Two bucket approach for control over your money

Employer provided retirement plans are the investment products of many working Americans.  For many, it is their only form of retirement savings aside from social security.  While it is extremely positive that these people are saving for their retirement, there is risk involved when a tax-deferred (meaning pay the government later) investment is the sole retirement vehicle.  Consider the following example.  Jack and Jill are a young couple and they have dreams of owning an apple orchard.  Mr. I.R.S. learns of their ambitions and comes to them with a deal. Mr. I.R.S. tells Jack and Jill that while you are growing your apple trees I will not charge you a dime in taxes.  However, upon your first harvest I will begin taxing you and every year to follow until you die or until the trees stop producing fruit.  Jill asks Mr. I.R.S., “What will our tax rate be?”  Mr. I.R.S. replies, “I don't know, but the government will let you know when you arrive at that point.” Sound like a good deal? It’s the same deal to which anyone with a tax deferred 401k agrees. If tax rates remain level or go down Jack and Jill will get a great deal.  If tax rates go up, as most economists believe they must in order to pay for our country’s financial mess, then Jack and Jill will have a lousy deal.  What if instead of one bucket that was full of soon-to-be-taxed money, you arrived in retirement with two buckets, one that will be taxed and one that has the option of being withdrawn tax-free?   The choice of tax or tax-free gives you more  control over your money.  Depending on your income level for the year or tax rate, you can decide which bucket of money is in your financial best interest from which to withdraw in any given year.