Ready For Retirement
Ready For Retirement
Your Tax Planning Window Won’t Last Forever | Top 3 Strategies to Prioritize
Retiring early isn’t just about having enough money, it’s about using the right tax moves in the right years. This conversation between James and Ari maps the three biggest levers for early retirees: Roth conversions, ACA health insurance subsidies, and 0% long-term capital gains. A real-world case study shows how account mix and spending levels can flip what’s “best,” and how small income shifts can change the math in a big way.
The episode breaks down when Roth conversions pay off versus when they backfire, how keeping modified AGI under ACA thresholds can save five figures, and how harvesting capital gains at the 0% federal rate can reset cost basis and rebalance efficiently. It frames the tax window between the final work years and required minimum distributions, modeling income year by year to prioritize lifetime impact, not short-term refunds.
The focus is clarity and control—ranking strategies by pre-tax versus brokerage mix, showing how different spending assumptions can reverse the outcome, and outlining a practical process for tax-gain harvesting and rebalancing. James and Ari guide you to use tax strategy as a tool to buy more freedom, not more complexity.
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Advisory services are offered through Root Financial Partners, LLC, an SEC-registered investment adviser. This content is intended for informational and educational purposes only and should not be considered personalized investment, tax, or legal advice. Viewing this content does not create an advisory relationship. We do not provide tax preparation or legal services. Always consult an investment, tax or legal professional regarding your specific situation.
The strategies, case studies, and examples discussed may not be suitable for everyone. They are hypothetical and for illustrative and educational purposes only. They do not reflect actual client results and are not guarantees of future performance. All investments involve risk, including the potential loss of principal.
Comments reflect the views of individual users and do not necessarily represent the views of Root Financial. They are not verified, may not be accurate, and should not be considered testimonials or endorsements
Participation in the Retirement Planning Academy or Early Retirement Academy does not create an advisory relationship with Root Financial. These programs are educational in nature and are not a substitute for personalized financial advice. Advisory services are offered only under a written agreement with Root Financial.
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Almost every person who wants to retire early is facing the same three things if they want to truly optimize for their early retirement. Number one, they're wondering, should I try to massage my income to get like a healthcare subsidy? Number two, should I try to do those Roth conversions where I move money from a 401k to Roth because most of my money is in that pre-tax account? And number three, should I do that tax gain harvesting that paying 0% in taxes potentially if you massage your income well? And you have what's called a tax window to be able to do this. And this is what I imagine most of your retirements are looking like. So here's a visual to see that more clearly. Here's someone who's 55, making a very healthy income, they want to retire at 60. That's when their income's gonna drop. And then what's gonna happen here at 75? Those RMDs.
SPEAKER_00:Hey everyone, I'm James Cannol, CEO of Root Financial. I'm with Ari Taubleb, Chief Growth Officer of Root Financial, and we are here today to do a collaboration to help you understand what's the right tax strategy to implement as you're moving into retirement. And Ari, as you mentioned, there's three big ones that we think about that most people think about. That's the easy part. The harder part is understanding what do you prioritize, and it's very much based upon your situation, and we're gonna walk through a case study to help show people why. Let's learn about the couple.
SPEAKER_01:James, so here is a couple, John and Jane, we're getting real creative with the names here. 55 and 49 with John Jr., their son, 21 years old. Now they have invested well. They have 8.4 million as their net worth, and whether that is your net worth or not, which I can promise, I don't think anyone watching this video, James, is gonna have the exact net worth of$8,414,085. But if that is you, comment below because I will be shocked. But we do want you to know the same principles we talk about today do apply to you regardless of your net worth. You can hopefully learn. And we want to make sure that you are resonating with the content we put out. So if this does resonate, please comment below.
SPEAKER_00:And all right, just to add to that, by the end of this video, I'm gonna talk to that person that has$100,000 in the retirement portfolio. I'm gonna talk to that person that has$20 million in the retirement portfolio and give you a sense of based upon your net worth and the range that you're in, which of these should you lean towards looking to prioritize first? So yes, not everyone is this situation. Most people are not, but we are gonna talk to everyone as we go through this.
