Two financial planners share tax-smart strategies for before and during retirement.
Our guests on the podcast today are Cody Garrett and Sean Mullaney. They’re both advice-only financial planners, and they’re the co-authors of a new book called Tax Planning To and Through Early Retirement. Cody is a certified financial planner and the founder of Measure Twice Money, where he helped DIY investors make informed decisions aligned with their values. He also leads Measure Twice Planners, which is an educational community for financial planners. Sean Mullaney is a certified public accountant and head of Mullaney Financial & Tax. He also writes the blog, FITaxGuy.com, which is focused on the intersection between financial independence and taxes.
Tax Planning To and Through Early Retirement, by Cody Garrett and Sean Mullaney
“The Backdoor Roth IRA After an Excess Contribution to a Roth IRA,” Sean Mullaney, FITaxGuy.com, Dec 16, 2025
“Why I Don’t Worry Much About Sequence of Returns Risk,” Sean Mullaney, FITaxGuy.com, Jun 10, 2025
“The Tax Planning World Has Changed,” by Sean Mullaney, FITaxGuy.com, Sep. 22, 2025
“Bogleheads on Investing® with Cody Garrett, CFP®, and Sean Mullaney, CPA on tax planning to and through retirement: Episode 89″ by Bogleheads on Investing® podcast, BogleCenter.net, Dec. 7, 2025
“Managing Taxes in Retirement with Sean Mullaney,” by the White Coat Investor Podcast, WhiteCoatInvestor.com, Nov 20, 2025.
Die With Zero: Getting All You Can from Your Money and Your Life―A Revolutionary Approach to Maximizing Life Experiences Over Accumulating Wealth, by Bill Perkins
“Reframing Risk In Retirement As “Over- And Under-Spending” To Better Communicate Decisions To Clients, And Finding “Best Guess” Spending Level,” by Michael Kitces, Kitces.com, Apr. 24 2024.
“My Baptism by FIRE: Lessons on Financial Independence,” by Christine Benz, Morningstar.com, May 29, 2025.
“Aiming to ‘Die with Zero’? Here Are the Implications for Portfolio Construction and Retirement Spending,” by Jess Bebel, Morningstar.com, Apri. 6, 2025
"Derek Tharp: An Alternative Approach to Calculating In-Retirement Withdrawals," The Long View podcast, Morningstar.com, Feb. 21, 2023
(Please stay tuned for important disclosure information at the conclusion of this episode.)
Christine Benz: Hi, and welcome to The Long View. I’m Christine Benz, director of personal finance and retirement planning for Morningstar.
Amy Arnott: And I’m Amy Arnott, portfolio strategist for Morningstar.
Benz: Our guests on the podcast today are Cody Garrett and Sean Mullaney. They’re both advice-only financial planners, and they’re the co-authors of a new book called Tax Planning To and Through Early Retirement. Cody is a certified financial planner and the founder of Measure Twice Money, where he helps DIY investors make informed decisions aligned with their values. He also leads Measure Twice Money, which is an educational community for financial planners. Sean Mullaney is a certified public accountant and head of Mullaney Financial & Tax. He also writes the blog, FITaxGuy.com, which is focused on the intersection between financial independence and taxes.
Cody and Sean, welcome to The Long View.
Garrett: Thanks for having us.
Mullaney: Thank you. So glad to be invited back.
Benz: Well, we’re excited to have you here and to talk about your book, which is called Tax Planning To and Through Early Retirement. So, the book is focused on tax planning and early retirement. And I’m wondering if you can talk about how you define that. There are people who retire very young, like in their 40s, but there are also people who retire a little bit young, like in their early 60s. So, who are you pitching the book toward?
Garrett: Yeah, that’s right, Christine. Early retirement, for the sake of this book, we have to decide what are we defining as early retirement. We define that as any time before Medicare eligibility, which is typically the month of your 65th birthday. So, we actually found a study out there that was kind of surprising that around 70% of Americans report retiring before then, both voluntarily and involuntarily. So, I would say, with that said, the book also does cover strategies and tactics through all phases of retirement through the end of life. But we’ll just say, for this purpose today, that early retirement is pre-65.
Arnott: Yeah, I think if I remember correctly, I think the average retirement age is around 62. So even people who aren’t necessarily planning to retire early might end up doing so either because of a layoff or a health issue or family obligations, things like that. So, we often hear--kind of the caricature of an early retiree is that he or she is a high-earning, heavy-saving person, extremely frugal. Do most of the early retirees that you’ve worked with fit that profile?
Mullaney: I would say most of the early retirees I work with are generally high-earning and generally are high-saving and investing. Now they have been helped by equity markets over the past decade-and-a-half, which have been very good in terms of returns. The one thing I don’t typically see is extreme frugality, really, to any degree. Now to be fair, most of the folks I work with have some identification with the financial independence movement. Now it might just be, “Oh, from time to time I listen to one of those podcasts.” It might be as simple as that. So, I don’t see extreme spending in terms of the folks I generally work with, but I also certainly do not see extreme frugality.
Benz: Sean, that was you speaking there. I wanted to follow up on that. And we do want to discuss tax planning, first and foremost, which is the focus of your book. But I wanted to ask about withdrawal rates for these younger retirees. Can you talk about how you counsel people as they’re thinking about how much they can reasonably spend from their portfolios? I sometimes hear in the FIRE community sort of this adherence to 4%, 4%. But how do you encourage people to approach it?
