Your Money, Your Wealth #544: What's the Tax Triangle and How to Find Out if Yours is Lopsided

Hosts: Joe Anderson, CFP® (Joe)
Guest Co-Host: Mark Horner, CFP® (Mark)
Date: August 26, 2025

Episode Overview

This lively episode focuses on the tax triangle—the distribution of savings across taxable, tax-deferred, and tax-free accounts—and what to do if your triangle is “lopsided.” Joe Anderson and guest CFP® Mark Horner field listener questions about balancing different types of accounts for retirement, examine whether part-time work is necessary in early retirement, and trade witty observations about real-life financial quandaries including deferred compensation and company stock. As always, the show delivers practical strategies alongside plenty of banter and humor.

Key Discussion Points and Insights

1. Ray & Roy's Lopsided Tax Triangle (00:48–12:03)

Background:

• Listeners Ray and Roy from Central California describe their situation and ask about their heavily taxable-tilted holdings.
  • $2 million in savings
  • 85% in taxable accounts
  • 10% in tax-deferred accounts
  • 5% in Roth (tax-free)
  • Annual fixed income: $50,000 (likely a teacher pension), to increase by $20,000 (Social Security) when Roy turns 67
  • Target yearly spending: $96,000
  • Ages: 59 and 62
  • Concerns: Whether one should get a part-time job, how to “get on the Roth train,” and how to reduce taxes in retirement

The 'Tax Triangle' Issue

• Joe: “She is a little lopsided here... Do you have an idea of how they got such a lopsided tax triangle? It’s not even a tri, it’s an octagon or whatever.” (04:03)
• Mark: Speculates that a pension may have reduced the need for tax-deferred savings.
• Key point: The situation of mostly taxable (brokerage) assets is rare and presents both challenges and opportunities.

Do They Need a Part-Time Job?

• Joe: Math shows their portfolio easily covers their shortfall, even conservatively.
• Mark (with a humorous social angle): Suggests part-time work might not be needed for financial reasons, but jokes, “I think there’s risk that the fire pit joy could fall apart if they’re around each other seven days a week, 24/7...” (06:24)
• Joe: Recalls studies showing couples often have different visions of retirement, with men wanting to spend more time with their spouse and wives not ranking that as highly.

Is the Triangle a Problem?

• Joe: “Is your tax triangle lopsided? No, absolutely not. I would much rather have 85% of my wealth in a taxable account versus a tax deferred account. Ideally I would want everything into a Roth, but...” (08:49)
• Main benefit: Flexibility; can generate income at a 0% capital gains rate with effective planning.

Tax Efficiency and Reducing Liability

• Invest for maximum tax efficiency: Avoid unnecessary capital gains, structure assets for minimal annual taxes.
• Use standard deduction and capital gains exclusions.
• Tax loss harvesting, asset location, and modern portfolio management tools help keep taxes near zero.
• “If you do it right, there’s very, very little tax, if any.” (10:10)
• Roth conversions aren't a priority unless other tax planning is exhausted—if retiring with such a mix, they're likely to remain in the lowest brackets.

How to Move Funds to Roth / Roth Contributions

• With earned income (from a part-time job), could do direct Roth contributions up to the annual limit.
• Joe: “As long as there’s earned income...there’s different ways...whoever doesn’t like the podcast should go get a part time job.” (11:56)

Memorable Listener Note:

• “One of us is a huge fan of the podcast.” (03:25)
• Mark: “That’s definitely Roy.” (11:58)

2. Elwood Blues: High-Flying Executive’s Retirement Plan (13:11–26:18)

Background:

• Listener “Elwood Blues” from Illinois, 57, looking to retire in 2–3 years.
  • $5M in brokerage accounts
  • $1.9M in IRAs
  • $575,000 in Roth
  • $400,000 in 457 plan
  • Deferred comp of $1.5M paid six months after retirement
  • Annual spending goal: $250,000–$300,000
  • No pension or debt; kids are independent

Do They Have Enough to Retire?