SPEAKER_01:I'm excited to hear your feedback at the end of this video to see how that does change. Now, this person has$1.2 million in their traditional 401k. They have one point uh excuse me,$161,000 in a Roth IRA and$5.6 million in a superhero account. Now, superhero account, brokerage account, taxable account, joint account, individual, they all mean the same thing. This is money that you've put into an account that can grow however you see fit. You can invest it however you want. There's not a limit. You can put$10 trillion in tomorrow if you do have it. And you might be very popular if you are putting$10 trillion in. You might be the first of its kind. Now, this person didn't put$10 trillion, but they invested over the last 30 years and their cost basis, meaning what they actually put in, their original investment totals$1.7 million, and it's grown to$1.6 million. So, James, do you think they might be worried about taxes?
SPEAKER_00:They are, and they will be, and everyone I think watching probably is, because here's the thing is most people think that in their working years, you hear tax strategy. And if you're working a W-2 job, you're probably thinking, ah, that doesn't apply to me. Sure, I have my 401k, sure maybe I have a health savings account that I can contribute to. But tax strategy, that's that's for the other people. That's for people that own businesses, that's for people that own real estate, that's for people that own something that's different than me. There's some truth to that when you're in your working years, but the thing that changes already is as soon as you retire, there's so much tax strategy available to you. So those of you who are starting to tune out because you're thinking, oh, yeah, they're gonna tell me to save money to my 401k or donate money to charity or whatever it is. That's not what we're talking about. We are talking about tax strategy that is very available to everyone who is retired. But most importantly, how do you prioritize which tax strategies to look at? And already, there's three. As we mentioned, let's jump into what those are and what we should start thinking about.
SPEAKER_01:Thank you, James. Let's talk about the biggest one that everyone wants to know about Roth conversions. How much value can that add? And as you can see, we're not gonna have a deep conversation about John and Jane's goals and how much they want to spend. I want you guys to assume we've already done that, but that they want to spend$15,000 a month, take some vacations, they want to make sure they're comfortable. We're not saying all of you should do Roth conversions. In fact, we put out a video that got over 100,000 views that you can see here that is literally titled Stop, Why You Should Not Do a Roth Conversion. But the reason I'm bringing this up is because if you do tax strategy well, it can add a lot of money over time. So, James, we've both had people reach out and they'll say something like the following. And I'm paraphrasing here, but they go, Look, my my nephew, they just think I'm the coolest person ever, because I do Roth conversions, you know, and and I'll say, Look, that's cool, but maybe you shouldn't do anything at all. And they're like, What do you mean? I need to get close to my niece and nephew. It's been a while. This is the first time they think I'm cool. I'm talking about Roth conversions. And we'll say, Listen, we want you to be cool. We want, trust me, we're all about being cool, but we don't want you to do something unnecessarily. And there are situations where Roth conversions do not make any sense. So you're probably wondering, well, when do they make sense? Well, this is a tool that we'll often use with clients, and you can see if we were to do Roth conversions up to the 12% bracket, meaning saying, yes, I'm happy to pay taxes a little bit today to hopefully make more over time, you can see it can add value, certainly. And as you continue to use this slider, it looks like it can add more and more value. But then what happens is all of a sudden it actually looks like there's maybe less. So this whole concept of just do more conversions, do more conversions, yes, Roth conversions can be valuable, but there are times where it literally makes sense to do nothing at all and forget your password.