Garrett: Yeah, so this is Cody here. I would say that I think the 4% rule has become kind of a rule of thumb in a good way. I think that 25 times annual expenses is often mentioned in the DIY, the financial independence community. I would say that I encourage anyone who is around that like 15 to 20 times invested that they might consider also those variable income sources. So, I often find that the 4% rule is seen as a rule rather than a rule of thumb. And that means that a lot of DIY investors, specifically, they’re just kind of assuming Social Security isn’t there or, if it is there, it’s kind of the gravy on the mashed potatoes, not the main entree.
So, I mean, I do think that just ignoring Social Security altogether is a big mistake on the path to and through retirement. I’ll also say, going beyond the 4% rule, the FI community is also starting to consider risk-based guardrails. So, there’s a lot of talk--Derek Tharp, Income Lab; also, Aubrey Williams from the FI community--he is actually teaching a lot of the DIY communities about this idea that life isn’t linear and everybody adjusts along the way. So, FIRECalc, ProjectionLab, some of these other softwares, again, assuming you have a fundamental education and you know which assumptions are going into these software, you can at least go beyond the 4% rule, also including these variable sources of income along the way, such as pension, Social Security, etc.
Arnott: Related to that, Cody, you cautioned financial advisors against using Monte Carlo simulations with very high success rates. And you note in the book that if you kind of plug in a success rate of 90% or 100%, you might end up dramatically underspending. Can you expand on that?
Garrett: Yeah, I think a common misconception here is that there’s no “probability of success” that can go higher than 100%. So, if somebody’s using a financial planning software, those long-term projection softwares, Monte Carlo analysis, it might say, “Hey, spending $100,000 a year, it says I have 100% probability of success. So, I feel comfortable now spending $100,000 a year.” But they don’t realize if they bump that up to $130,000 a year, it might still say 100% probability of success.
So, first understanding, maybe, in those softwares, maybe saying, “Hey, like what would bring it down to at least 99%, 90%, 80%, etc.” to find out what is that top threshold, but also realizing that another way to kind of verbalize or define this, as Michael Kitces often says, that it’s not just the probability of success, but it’s the probability of not making adjustments along the way. But even more so, especially as we’re seeing books like Die with Zero come out and this attitude of: There are only four parties that are going to spend your money, right? It’s going to be you, your family and friends, your charitable organizations, or the government. That this 100% probability of success also means a 100% probability of underspending and undergiving while you’re alive, when you can really invest in those experiences and memories while you can really enjoy it with the people that you’re spending time with.
Benz: Sean, do you have anything to add on the withdrawal rate front before we move over to taxes?
Mullaney: Nothing in particular. It’s a question that is important. It doesn’t fascinate me anywhere near as much as taxes because, generally speaking, we adjust. And so most folks, for as much as we obsess over this question, most folks are going to be successful in retirement. If you could save enough to get to retirement financially successfully, the odds are that your withdrawal rate will accommodate a financially successful retirement. And if markets go down, the odds are you’re going to make appropriate adjustments.
Arnott: You mentioned taxes being fascinating, and the whole issue of tax issues during retirement is a very complicated topic with a lot to talk about. Why did you decide to focus largely on the early retiree cohort?
Mullaney: Amy, there’s three main reasons. First, there’s so many folks that this applies to, especially as we see our older Gen X cohorts getting into their 50s and 60s. This is a very germane, very relevant topic in the personal finance base that, frankly, has not gotten enough attention, tax planning when we combine it with drawdowns.
Second, there’s so much withdrawal confusion out there. Folks have no idea. They build up. They know, all right, I’m supposed to contribute to my 401(k) and it’s good to have financial accounts. Index investing has grown very popular over the last three decades. That’s all great. But folks have no idea. There’s been no planning during our careers. There’s been no training during our careers for how do I sequentially take this money out in a tax-efficient, tax-optimized way. And it’s a hard thing to do even on a podcast, much less on Instagram reel or a TikTok or anything like that. So having a book with 300-plus pages that we could spend a lot of time on drawdown was very useful.
And then the third one is there’s so much good planning out there. And this really applies--it can apply in your 50s, your 60s, your 70s. There’s so many different tactics and strategies that don’t require radical changes to lived experience or financial outcomes. Cody and I tend to advocate for simplicity. And that’s even true in the tax planning. Now, yes, some of the calculations can get a little wonky, but rare is it that Cody or I would advocate for something that radically changes one’s financial posture to achieve tax-planning objectives. So, this applies to so many people, there’s so much withdrawal confusion, and there’s so much great planning on the plate. That’s why tax planning for early retirees was such an appealing topic.
Garrett: And I’ll add to that. In terms of the CFP education I went through a few years ago, it was really, really focused on that kind of traditional retiree retiring--they just happen to be retiring right when Social Security started, at full retirement age, they’re on Medicare, etc. But I think there’s two things that have changed dramatically, not just for the traditional retiree, but the future early retiree, is that pensions have largely gone away or been reduced. That shift from those defined-benefit pension plans to now the defined-contribution plans, 401(k)s, 403(b)s, TSP, etc. And with that comes more responsibility for Americans to fund their own retirement, but also it gives us some fantastic flexibility and tactics for how we control those drawdown strategies and tactics, and how we really reduce our taxable income along the way, so that--I think the pensions are great in terms of providing that guaranteed income over time--but those naturally fill up those standard deductions, lower brackets. So, we’re kind of teaching a new cohort that’s going to retire with maybe just Social Security and their own savings and investments. So, we’re trying to teach that cohort how they can still gain clarity and confidence without that pension.
