I love working with early retirees – those fortunate enough to retire in their 50s or early 60s. They are often high earners who suddenly find themselves in a lower tax bracket. This presents a number of fun planning opportunities – Roth conversions, IRA withdrawals, stock sales at the 0% capital gains rate, Social Security claiming strategies, etc. Where should they get their cash from today and in the future? It’s a fun puzzle to solve.

I start by looking at the tax situation in the early retirement years (before IRA required minimum distributions and before Social Security starts). I then compare it to the tax situation at age 72 (after IRA required minimum distributions and after Social Security starts). My goal is to smooth out the tax rates over time. If you are in the 12% tax bracket today and expect to be in the 24% tax bracket at age 72, then Roth conversions and 0% capital gains sales are a good idea.

Which one should you choose? We need to take a more in-depth look at how much you have in different account types. If you have mostly traditional IRA assets, Roth conversions are preferable. If you have mostly taxable accounts, 0% capital gains may be better. You should also be mindful of income thresholds for health insurance subsidies (before Medicare at age 65) and increased Medicare premiums (age 65 and beyond). Crossing those limits can cost an extra $1k or more per year in premiums.

If solving your early retirement puzzle stopped sounding fun a few paragraphs above, reach out to me. Getting these decisions right can save you thousands of dollars in taxes. I’ll crunch the numbers and you can enjoy the savings.

About the Author:

John has more than ten years experience as an Investment Advisor. He focuses on devising and maintaining portfolios that meet individuals’ needs, investment research, and investment strategy. John has been recognized as a “FIVE STAR wealth manager” by Twin Cities Business Magazine 2016-2020.

Legal Disclaimer: These posts do not constitute an offer or recommendation to buy or sell any securities or instruments or to participate in any particular investment or trading strategy. They are for informational purposes only. CTW gathers its data from sources it considers reliable. However, CTW makes no express or implied warranties regarding the accuracy of this information or any opinions expressed by the author and may update or change them without prior notification.