SPEAKER_00:So there are times are that you absolutely should do Roth conversions. That first example you showed, I think, is a perfect illustration of that. There are times where you should not do a Roth conversion. You're actually going to pay more in taxes by doing it than you would how you just sat on your hands doing nothing, maybe even forgetting your password, as you just mentioned. So, how do you know? Here's how I encourage people to think of it. Start with understanding what's the impact of a Roth conversion. I say start here because this is the one where I would say there's the biggest deviance or the biggest variation of sometimes it costs you, sometimes it makes you a ton of money. So if you don't have the foundation, or if you don't almost have the anchored starting point of what's the benefit of that, it's tough to compare and contrast because we're not asking are each of these things good or bad? All of them can be good, but oftentimes we're not choosing between good and bad. We're choosing between good and better, or better and best. And so you have to start with something. You have to have some foundational starting point to know what's the potential savings from this strategy. So when I compare the others, I have something to look at. So with Roth Conversions, we did exactly that. And with Roth Conversions, what you're projecting out is two things. You're projecting out both what do you expect your taxable income to be, not just this year, but really every year throughout retirement, based upon things like social security, based upon things like dividends, based upon things like interest, based upon things like pensions, whatever income sources you're gonna have in retirement. When you model that out, you're gonna get a sense of what will your taxable income be. And then on top of that, you can layer what are expected tax brackets to be. So it's not enough just to know where tax bracket's gonna be. It's not enough to know what's your taxable income going to be. You need to compare the two so you can start to see where am I projected to be? Am I gonna be in the 12% bracket in the future, the 22% bracket, the 32% bracket? All those have very different implications. Now, this is something that's a lot easier to do with software. The software that you just looked at are if people want access to that, they can get it in the link below in the retirement planning academy and the early retirement academy. That is something that you can use to actually model out where you project it to be. Because when we look at things like health insurance subsidies, for example, that's usually a pretty simple thing to understand. You can say, if I keep my income under certain thresholds, and these thresholds depend on a few different factors, but what it's looking at is if you keep your income under certain thresholds, you receive a certain dollar amount in benefits. So that dollar amount, if you do the analysis, you can start to actually calculate that out. What is that? And these are things that you're looking at in your pre-Medicare years. So once you're on Medicare, this isn't so much of a question. There's other things to consider, like IRMA surcharges, but say you retire at 60. And if you keep your income under a certain threshold, you maybe save$15,000 per year on health insurance premiums, you and a spouse. Well,$15,000 times five, you're at$65,000. So you say, if I'm going to use this tax planning window, if I'm going to use this window that I have of having a low income tax bracket, having a low taxable income, I can fill up that bracket, or I can use that low income tax bracket to qualify for health insurance subsidies. An example, that's$15,000 per year savings. Or I can use it to do a Roth conversion by converting parts of my IRA into my Roth IRA to fill up those lower tax brackets so I don't pay taxes in the future at a higher rate when required distributions kick in. Or I can do something called tax gain harvesting. Tax gain harvesting already means you can sell a certain portion of your long-term gains in a brokerage account. And if you're under a certain threshold of taxable income, there's a 0% capital gains tax bracket. That's wonderful. Can you sell stock under a threshold? You can see here on the screen, if you're married finally and jointly for 2025, if your taxable income is under$96,700, any long-term gains you realize up until that point, you're paying 0% federal tax on. Might be a different story depending on what state you live in. But on the federal level, that's what you're looking at. Now keep in mind, this is after deductions. This is after the standard deduction. If you're 65 and older, there's an extra senior deduction. And then for the next few years, from 2025 to 2028, there's an additional senior deduction. So this means your total income can even be much higher. And after all those