Benz: Yeah, we want to switch over to discuss some of the specific strategies, but first I wanted to quote something that you write in the book, which is that: It’s time to move away from fear-based narratives about retirement taxes and toward quantitative analysis. So, what are some of the fear-based narratives that you hear in the realm of taxes and retirement?
Garrett: I think there’s a lot of fear-based language, like words that pop out like “bombs,” “traps,” “torpedoes,” “penalties,” alongside a sense of urgency, like “act now before it’s too late.” I know that I was talking with Sean the other day. Anytime there’s somebody selling a service or a product to help you on the path to and through early retirement, there’s often this idea, this concept of trying to convince you that by the things you’ve done in your past financially, you’ve kind of dropped into this well and you’re stuck at the bottom of a well and this professional who’s selling their services and products has a rope that they threw over and they’re like, “I’m the only one who can help you.”
So, I think what bleeds leads in marketing, and I think these words like the “bombs,” “traps,” “torpedoes,” again, they spark fear and excitement about making change. I think that comes with the consequence of preretirees and retirees thinking that retirement is binary. It’s like a now or never. Like, “Do I either have Roth or never have Roth?” versus the idea of having Roth now, later, or never. So, I think a lot of this marketing has kind of made preretirees and retirees assume that every decision needs to happen now or never, and it’s like “act now before it’s too late.”
And I’ll add to that, the commentary also often leads into a political bias and a lot of times even maybe an unspoken bias, this idea that as soon as the other political party comes back into the White House, you’re going to get crushed with taxes. And in the book, we actually describe how both major parties have actually, they’ve actually made taxes even more favorable specifically for retirees over the past 10 years.
Arnott: Sean, in reading through the book, one of the key messages is that taxes in retirement are kind of a series of interlocking parts and that one decision affects another. So, in light of that, do you think that stand-alone tools like a Roth IRA calculator, for example, are those fundamentally flawed?
Mullaney: All right. So, I think tools can be valid. Now, I will say they’re not my cup of tea because they boil down to someone else’s judgment about the future reduced to computer software. Who is that person? How do I assess their assessment and judgment? So, to my mind, it’s not all that appealing to use those tools, but it is perfectly valid, and just because it’s not my cup of tea doesn’t mean it can’t work for DIY retirees or other financial planners. That’s all well and good.
But I agree with you, Amy, that sometimes I see people asking online, “Oh, should I do this Roth conversion? I’m 67 years old, I’m collecting my Social Security. Should I do a Roth conversion this year?” And I step back and say, “Why are you collecting your Social Security?” And this person will say, “Well, I have a million dollars in brokerage accounts.” And I say, “Wait a minute, what are we doing here? You don’t need that Social Security right now. You have a million dollars in brokerage accounts.” Now, of course, unless they’ve taken it, I believe it’s in the last six months, they have that one do-over on Social Security claiming, I’d have to look into the details about. But yes, I think it’s time to stop thinking about, Should I do a Roth conversion? It’s time to think about, Strategically, how should I be arranging my drawdown? And then we can start to marry in additive tactics such as Roth conversions, which could be very low-taxed, maybe zero tax. In fact, it’s certainly a possibility in one’s mid to late 60s.
So, look, I’m not a huge fan of calculators that say, “Well, you’ve got to convert up to the 24% bracket.” Because how do I assess that judgment? And what do we think about the future of taxation? And I think we have to come to our own independent judgments. And forgetting that, we should be thinking about a strategic drawdown strategy before we even get into the Roth conversion conversation.
Benz: Cody, you mentioned that both political parties have made changes to make things look a little better for retirees from a tax standpoint over the past decade. At the Bogleheads Conference in October, Ed Slott projected a slide showing that tax rates today are quite low, relative to history, and suggesting that they’re likely to go higher. Can you talk about what kinds of assumptions people should make about the future direction of tax rates? And also, perhaps you two could weigh in on the types of assumptions that you make in your practices when you’re thinking about taxes in the future?
Garrett: Sure. I think that actually the question, or the assumption, about the tax rates going up in the future is actually kind of the wrong assumption to make. So rather than asking, Will tax rates increase in the future? really, I should be asking, Will my sources of taxable income increase in the future?
So, we even have some examples in the book that even if the marginal tax rate brackets were to double or increase by 50%, etc., that it’s really based on, not the tax rates, but when will my taxable income be higher? So, I really make assumptions in terms of tax rates based on what’s currently known and within our control. And I will say, going back to this last year before the One Big Beautiful Bill, a lot of people were assuming that those pre-Tax Cuts and Jobs Act adjusted for inflation are coming back. And there’s this push of like, “Oh my gosh, I have to convert to Roth.”
And at that point, I would say that I did assume that they were going up because that’s what was set to happen. So, I wasn’t making assumptions about the Tax Cuts and Jobs Act or OBBB coming into play until it did. So, I would say from a mindfulness practice and perspective, I encourage clients to say, “Hey, what’s currently known, and what’s within our control?” And then I think, Sean, I love his--a lot of his political study in this, he created this chart in the book called the Litany of Recent Tax Cuts for Retirees. And it was really fascinating to me to learn how much taxes specifically--by the way, tax rates might go up, but will they go up for retirees, specifically?
Mullaney: Yeah, Cody, a few thoughts, right? So, some commentators say, “Well, look at the 1950s. The marginal tax rate at the extreme was 90%. We’re in these historically low tax brackets in the year 2025. And I step back from then, I say, ”Well, I can cherry-pick that all day. I can go to the year 1916 and say the highest marginal tax bracket was 15%. So, aren’t we in historically high tax brackets?" I think that analysis falls apart just because we can cherry-pick all day. By the way, war tends to increase tax rates, and antiwar, from what I’m seeing, is a pretty popular position right now.
