4 Tax Moves That Can Save You 6 Figures - Part 1 of 2

Tyler Gardner (0:00)

Wealth building isn't just about finding the next Tesla, it's about plugging the leaks in your bucket as we've gone over, and sometimes the smartest move is simply not stepping on your own dang rake.

Hello, friends. This is Tyler Gardner, welcoming you to another episode of Your Money Guide on the Side, where it is my job to simplify what seems complex, add nuance to what seems simple, and learn from and alongside some of the brightest minds in money, finance, and investing. So let's get started and get you one step closer to where you need to be. Before we get rolling today, a quick and familiar ask. If you've been enjoying the show, I would be eternally grateful if you left a quick review on Apple Podcasts or shared this episode with a friend who has that, I swear I'll figure out retirement someday, look in their eyes. It's one of the best ways to help us continue to grow this community. Plus, it tells the almighty podcast algorithms that I'm not just another middle-aged man in Flannel muttering about Roth IRAs to my dogs in the Vermont woods. Which, to be fair, I am, but I'd like more people to overhear it if it's actually useful. And thank you so much to the thousand or so of you who have already left reviews. I read every one, even the one that said, Sounds like my brother-in-law, only slightly less depressing. I'll take it. Now, today we're doing something a little different. This is a two-part series on tax strategies in your 50s. Why two parts? A, because if I tried to cram all of this into one episode, your brain would leak out your ears somewhere around provisional income. And B, because the moment I started writing, I realized there was so much material that it began to look less like a podcast outline and more like Tolstoy's War in Peace, the unabridged version, and nobody wants a four to five hour podcast episode about RMDs, not even me. So here's how it's going to work. Part one, today, we'll cover the first four strategies. Roth conversions, withdrawal sequencing, making your taxable accounts more tax efficient, and tax loss harvesting. Part two, next week, we'll get into four more. The Health Savings Account Triple Play, Social Security Timing, plus two bonus strategies, why I'm calling them bonus, I don't know, for the generous and family minded among you. Charitable giving and gifting assets to your kids to take advantage of their lower tax brackets, what the pros call bracket shifting, and what most parents call finally making those basement years pay off. So think of this like a Netflix drop a la Squid Game. I'll arbitrarily chop it right in the middle, leaving you quasi baffled, confused and possibly annoyed. But unlike Squid Game, I'll actually release part two before you've completely forgotten who the characters are, or in this case, why you cared about tax brackets in the first place. You can wait and binge both episodes back to back, or take them one at a time. Each is designed to stand on its own, but together they give you the full toolkit. Today's topic is one many of you have been asking for. How to think about taxes in your 50s. I know, riveting. Just the sort of thing you'd hope someone might whisper to you on a beach vacation. But stick with me, because your 50s are the decade where smart tax moves can make or break the rest of your retirement plan. We tend to obsess far too much over what return we're making on one mutual fund versus another, and far too little over what we actually get to keep. And hear me, now and forever, the tax game matters more than squeezing out an extra half percent return in Fund A versus Fund B. That's not me being clever, that's just arithmetic. You deserve this, my friends, because your fifties are the stage of life where the kids are hopefully off your payroll, or at least not raiding the fridge like raccoons at midnight, and you're finally starting to think about how to stretch those retirement dollars so they last. So across these two episodes, I've pulled together eight of the smartest, most practical tax strategies I'd personally use in my fifties, moves that can literally save you six figures over a lifetime. And today we'll tackle the first four.

