Creating tax-efficient income is a highly personalized process. It depends on how much income you want to create, the type of investments you already hold, and the different types of investment accounts those investments are held in. Despite the highly personalized nature, there are some basic principles that we can take advantage of in the IRS Tax Code. The US tax code is based on “marginal tax rates,” meaning when you earn more money and move to a higher bracket, taxes do not increase on all of your income, just the amount over the bracket limit. Think of it like overflowing buckets. By focusing on filling up the low-tax rate buckets with ordinary income, and then trying to avoid the high-tax rate buckets by creating income from Roth IRAs or capital gains, we can create more tax-efficient income.