But let’s step back for a second. Let’s look at what’s most relevant here, which is the recent behavior of the politicians. From 2015 to now when we record in late 2025, we see time after time, both parties tax cut after tax cut after tax cut for retirees. And during that time period, one, we’ve had ridiculous national debts and deficits. And two, we’ve had commentators saying that taxes are going up on retirees. The only problem with those predictions is the future keeps happening, and the future keeps happening small or large tax cuts for retirees. So, at some point, we have to step back and question this assumption that, oh, of course taxes are going up on retirees in the future. And we also have to think about the political incentives of those who make the laws, Congress and the President.
In the process of writing the book, we came across an interesting stat from the 2024 election. This statistic claimed that 58% of the electorate in the year 2024 was age 50 or older. So, you have almost three-fifths of the electorate either retired or with their eye firmly on retirement. That does not exactly scream out taxes are going up on retirees. And look, I don’t trust politicians all that much, but I do trust politicians to not turn on a dime against their own interests. And those claiming that taxes are going to go way up for retirees are essentially making a claim that today’s and tomorrow’s politicians are going to turn on a dime against the politicians’ own interests. And I struggle to get there.
And my thinking is that in the relevant future, for the future of those in the audience who are in their 40s, 50s, 60s, and 70s thinking about their tax rates in retirement, the odds are those tax rates are going to look something like they look today. I think there’s some chance maybe on the margins there might be some very small tax increases. There’s also a chance that on the margins there’ll be very small tax decreases. Think about folks in the year 2024, just a year ago, if you’d said, “Hey, do you guys think taxes are going to go up or down in the future for retirees?” Almost all of those people would have said, “Of course, they’re going up.” Well, guess what happened? July of 2025 happened. We got the new senior deduction, the extension of the standard deduction being higher, the extension of the lower brackets. Taxes have gone down this year on retirees, even though a year ago, most folks would have said they were going to go up on retirees.
Arnott: Even though it sounds like there are pretty powerful reasons why politicians may want to keep taxes relatively low or reduce them for retirees, do you think that the deficit could kind of force Congress’ hand at some point and maybe counteract some of those forces so that they would have to increase taxes even on older adults?
Mullaney: Amy, the first question I’d ask in response to that is, Why hasn’t the $30-plus trillion deficit or debt required increases in taxes on retirees thus far? In this table that we have of the Llitany of Tax Cuts for Retirees over the past decade, at the far right column, we include the prior year Sept. 30th federal debt, and it goes up and up and up, and yet still the politicians keep cutting taxes for retirees.
Second, the politicians can print money. There’s so many tools in the toolbox. By the way, this year wasn’t a year of only tax cuts. If you’re an importer, you know that some Americans are paying higher taxes this year. Think about tariffs for a second. Think about tariffs. We had a big tax increase in the year 2025, and think about the political environment that caused that to happen. Tariffs appealed to a key constituency in swing states. Think former auto workers in the state of Michigan. Think current auto workers in the state of Michigan. You had a key political constituency behind a tax increase, and so it happened.
Now, where’s the key political constituency that’s going to be for tax hikes on retirees? I’m not seeing it. I’m not here to say that--everything we say in the book, on this podcast is using logic and reason as best we can to provide a best explanation for what the future is likely to contain. Is that 100% guaranteed? Of course not, but that doesn’t mean we can’t use logic and reason to approach this considering the incentives of the policymakers, the people who are going to make this decision. I’m not getting to a place where I can comfortably say, “Yeah, there’s going to be these massive tax hikes on retirees in the future.” And in the year 2025, we happen to have a very favorable environment for taxes on retirees. Is that 100% guaranteed to continue? No, but I do think a relatively friendly tax environment for retirees is likely in the relevant future of most of those listening to this podcast in 2026.
Benz: We wanted to delve into some of those specific strategies that people can do to try to reduce their tax bills in retirement, starting with the pre-retirement phase, while you’re still working and saving. All of us workers have kind of a fork in the road where we could contribute to our traditional tax-deferred accounts, Roth accounts, or use nonretirement accounts like a taxable brokerage account. Can you talk about some key principles that we should bear in mind when we’re trying to decide which of those accounts to fund?
Garrett: Yeah, I think, first of all, we need to understand that traditional retirement account contributions, those are excluded or deducted from gross income, the taxable income at your highest marginal income tax rate in that year from the top down. I think this is one of the biggest concepts that we really had to come to is that when you’re contributing to these traditional retirement accounts, when you’re contributing, those contributions are excluded or deducted from your highest marginal tax rate from the top down, but then in retirement, when either distributing or converting those dollars, those are added to taxable income from the bottom up.
So, I think one of the questions we have to ask ourselves with first the traditional or Roth workplace retirement plan contribution decision is we need to ask when I distribute funds from this account in the future, which other income sources might fill up the standard deduction and those lowest ordinary income tax rates, the 10%, the 12%, etc.
I have a quick example here. So, in 2026, a single taxpayer reaches the 22% marginal tax bracket once their ordinary income exceeds about $52,000. So, let’s say somebody earns $75,000, they contribute $20,000 to a traditional 401(k). So, they’re saving 22%, so saving about $4,400 on that contribution. Then in retirement, that same person, if there are no other income sources at that point, if they distributed, they would have to distribute over $240,000 from that same account, which is 3 times what they earned while working to have an effective average tax rate of 22%. So, I think this idea that a lot of people think, “Hey, I’m paying 22% on my last dollar,” they start to think that they’re paying taxes at 22% on all their income. I think really stepping back and thinking about the progressive tax system helps us understand the first decision on, Do I contribute to traditional or Roth workplace retirement accounts?