deductions, if it's under this threshold, 0% tax bracket. So what you're doing here is you're prioritizing those. All can be good, but again, it's what's good, what's better, what's best. If I'm using the Roth conversion, I've already used this tool or use a scenario planning analysis to say that might save me$400,000, that becomes a benchmark there. Then I look at healthcare subsidies and keep in mind, these are just examples. These numbers will be different for everyone. But if I'm saving$15,000 per year for five years, that's$65,000. But I also want to know if that$65,000 that I saved is$65,000 that stays in my investment portfolio that I no longer have to take out. It's not just$65,000 of savings, it's$65,000 of direct savings plus the growth that would come from that because that money's remaining in my investment account and not being withdrawn to spend. So you might project out what's the long-term value of that if it remains in my account. Let's assume, just to use simple numbers, that$65,000 could turn to$250,000 over the course of your retirement if you're not pulling it out. Finally, same thing with tax gain harvesting. What are you going to do there? How much could you realize in long-term gains? Is there a need to realize long-term gains? You know, or if that portfolio that you showed, I think is about$5 million on the screen there. If that$5 million, for example, was one single stock that was purchased for$10,000 years and years and years ago, and now it's$5 million, I might lean more towards, I want to use this tax planning window to realize gains from that because I need to diversify. There's a strong need to do so. Versus if that$5 million is, oh, this person just inherited$5 million from their parents when they passed, there's zero tax implication for taking all that and doing what you want with it. So you can start to see how much of a need is there to realize these gains, not just for tax planning, but to move that investment into the desired investment that's gonna allow you to meet your needs long term. How do you prioritize these? So back to what I said at the beginning. I mentioned whether you have 100,000 or 20 million in your portfolio, how do you think about this? The less you have in your portfolio, the less you have in pre-tax accounts, typically the less impactful a Roth conversion is gonna be. Usually you're doing Roth conversions because you have a pre-tax 401k, you have a pre-tax IRA. And if you allow that to keep growing, when you turn 73 or 75, depending on how old you are, you're gonna be required to start taking distributions from that. When you are required to start taking distributions, the bigger your pre-tax account, the bigger that required distribution. The bigger the required distribution, the higher the tax bracket you're gonna be in when that time comes. So all right, if you're looking at this and you have a$7 million portfolio, that's not what I'm looking at. I'm looking at how much of that$7 million portfolio is in a pre-tax account. If only$50,000 is in a pre-tax account, I'm leaning towards Ari, don't think about doing Roth conversions. The impact of RMDs in the future is gonna be negligible based upon the size of your IRA. I'm gonna prioritize tax gain harvesting, or I'm probably gonna prioritize qualifying for health insurance subsidies. Even if you don't have$7 million, if your whole portfolio is, say,$100,000 and you have$50,000 in an IRA. To me, the benefit of tax gain harvesting or Roth conversions is relatively minor at that point. I'm probably looking at health insurance subsidies. So you start to get the sense of the greater the portion of your portfolio that's in a brokerage account, specifically one that has lots of unrealized gains, the more I'm going to prioritize tax gain harvesting, all else being equal. These aren't hard and fast rules, but just kind of a benchmark to think about. The more of your portfolio that's made up of pre-tax accounts, the more I'm probably going to be thinking about Roth conversions. And overall, the smaller your portfolio, and again, this is very relative, but the smaller your portfolio as a whole, the more I'm probably going to prioritize looking at health insurance subsidies and qualifying for those because I might not even be in a position where Roth conversions or tax gain harvesting is going to add that much value for me. So, all right, going back to the question, when you can start to rank which of these is going to be most impactful, I start with a Roth conversion because that gives me a very clear picture very early. Is this going to save me money? Is this going to be net neutral event? Or is this actually going to lose me money? That becomes the benchmark. Then I can compare that number to, well, what about tax gain harvesting versus what about health insurance subsidies? And you get a much clearer picture from there.
