ahead – and you know what you’re doing.”

Think about this – if all of your retirement money is in tax-deferred accounts, you will have to pay taxes on the money as you take it out in retirement. So what happens when tax rates go up? You’ll pay more in taxes.

But what if you planned ahead? What if you had money available from a variety of sources that were taxed at rates lower than ordinary income tax rates – or were tax-free?

You would be in a position to decide from which accounts you would take the money – and thereby decide how much you would be paying in taxes.