I think now moving to the Roth IRA or the traditional IRA, I think that’s kind of the secondary thing. Most high-earners, they’re not forgoing a tax deduction by contributing to a Roth IRA, but they would be forgoing that if contributing to a Roth 401(k), 403(b), et cetera. And then lastly, I think the taxable brokerage accounts, I love these accounts by the way, but I say, be careful about forgoing taxes to build up taxable accounts, those checking, savings, taxable brokerage. Those are my favorite accounts for those short-term savings objectives while you’re working. So, if you’re saving up for that home down payment, paying for a new car, maybe building up an emergency fund, that’s where I prioritize flexibility and short-term savings objectives over the tax optimization.
But most listeners to this podcast are most likely going to be able to contribute a little bit to each thing. So, I would start by saying traditional Roth workplace retirement accounts at work, then maybe doing a Roth IRA at home, maybe using the backdoor Roth IRA, and then moving to the taxable brokerage accounts for either extra savings or if you’re trying to build up savings for specific short-term objectives.
Arnott: One of the recurrent themes in the book is that always prioritizing Roth contributions isn’t necessarily the right call, and you might be better off funneling your savings into a traditional tax-deferred account. Do you think that people just don’t fully understand the way that marginal tax rates work? I see a lot of examples online where people go through the math of, “Well, either you’re going to pay taxes upfront or you’re going to pay when you withdraw and it ends up being the same.” But do people not fully understand that you’re getting the tax break on the highest tax bracket, but when you’re making withdrawals, you have to fill up the brackets before you’re reaching that higher tax bracket?
Mullaney: Amy, I think there’s a lot of wisdom in what you’re saying. So, Cody and I stand for the radical proposition that you should pay tax when you pay less tax. And for most Americans, you’re going to pay less tax in retirement. And I think two things are sort of misunderstood here. One is, when you put that money in a traditional 401(k), every dollar benefits at your highest marginal rate. So, let’s say you’re in the 24% tax bracket, every dollar is getting $0.24 on the dollar benefit that goes into that traditional 401(k). And some people say, “Well, that’s a terrible deduction because you’ve got to pay it right back in retirement.”
Well, I say two things. One, most deductions, you don’t get to pay to yourself. This is one of the few deductions you get to pay to yourself, not to the bank or to a charity. So that’s a pretty cool thing. But then second, the taxation of retirees tends to be light. And it goes back to what you were saying, Amy, you go back through the brackets. And this is a particularly powerful planning opportunity for those who find themselves early retired, where maybe the only thing they’re living on is traditional IRA or 401(k) distributions. OK, well, it’s first taxed against the standard deduction, then the 10% bracket, 12% bracket, 22% bracket, and you’re spending at that point in life forms a natural break on your taxable income in a way it didn’t during your working years.
So, it tends to be that taxation in retirement is relatively light. And if taxation in retirement is not light, meaning you are paying higher rates than you may have even been on the margins during your working career, well, that comes with a coincident event. And that coincident event is incredibly high financial success. So, for all the worrying about these tax traps and the widow’s tax trap and, oh, no, you might have some inefficiencies in retirement, those inefficiencies come with incredible financial success.
Now, I’m not here to say we shouldn’t do any planning to avoid those inefficiencies. Far from it. But I am here to say, Well, wait a minute, have we lost the forest for the trees? I thought the point of retirement accounts, tax-advantaged or otherwise, was to get me and my spouse to and through retirement with financial success. Well, if a traditional IRA or traditional 401(k) does that, and it’s so successful, it creates some marginal inefficiencies in the later part of our retirement, I think it did a pretty good job. That’s like giving up a garbage time touchdown in the Super Bowl that you won. So that’s my approach on that.
Benz: Cody, I want to follow up on something you said, which is the role of taxable accounts. You said that you really like them for a lot of retirement savers. And as I was reading through the book, it struck me that they’re especially useful if someone plans to retire a bit early. Can you talk about why that is, why they give you a lot of flexibility at that lifestage in particular?
Garrett: Yeah. So, one of the core principles of retirement is to try to keep income low. So how can you maintain your desired lifestyle in retirement with the least amount of tax consequence? And usually that means by starting by spending your checking, your savings, and your taxable brokerage accounts. And by the way, taxable brokerage also means maybe selling some securities with what’s called basis recovery. So, if I buy an index fund for $50,000, and it grows to $75,000, I’m not taxed on the $75,000 when I sell it. I’m only taxed on the gain, that realized capital gain of $25,000.
So, there are two things. One is that you can maintain your desired lifestyle with very little tax consequences, maybe even zero, captured by both the standard deduction, and also those long-term capital gains received that favorable tax treatment of 0% up to a pretty high level of taxable income. So most early retirees, retirees, if you’re able to live off taxable brokerage accounts first, your checking, savings, taxable accounts, then you’re able to maintain your desired lifestyle. And then the tax-planning world is your oyster. You kind of say, “OK, well, now that I have my life taken care of, wow, I have all this extra standard deduction, maybe I have some opportunities within the 10%, 12% bracket. If I’m early retirement, before 65, maybe I have some opportunities to make sure my income is above 100% or 138% of the federal poverty level for trying to increase my eligibility for premium tax credits. A lot of early retirees are going to have coverage through the health insurance marketplace, the ACA.