Strategy number one, Roth conversions. Now, everyone and their cousin talks about Roth conversions. And everyone and their cousin, in turn, doesn't quite know when to do them, how to do them, or why they'd ever willingly pay taxes early. And as always, there isn't one right answer. There's no one size fits all. I talk to plenty of people each week, for whom a Roth conversion would be about as useful as a solar panel in a Vermont snowstorm. But, and here's where I'll get bossy, if I could staple one idea to the inside of your fridge, right now, it would be this. A, get a new fridge that doesn't allow staples on the inside. B, there exists a magic window of time, usually in your late 50s or early 60s, when converting money from your traditional IRA or 401k into a Roth IRA is one of the best moves you could make. And here's why. Taxes don't behave politely across your lifetime. They spike, they dip, they hop around like an over-caffeinated toddler. During your working years, your paycheck shoves you into peak brackets. Once you retire, but before Social Security or RMDs kick in at age 73, your taxable income often drops dramatically. Then later in retirement, Social Security plus mandatory withdrawals shove you right back up again. So that dip in the middle, that's the tax sweet spot. Ignore it at your peril. It's essentially a fire sale on future taxes. You can take dollars from your traditional IRA, convert them to Roth, pay tax now while you're in a lower bracket, and then let them grow tax-free for the rest of your life. And the Roth has a superpower. No required minimum distributions. You decide when to pull the money, not the IRS. Which, if you've ever had the IRS dictate your cash flow, is about as liberating as ditching dial-up internet for broadband. Time for some numbers. Vanguard research shows well-timed Roth conversions can save a typical retiree $50,000 to $150,000 in lifetime taxes. That's not chump change. That's the difference between taking an annual vacation in Florence, or, more depressingly, spending your golden years flipping through Costco travel brochures, whispering, isn't it pretty to think so, a la Jake Barnes in Hemingway's Sun Also Rises. And for the estate planning types out there. Roth dollars pass tax-free to your heirs, meaning your kids won't curse your name every April 15th. They might curse you anyway, but at least not for the retirement accounts. Of course, there's a catch. Anything you convert counts as taxable income in that year. Convert too much, and you've just shoved yourself into a higher bracket, defeating the entire point. This is why you don't just eyeball it. This is why you don't listen to Uncle Larry, who read on Reddit, you can just convert it all at once and never pay taxes again. You fill up the lower brackets carefully. Example, in 2025, the 22% bracket for married couples filing jointly goes up to about $206,700 of taxable income. If you're below that, you can convert just enough to top out that bracket without spilling into the 24%. That's the sweet spot. And a final wrinkle, Roth conversions can bump your Medicare premiums, those lovely Irma surcharges, and nothing says happy birthday like realizing your tax strategy just made your Part B more expensive. But even then, it's often worth it to dodge monster RMDs later on. So here's your practical playbook. Start by running a tax projection for the first five years after you retire, but before Social Security. Next, target conversions that fill up your 22% or 24% brackets, both low by historical standards. Next, spread them out over several years instead of doing this all in one big chunk. And revisit annually. The IRS is always fiddling with brackets, your income will change, and as we all know, life happens. And if you want to nerd out, yes, Vanguard has a white paper, and the IRS has publication 590B, which I've read, so you don't have to. Imagine Moby Dick, but instead of whales, it's tax codes. I don't recommend it for light reading. Bottom line, if you're in your 50s, start penciling in your tax sweet spot, pay some tax now, let your Roth grow tax free, and thank yourself later. Or if you prefer the Vermont metaphor, which come on, you knew it was coming, stack your firewood in August, not January, do it now, and future you, shivering at 14 below, will thank you, or at least curse you slightly less. Strategy number two, withdrawal sequencing. If strategy one was all about timing, strategy two is about the order that you take the money back out. Think of it as retirement's version of the eat your leftovers before they go bad rule. Because the order in which you draw down your accounts has a massive impact on how long your money lasts and how much the IRS gets to nibble off the top. Here's the fun bit, you're never really taught about this. No high school teacher ever leaned over your desk and said, pssst, taxable first, then IRA, save Roth for last. We got the Pythagorean Theorem, which I've used exactly never, but not withdrawal sequencing, which could literally add years of financial life. Here's the principle I'd suggest you think about, boiled down. Start with your taxable accounts, then move to your traditional pre-tax accounts, and save your Roth for last. Why? Because each bucket has its own tax personality. Starting with taxable accounts or brokerage accounts, these are full of after-tax money. You pay capital gains on growth, dividends will show up as income, but they're very flexible. No 59 and a half clause, and cap gains are often taxed lower than your ordinary income. They're like that first carton of milk in the fridge. It's already open, already paid for, and expires sooner than you'd like. Next, I'd move to pre-tax accounts, 401Ks, traditional IRAs, 403Bs. These are the IRS's favorite piggy bank. Every dollar that comes out is taxed as ordinary income. And if you wait too long, required minimum distributions, RMDs, will force withdrawals whether you need them or not. Finally, Roth accounts. These are the unicorns. They grow tax-free, come out tax-free, and have no RMDs in your lifetime. They're like a lasagna that you stashed in the freezer, perfectly preserved, compounding its deliciousness year after year after year. So let's make this stick by continuing that kitchen metaphor. Your first fridge, taxable accounts, is like the sushi leftovers. Delicious, but if you don't eat them immediately, you're playing bacterial roulette. Fun fact, it's not the fish that will get you, it's the rice. Nothing like death by vinegar.