SPEAKER_01:Not every strategy is for everyone, but it is for someone. So as you can see, it totally depends on your situation. But I'm going to let you in on a little hidden secret here and we're going to finish the case study so you can see what we recommend for this case. Obviously, a sample study here. I'm going to take a wild guess that if you go to your advisor and you ask anything tax related, they're going to say, go talk to your CPA. Then you're going to go to your CPA because they you're doing what your advisor said. You're a good client, and you ask them a few questions, a little investment related. They go, whoa, whoa, whoa, that sounds like you should have an advisor. So here you are in the middle going, well, what the heck do I do? That happened to my parents. That happens to lots of people who reach out to us going, I want someone who's going to do the tax planning. Well, here's the little hidden secret here. Your CPA might be the nicest person in the world. We, both James and I use CPAs. We are big fans, but their job is to save you an amount in taxes so you pay them again next year. Nothing wrong with that. But our job as tax planners is to go beyond that and say, how do we save you the most over the course of your lifetime? And here's an example of that. So, James, do you remember what this number said a little bit ago? It feels like maybe hours now, but hopefully if people are still awake with us here, what did this say before? I believe that number was in the two and a half million dollar range. That's correct. It said about two and a half million more dollars. Now, everyone here is wondering what the heck happened. Now, while James was talking, maybe Ari was playing with numbers. I only did one thing. James, there's only one thing I did, and all I did was double their spending. So here's someone that once again, they have a$7 million, they're$55, they're planning on retiring at$60, and they were on track for$22 million. What can feel like monopoly money, but it's the truth of compound interest. And they wanted to spend$15,000 a month. I doubled it. I said, what if you spend$30,000? They go, well, I don't know what I would need if I had$360,000 a year. I don't even know how I would spend it. I go, well, I'm going to force you to find a way. And they're like, okay. And so now there's$6 million at the end, but it's making those Roth conversions not only less valuable, but actually better to truly forget your password. I know I said it as a joke before, but these are times when Roth conversions don't make sense. So pretend this person, John and Jane, go, Ari, James, I watch the content. I resonate with it. I never thought this would be possible, but 30,000 a month, wow, I'm really excited. If you say I'm in a good spot, that's encouraging. But now I see maybe Roth conversions are less valuable. And the reason, as James brought up earlier, if there's, let's say, 5 million in a 401k and 1 million in a superhero account, well, the numbers would be very different. But this is a case where we might want to prioritize tax gain harvesting. So, James, I know this is something we get a lot. How do we do the tax gain harvesting? I think this is something that we should go into the weeds on a little bit because this comes up a lot. Okay, this tax gain harvesting, maybe realizing gains at, let's say,$120,000 plus dollars tax-free. How do I decide?
SPEAKER_00:Let's use that top stock that you see here, Apple. None of this is recommendation, none of this is advice of buying or selling any specific investments, but use it as an example. Um, all right, let's assume that this client, they they're married, of course. Let's assume that their taxable income is$46,700. I'm using that number because that's exactly$50,000 under the threshold at which they would cross into the 15% tax bracket for federal long-term capital gains. So what that's telling us is that's saying we have$50,000 that we can actually realize in gains and have that be completely tax-free. So even if we were to look at their portfolio here and say, we love the makeup, we don't want to change a thing about that. We still want to do tax gain harvesting. An example of what that could look like is do you sell an amount of apple stock that realizes$50,000 in gains? Want to be clear here, that's not selling$50,000 of Apple stock. It's selling an amount that results in$50,000 of gains. So based upon the cost basis and the value here, what you can see is the cost basis is about 20% of the overall value. So more or less, this individual might end up having or might end up selling, I'm using round numbers here,$60,000 in Apple stock. Let's assume$10,000 of that is what they originally purchased it at.$50,000 is gains. So you've sold$60,000 and you're saying, well, wait a minute, I like Apple stock. I don't want to get out of Apple stock. Fine. Use that$60,000 to repurchase Apple stock. What you have done is you've reset the cost basis for those specific shares that you sold higher. And you did it without realizing any federal income taxes. So what you're doing is down the road, when you do actually sell Apple stock, what you're doing is you're not paying the difference between the price then and the original cost basis, you're paying the difference on the price then and these stepped up cost basis, these cost bases that you're resetting as you tax gain harvest. So that's the concept. Practically speaking, where we like to apply that is when we see a client's portfolio, we want to say, where is it out of balance? Where could we do some work here to fill in some gaps or fill in some shortfalls? And how do we tax gain harvest out of one thing to repurchase into another in many cases to balance out the overall portfolio as much as possible without exceeding that 0% federal gains tax bracket?
SPEAKER_01:If it's unclear by now, we love this stuff. And this is exactly what we help clients with. So if you're interested in working with Root to get a better understanding of tax planning, estate planning, insurance, withdrawal strategies, how to invest properly, our job is to take what you care about most and make it a reality. So we always like to say the sign of a good financial plan is a life well lived. You can go to our website, rootfinancial.com, and see the little button in the upper right that says see if you're a fit. If you click on that, you'll be prompted to answer a few questions and we might be talking very soon.