So again, if I can go into retirement and just get enough money to spend, I could say, “Hey, what other opportunities do I have to fill up my brackets strategically along the way, tactically?” And that’s where doing things like Roth conversions, tax-gain harvesting, which is trying to take advantage of even more of that 0% long-term capital gains tax rate, comes in. And I know we might touch on things like asset location. There are some really nice tactics that, you plug them all together and you have so much control and command over your tax profile in retirement.
Arnott: You mentioned the backdoor Roth IRA a few minutes ago, and you also discussed the mega backdoor Roth IRA in the book. Can you discuss what that is and who it might be appropriate for?
Garrett: Sure. The employer-sponsored retirement plan, so those 401(k)s, 403(b)s, they may offer what’s called aftertax contributions. So, these should not be confused with the Roth contributions. These are separate from those elective deferral limits for the traditional pretax or Roth contributions. So, some plans, especially those working in tech, maybe oil and gas, this is typically for workers who are--they have enough money to keep contributing on top of maybe the $24,500 under age 50 in 2026. So, there’s a thing called the all additions limit, which in 2026 is $72,000. So, once you’ve maybe maxed out your traditional Roth contributions, maybe you have employer-matching contribution, you might have some extra space in there. If your plan allows for those aftertax contributions, maybe with the employee and the employer contributions, maybe going up to $72,000 under age 50. So, the qualified plans--you will have to check what’s called the summary plan description, the SPD--that will let you know if they allow those aftertax contributions. And if they do, they often also allow those contributions to be converted directly to Roth, either within the plan, what’s called an in-plan Roth conversion, or to a Roth IRA outside of the plan called an in-service distribution. So again, if you were to ask somebody, hey, maybe you have $7,000 or $8,000, you can contribute to a Roth IRA. But what if you had the opportunity to add maybe $20,000, $30,000, $40,000 to a Roth 401(k)--ultimately, that money will end up in a Roth IRA in retirement.
So, it’s an amazing opportunity. Again, this is only for those workers who are able to really beef up their savings rate, maybe they have higher earning years. And one thing with this mega backdoor Roth--they call it mega backdoor because it’s more contributions than a Roth IRA--the mega backdoor through the 401(k) or 403(b), you’re not forgoing a tax deferral. So, you’ve already maybe maxed out the traditional 401(k), and then you lean into this mega-backdoor Roth 401(k) or conversion to the Roth IRA without forgoing a tax benefit.
Benz: I wanted to follow up on the topic of asset location. And I’m wondering if, Sean, you can talk about what that is and then also impart some key principles. If I’m thinking about which investments to put where, what should I bear in mind?
Mullaney: Christine, asset location is this idea that we first come up with our desired global asset allocation. So, we pick our investments based on the investments themselves and our needs, wants, tolerances, etc. And we don’t worry about Roth IRA or traditional 401(k) or taxable brokerage or any of that stuff at first. So first, we pick out our asset allocation. Great.
Then we say, well, wait a minute, I have some Roth accounts, I have some traditional retirement accounts, and I have some taxable accounts. And say that asset allocation has some domestic bonds and some equities, just for sake of argument, not investment advice for you or anyone in the audience. OK, great.
Well, where should we hold, say, those bonds? Well, bonds are interesting because they have sort of two attributes we want to think about. One is they spill off ordinary inefficient taxable income. Bond yields might be, let’s just call it, 4% today. So that 4%, if it’s in a taxable account, that hits your tax return every year. And oh, by the way, it’s ordinary income, it’s not qualified dividend income. So, it’s the worst type of income to show on your tax return. So that’s one thing to think about bonds.
Second thing to think about bonds is expected return. Generally speaking, bonds have a lower expected return than equities, generally speaking. So those two factors point to putting our bonds in our traditional IRA, traditional 401(k), 403(b), 457, those traditional retirement accounts. Why?
One, we’ve just hidden out that inefficient interest income from our tax return, little benefit there, and that’s an annual compounding benefit. So that’s good news. And then two is by putting our bonds only in our traditional retirement accounts, we have artificially created a way to tamp down on the growth of those retirement accounts from an expected return perspective. And think about required minimum distributions for a second. How are they computed? They are computed by taking the prior year’s ending balance divided by a factor off the IRS table. Well, if we can keep that balance lower by throwing bonds as opposed to some equities in part of those traditional retirement accounts, we can keep those future RMDs a little lower as well. And then just compare that to, say, holding equities in a taxable account.
If you look up the equity yield right now on something like VTSAX, as we record this in late 2025, you’re going to find that dividend yield annually, something like 1.1%, 1.2%. So that’s a fancy way of saying, if you had a million dollars in VTSAX in a taxable brokerage account, it would pay a dividend to you not of 40% or $40,000, it would pay a dividend to you of like $12,000 give or take. And oh, by the way, 90%-plus of that $12,000 is qualified dividend income, qualifying for the potential 0% long-term cap gain rate or 15%. And by keeping all that ordinary income off our tax return, we’ve just opened up the tax-planning window for potentially doing very efficient Roth conversions. For some, it might be tax-gain harvesting. Either way, by using this asset location principle, and the big one is have our bonds in our 401(k)s and IRAs, traditional 401(k)s, IRAs, we keep our tax return more flexible, more clean, and open the door to potentially more advantageous tax planning, particularly in retirement.
Arnott: You mentioned that taxable accounts should usually go first in the spending queue, but you also make the point in the book that drawing down from your taxable assets first can help with sequence of returns risk. Can you unpack that a bit for us?
