A water heater system includes a water heater and a thermal mixing valve. The water heater includes a tank and a cap that each define interior volumes. The interior volume of the tank includes a heating element is the location where fluid is heated, whereas the cap includes a volume within which the thermal mixing valve may be disposed. The thermal mixing valve pulls cool and warm water from the volume of the tank, and then discharges a mixed stream of fluid at a user desired temperature via an outlet.