Smart Roth Conversions and Retirement Tax Strategies: Planning Ahead for Financial Freedom

When it comes to retirement planning, it’s not just about how much you save—but when and how you use those savings. This week, we tackled questions from a wide range of listeners dealing with unique financial situations. From a high-income author facing huge RMDs to a military couple planning early retirement, here’s what we learned about timing Roth conversions, using brokerage accounts, and making smart, tax-efficient decisions.

Let’s start with John from Boston. At 61 years old, John’s got a very specific problem: a $300,000 annual royalty stream from a textbook, plus $2.8 million in pretax retirement accounts. That combination puts him in the 32% tax bracket, which means he’s facing hefty taxes when required minimum distributions (RMDs) kick in at age 75. So, should he start converting to Roth now?

Not so fast. We recommended that John wait. If those royalties drop off in a few years—which he thinks they might—he could convert future funds in a much lower tax bracket. However, if the royalties are permanent, it may be worth converting some now at a high rate just to reduce future RMD burdens. His situation is complicated by Social Security disability income and his wife’s earnings, so this is where a long-term tax mapping strategy really pays off.

Next up, Flight Deck Dad and Irish Girl from Pensacola. They’ve built a very strong financial foundation, with $1 million in brokerage, $450,000 in Roth IRAs, $800,000 in traditional 403(b), and a rock-solid $96,000 tax-free pension lined up. Their plan? Live off cash reserves from ages 56 to 59 while doing Roth conversions in low-income years.

It’s a textbook strategy done right. By limiting conversions to the 12% bracket and staying diversified across account types, they’ve created maximum flexibility. They’re also considering qualified charitable distributions (QCDs) in the future and have built in buffers for healthcare costs. These two are a great example of how tax planning isn’t just about savings—it’s about timing and structure.

Then there’s Michael and his wife in Bellevue. At 34, they’re crushing it with a $350,000 combined income and maxing out Roth 401(k)s. But they’ve got early retirement dreams—and no brokerage account to bridge the gap between age 55 and when they can tap retirement funds.

Our advice? Keep doing what they’re doing with Roth contributions, especially since they’re only in the 24% tax bracket. But they need to prioritize building that taxable brokerage account. If they plan to retire early, that’s what will keep them afloat until 59.5 or until their 401(k) is accessible via the Rule of 55.

Now, let’s talk about Frenchy from Maine. She’s 54, just bought a condo, and wants to know whether to start aggressively paying off her mortgage. We suggested holding off. Without solid emergency savings or maxed-out retirement contributions, Frenchy needs to build liquidity first. Once rates drop, refinancing could also be a smart move.

Frenchy also inherited some bond funds and wanted to know if they’re tax-efficient. We explained that unless they’re municipal bonds, interest from bond and money market funds is taxable. For someone like Frenchy, who’s looking for security and tax efficiency, a mix of municipal bonds and cash equivalents might be best, depending on her tax bracket.

Oh—and we also loved the personal updates. Frenchy is Franco-American (from Quebec roots, the largest ethnic group in Maine), finishing her MBA, and reminded us that good planning advice should be accessible to everyone—not just the ultra-wealthy.

Key Takeaways:

• Don’t rush Roth conversions if you’re in a high tax bracket—map out your future income first.
• Use cash reserves and low-income years to execute tax-smart conversions.
• Build a taxable brokerage account early if you plan to retire before 59.5.
• Roth IRAs are powerful but best left untouched until later unless absolutely needed.
• Prioritize liquidity and retirement savings before paying down low-interest mortgages.
• Municipal bonds and QCDs are smart tools for reducing tax burdens in retirement.

Retirement planning isn’t just about having enough money—it’s about using it wisely. These stories prove that with the right strategy, you can balance today’s lifestyle with tomorrow’s security.

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.