Garrett: Sure. So, first of all, keeping taxes low is kind of one of the priorities here in retirement. And we have to really step back and say taxes are simply an expense. So, I think just on the basics of sequence of return risk and how living off taxable accounts first, keeping your income tax low, is that since taxes are an expense, increasing taxes in the early part of retirement, especially, increases that sequence of returns risk. So, I think Sean also mentions there’s some creditor protection and things that come with retirement accounts that you don’t have with taxable assets. Also thinking about umbrella insurance, things like that.
But I think the sequence of returns risk may be a little overblown, but I’ve actually seen some people say that doing Roth conversions or it doesn’t really matter, it doesn’t affect sequence of returns, but simply think, “Hey, when are your expenses going to be higher?” So, if you’re worried about high expenses in the early part of retirement with sequence of returns risk, why would you be adding even more taxable income that’s taxed potentially at ordinary rates? So that’s a combination of saying, “Hey, take money out of taxable accounts before those traditional retirement accounts and also using that idea of asset location, you’re going to be reducing the ordinary interest income coming off of those bonds. And by the way, by keeping--let’s say you are going to have 100% stock in your taxable assets. Let’s say the market goes down. So even though the market is going down, you’re selling stock, you can jump over potentially to those pretax accounts, sell bonds and buy stock simultaneously. Again, your asset location can change, but your asset allocation that you desire stays the same.
But when you sell a stock, even in a down market, even though you’re selling stock down, I mean, you’re buying it low in the other account, simultaneously, you might be able to take advantage of what happens when the stock market goes down and you sell stock. If it’s in a taxable account, then you receive the opportunity to do maybe some either tax-loss harvesting, maybe you have some tax loss with some unrealized capital loss, and you might also have the opportunity for simply less realized capital gain than you had before.
So, it really sounds counterintuitive. I think that simplicity is key moving right into retirement. But once you have a fundamental clarity and confidence in retirement, you might want to consider, “Hey, even though I’m holding stocks in my taxable account and drawing from this first, even if the stock market goes down and I’m worried about sequence of returns, I can still sell those stocks with less capital gain or maybe a capital loss, go into those pretax accounts and immediately rebalance back to my desired asset allocation without affecting sequence of returns risk.” But the last thing we want to do is add a big chunk of taxable income, including a really aggressive Roth conversion in the early part of retirement when we care most about sequence of returns risk.
Benz: So, what about for people who are in the very common situation of retiring with the bulk of their money in traditional tax deferred accounts? They don’t have much in those taxable accounts. They might not have much in Roth accounts. What strategies should they be considering?
Garrett: So, it’s funny. I think that the strategy actually doesn’t change that much. This question about retiring with the bulk of their money in traditional, I would say that the strategies don’t change that much, you just have less taxable assets in terms of runway. So taxable accounts would likely still be spent first. I would say that the Roth accounts, one big thing, kind of a common misconception, a lot of us think that our health savings accounts, or HSAs, and our Roth IRAs, we’re really excited about this tax-free, long-term tax-free growth. And I would say that I would really, especially if you’re retiring with mostly traditional retirement accounts, and maybe you have some Roth or HSAs, maybe you use those Roth accounts, those tax-free accounts, to tactically avoid jumps into higher tax brackets or maybe some of those IRMAA brackets, some other things that people are concerned about in retirement. Let’s say I’m at the top of the 24% bracket about to jump into the 32%, and I only have traditional and maybe a little bit of Roth money, maybe I actually jump into that Roth money early to avoid jumping into those higher tax brackets.
Another consideration here is that, if you’re retiring early, so specifically before age 59.5, you might also have to consider some early distribution strategies to avoid the 10% early withdrawal penalty. So, we talk about the book, step-by-step, those substantially equal periodic payments, also called SEPP 72(t) plans, or the rule of 55. So, the reason I mention this is, let’s say you retire at age 55, and you only have traditional retirement accounts. That’s an opportunity to say, “Hey, even though I don’t have any taxable assets, maybe I can still take money out of these retirement accounts.” They’re not locked up like a lot of commentary says around there, like there’s access in that example to the rule of 55. You have to be thoughtful about if you’re going to keep your money in your 401(k), 403(b), or other qualified plan versus roll that into a traditional IRA. But again, there’s a lot of things to think about, but I would say don’t be scared if the bulk of your money is in traditional retirement accounts. That probably means that you had some incredible tax-deferral opportunities along the way. And I think what happens is when retirees are starting to draw down for these accounts, they look at the taxes they’re paying and get a little scared, but they forget about all the benefits that were given to them when they were deferring that income while working.
Arnott: We often hear people complain about required minimum distributions. They don’t like paying taxes on them, and they worry about the fact that they’re taking money out of their portfolios. But you make the point that the RMD parameters are pretty generous and conservative. Can you talk about that a bit more?
Mullaney: Yeah, and the world has changed here. And I think too many advisors are still singing off the 2017 song sheet. So, let’s think about three big changes when it comes to the taxation of RMDs that have occurred in the last eight years.
The first one is the lower tax rates and the higher standard deduction. These were initially temporary for eight years starting in December of 2017. They’re now permanent. Both those developments are essentially tax cuts on RMDs. The standard deduction is actually a big tax cut. Having a higher standard deduction has this great effect of lowering the tax burden on RMDs the way the tax rules work. So that’s one big change from 2017.
Second big change is the IRS and Treasury, starting in 2022, changed the RMD table. So, most RMDs have been reduced because of this change in the table. I believe it’s roughly 7%. It varies RMD to RMD. But essentially by reducing the amount of each year’s RMD, you’re reducing the highest tax portion of that RMD. So that’s another big change that few have commented on.
