Roth Conversions, Early Retirement, and Smarter Withdrawal Strategies

Retirement planning is never one-size-fits-all. The right strategy depends on your savings mix, income sources, and timeline. In this session, Joe Anderson and Big Al walked through spitball analyses for two very different couples Ralph and Alice nearing retirement, and Lucas and his wife planning an early exit in their mid-50s. The lessons apply broadly, from Roth conversions to withdrawal strategies to avoiding costly tax traps.

Case 1: Ralph and Alice Optimizing Roth Conversions Before RMDs Hit

Ralph (63) and Alice (58) have built an impressive $4.6 million nest egg. Their portfolio includes $2 million in tax-deferred accounts, $1.5 million taxable, $1 million Roth, and $100,000 in an HSA. With pensions ($41,000 and $42,000 annually), Social Security strategies in place, and annual spending of $60,000–$70,000, they look solid. But the hidden risk is future taxes.

Ralph has been converting $20,000 annually to Roth, but Joe and Big Al suggested increasing conversions up to the top of the 24% tax bracket. Why? Because their tax-deferred accounts will trigger large required minimum distributions (RMDs) later, potentially pushing them into higher brackets and creating headaches if one spouse becomes a single filer.

What about Medicare IRMAA surcharges? If their income exceeds $383,000, Part B premiums could jump by $3,500 annually. But the team emphasized that long-term Roth tax savings outweigh these short-term costs. Running projections now can help avoid six-figure tax surprises down the road.

Case 2: Lucas and His Wife Early Retirement at 55 With Multiple Income Streams

Lucas (35) and his wife (36) earn $375,000 annually and save 17% of their income across 401(k)s, Roths, brokerage, and 529s. With $830,000 in retirement accounts and $420,000 saved for college, they’re well ahead of the curve. Their goal: retire at 55–56 with monthly spending of $10,000–$12,000.

At a 7% growth rate, their savings could reach $6 million in 20 years. At a 3.5% withdrawal rate, that provides $212,000 annually before factoring in pensions and Social Security. The challenge is bridging the gap between age 55 and 59½ without penalties.

The team suggested diversifying withdrawals using brokerage accounts for early years, 401(k) penalty-free withdrawals under the Rule of 55, and Roth conversions to smooth taxes. The key is not to lean too heavily on taxable accounts alone but to balance across buckets for flexibility.

Big Picture Lessons

• Roth conversions matter. Converting more aggressively before RMD age can reduce long-term taxes and create more control over withdrawals.
• IRMAA is real but manageable. Premium surcharges sting, but they’re small compared to decades of higher taxes if conversions are ignored.
• Save at least 20%. Lucas and his wife are at 17%, which is excellent, but hitting 20% will create more cushion for early retirement.
• Withdrawal strategies beat rules of thumb. Mixing 401(k)s, Roths, and brokerage accounts provides both tax efficiency and flexibility.
• Plan for the survivor. Couples should model taxes and income under single filing status to avoid surprises if one spouse passes away.

Retirement planning is about more than hitting a number it’s about knowing how to use the savings you’ve built. Whether you’re five years out or twenty, strategies like Roth conversions and diversified withdrawals can make the difference between a good retirement and a great one.

Intended for educational purposes only. Opinions expressed are not intended as investment advice or to predict future performance. Past performance does not guarantee future results. Neither the information presented, nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. Consult your financial professional before making any investment decisions. Opinions expressed are subject to change without notice.

IMPORTANT DISCLOSURES:

• Investment Advisory and Financial Planning Services are offered through Pure Financial Advisors, LLC. A Registered Investment Advisor.

• Pure Financial Advisors, LLC. does not offer tax or legal advice. Consult with a tax advisor or attorney regarding specific situations.

• Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.

• Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values.

• All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy.

• Intended for educational purposes only and are not intended as individualized advice or a guarantee that you will achieve a desired result. Before implementing any strategies discussed you should consult your tax and financial advisors.