• Joe assesses the math: “Super tough one here. So $300,000. Yeah, you could retire. You have close to $10 million. 3% burn rate on $10 million is $300,000 plus tax, plus the cost of living. I think you’re good.” (18:47)
• Mark: Predicts Elwood is a “corporate executive for a public company in Chicago” given the numbers and plan structure. (17:22)

Deferred Compensation Plan Risks & Opportunities (19:34–24:44)

• Deferred comp is a recruitment/retention tool but comes with drawbacks:
  • Payments are fixed and fully taxable as ordinary income.
  • Funds are technically at risk if the company fails before payout.
  • Joe: “The longer the payment, the more risk that you’re taking on... you don’t see maybe, I don’t know if in our lifetimes we’ll see companies like GE anymore that were around for 100 years.” (22:08)
  • Mark: “The Lehman Brothers deferred comp plan probably didn’t work out too well.” (22:32)
• Tax impact: Deferred comp payments can crowd out other planning, e.g., Roth conversions, if income is high.
• Key planning strategies:
  • Carefully choose how to structure deferred comp payouts to balance tax brackets and company stability risk.
  • Check for concentrated company stock in brokerage/retirement accounts; consider charitable gifting and net unrealized appreciation strategies.

Company Stock and Tax Planning

• Discuss what to do with large positions of company stock, both for diversification and potential tax deals (charitable giving, NUA transitions).
• Joe: “...If that was the case, he could do net unrealized appreciation, take those dollars out, put those in a brokerage account, you pay tax on the basis... the basis is probably relatively low.” (25:09)

Listener Lifestyle Notes & Banter

• Cars: Ford F150 (“I think that lines up entirely with our ExxonMobil gas...manufacturing, getting your hands dirty kind of a job.” – Mark, 25:40)
• Beers: Lots of IPA drinkers among listeners.
• Friendly ribbing about favorite movies (Blues Brothers, Roadhouse) and Elwood’s possible motivations.

Notable Quotes & Memorable Moments

• On Lopsided Accounts:

  “I would much rather have 85% of my wealth in a taxable account versus a tax deferred account. Ideally I would want everything into a Roth, but…”
  —Joe Anderson (08:49)

• On Retirement Harmony:

  “I think there’s risk that the fire pit joy could fall apart if they’re around each other seven days a week, 24/7... Maybe just out of the gate they should experience—one of them should have a part time job because absence makes the heart grow fonder.”
  —Mark Horner (06:24)

• On Listener Engagement:

  “One of us is a huge fan of the podcast.”
  —Ray & Roy’s email (03:25)

• On Deferred Compensation Risk:

  “The longer the payment, the more risk that you’re taking on in this deferred comp. It sits on the balance sheet of the company... If company goes under, sayonara.”
  —Joe Anderson (22:08)

• On Listener Profile Guess:

  “This shows up all the time—F150s, and bourbon old fashions.”
  —Joe Anderson (25:58)

Timestamps of Important Segments

• Ray & Roy’s Case and Tax Triangle Discussion: 00:48–12:03
• Elwood Blues’ Retirement & Deferred Compensation Deep Dive: 13:11–26:18
• Important Tax Diversification Concepts, Roth Conversion Basics: 09:38–11:15, 19:34–24:44
• Banter on Relationships & Retirement Lifestyle: 06:24–08:25
• Deferred Comp Risks and Strategies: 19:34–24:44
• Listener Lifestyle Correspondence & Pop Culture References: Scattered throughout; esp. 14:44–17:18, 25:40–26:05

Final Takeaways

• A lopsided tax triangle (lots in taxable or brokerage vs. tax-deferred or Roth) is not a problem if structured for tax efficiency—may be even better than high tax-deferred savings given the current tax codes.
• Utilizing Roth contributions and conversions makes sense only if there’s sufficient earned income or tax planning room.
• Deferred compensation is a useful but risky tool; payout strategy and company health matter greatly.
• Fun, humor, and clear analogies (plus a dash of movie references!) make complex retirement tax topics accessible and less intimidating for listeners.

For more resources, retirement planning tools, or to get your own plan "spitballed," visit YourMoneyYourWealth.com.