David McKnight discusses the allocation of $1M if he had it to invest in 2026.

David sees a taxable brokerage account as the least efficient investment account you could possibly own – since it's taxed every year and it's exposed to both short- and long-term capital gains.

While this type of account is liquid and can serve as an excellent emergency fund, it's the most tax-unfriendly of all the investment alternatives.

The goal, says David, isn't to grow wealth within this type of account, rather to use it as a funding source to systematically build multiple tax-free income streams for retirement.

Roth IRAs, which can be funded for a combined $17,200 per year (for your and your spouse's Roth IRA) is the first place David believes the money should go.

Next, you should aim at maxing out your Roth 401(k)s – which is $24,500 a person for people under 50 and $32,500 per person.

David explains how you can convert taxable money into tax-free money without triggering a massive taxable event and without disrupting your lifestyle.

70% total U.S. stock market index fund, 30% total international stock market index fund is the only allocation you'll ever need, says David.

Having to properly structure and fully fund an indexed universal life policy (IUL) is the most misunderstood piece of the strategy discussed by David.

The idea is to see an IUL as a way to grow a portion of the $1M portfolio safely and productively, and not to use it as an investment replacement or stock alternative…

Historically, IULs have grown 5-7% in net fees over time – with zero stock market risks.

The goal of day one of retirement is to have 3-5 years of living expenses sitting in your IUL's cash value, tax-free. This is your volatility buffer.

According to a recent Ernst & Young study, the strategy discussed in this episode provides far more income, a far greater likelihood that your money will last through life expectancy and far more money to the next generation compared to the investment-only approach.

Suze Orman recommends the exact same strategy but with a difference: Instead of using an IUL she suggests using a savings account that has rock bottom taxable rates of return.

However, an IUL is a more effective tool, as it grows far more productively as tax-free, protects your principal, and the death benefit can double as long-term care protection.

David's strategy doesn't include bonds as an IUL is safer: No sequence of returns risk early in retirement, not being forced to sell stocks in a down market.

"I generally don't ever recommend bonds. There are far better instruments that are safer, more productive, and more tax-efficient tools, with IUL being one of them", illustrates David.

Many experts expect tax rates to rise dramatically by 2035 to pay interest on the national debt, bail out Social Security, and bail out Medicare and Medicaid.

When that happens, you just don't want to be sitting on a massive taxable account..!

The goal is to shift as much as possible from the $1M portfolio into tax-free accounts before 2035 – you want to have them in your Roth IRAs, Roth 401(k)s, and IUL cash value.

Conversely, you only want about six months' worth of living expenses sitting in your taxable account.

Mentioned in this episode:

David's new book, available now for pre-order: The Secret Order of Millionaires

David's national bestselling book: The Guru Gap: How America's Financial Gurus Are Leading You Astray, and How to Get Back on Track

Tax-Free Income for Life: A Step-by-Step Plan for a Secure Retirement by David McKnight

DavidMcKnight.com

DavidMcKnightBooks.com

PowerOfZero.com (free video series)

@mcknightandco on Twitter

@davidcmcknight on Instagram

David McKnight on YouTube

Get David's Tax-free Tool Kit at taxfreetoolkit.com

Dave Ramsey

Ernst & Young

Suze Orman

How I'd Invest $1,000,000 in 2026