And then, the third one is the delay in RMDs. If we were having this conversation eight years ago, we’d be saying, “Well, RMDs start when you turn 70.5.” Well, now, if you are born in the year 1960 or later, meaning you’re 65 or younger as you’re listening to this podcast, maybe 66 if it’s 2026, your RMDs don’t start at 70.5. They start at 75. Congresses have now canceled four or five RMDs, and oh, by the way, the RMDs they canceled are the four or five RMDs most likely to happen by definition.
And you have to step back and say, “Well, wait a minute, how much are these RMDs? Like, what percentage of the account do we have to take out?” At 75, you have to take 4.07% of the account. Is that a safe withdrawal rate for a 75-year-old? I certainly would argue it is. What about at 85? It’s going to be a huge number. Well, it’s 6.25%. Again, is that a safe withdrawal rate? 6.25% for someone who is 85 years old.
So, I think it’s time for practitioners, for retirees, for those thinking about retirement to update our thinking when it comes to these RMDs. They have very much changed since the year 2017. And it turns out they’re not all that onerous, and they don’t require that large of a taxable distribution when they start, which, again, is age 75 for those born in 1960 and later.
Garrett: And I’ll just quickly add to that, for those charitably inclined, at the point that RMDs start, you already have access to those qualified charitable distributions. So, there’s a quick reminder here that, I’ve heard this a lot, that a lot of people assume that--let’s say I have a $300,000 RMD. It’s somehow perceived that you have to spend that money. So, it’s not that you have to spend that money, you simply have to turn that asset into income. You just have to pay ordinary income taxes on that income. But it’s up to you what you want to do with that net distribution. So, the government is not forcing you, they’re not taking the RMD, they’re forcing you to receive it as taxable income--by the way, a lot of people are even saving and investing their RMD along the way for maybe some future inheritance.
Benz: Yeah, such an important point, Cody. I wanted to ask, and it’s a huge topic, but Roth conversions you’ve touched on a couple of times. Can you share any rules of the road? Maybe talk about life stages when it tends not to be super advantageous to consider Roth conversions as well as when people should lean into them potentially.
Mullaney: Christine, I would start with the pre-Medicare years. These are the years that many early retirees are going to be on an ACA medical insurance plan, and thus the so-called premium tax credit could be a very significant planning consideration. And as we record this in November 2025, this is an area subject to flux. We don’t know what the 2026 parameters on the premium tax credit are going to be. But regardless of that, when we are trying to manage for premium tax credit, we’re essentially subject to two levels of taxation, federal and state income taxation, and reduction in premium tax credit. That functions like an income tax. So, if we’re going to be subject to two levels of income tax in this one and only one part of retirement, that’s not a great time to trigger additional taxable income for most retirees.
So, I would argue that for those retirees thinking about managing for premium tax credit and who have an opportunity to get thousands of dollars annually for premium tax credit, the Roth conversion is probably not an ideal tactic. But let’s go to what we refer to as the golden years--generally speaking, our 66th through 69th birthday years. These four years have some really good attributes. One, we don’t have to manage for premium tax credit. Two, we don’t have to claim Social Security. We can delay that to age 70 and increase the amount annually collected by delaying. And three, we’re not subject to RMDs. So, these four years, the world tends to be our oyster. And during these four years, we have a high standard deduction, and we now have the senior deduction. Now that’s “temporary” for four years. We’ll see if that is really temporary or not. But regardless, these four years tend to be the best, in my view, the best Roth conversion years, because we don’t have required income, we could delay Social Security, we’re not managing for premium tax credit. These are the four years, I think, most retirees should be most thinking about Roth conversions.
Now, let’s play it out to when we turn 70, and now we have to be taking the Social Security or we’re absolutely leaving money on the table. Of course, we’re going to claim it. Now it becomes a lot tougher because that Social Security is filling up the standard deduction, maybe the 10% bracket, maybe even into the 12% bracket. Creating income at that time can also be deleterious because it can increase the amount of Social Security subject to income tax. It can reduce the new senior deduction. So those years, once we start claiming Social Security, I struggle to say that Roth conversions are going to be all that advantageous. And then for those born in 1960 and later, we start taking our RMD at 75. Now I start questioning the need for Roth conversion. Because one thing about RMDs that few comment on is RMDs are a somewhat self-correcting problem. This year’s RMD reduces next year’s RMD to a degree. And so, if we’re already hiving down these retirement accounts and we’re worried about RMDs and we’re taking an RMD, why are we so gung ho on the Roth conversion post-RMDs when the RMD itself is starting to manage for the future RMD “problem.”
Arnott: That’s a really interesting point about how RMDs are sort of self-correcting. Cody, if I’m an individual investor or a consumer trying to plan for retirement, are there any good tools available that can help someone with tax planning before and during retirement, or are the best tools mainly for financial professionals?
Garrett: Yeah, so I’d like to break these into two parts. I think first of all, with very careful assumptions and also a fundamental education about how tax prep and tax planning works. First off, we have to think about, What are some tools for current year and last year’s more on the tax prep side? So, tax prep usually looks backward and tax planning usually looks ahead, maybe even decades ahead. So, for current year or previous year tax prep, you might look at things like Dinkytown.net. Again, this is--do your own due diligence on these things--but Dinkytown.net has some, at least what I found are some, helpful tax calculators. That’s on the DIY, like the nonprofessional side.
On the financial professional side, Holistiplan is becoming really popular with looking at, “Hey, let’s look at three different customized scenarios for what your tax return might look like.” If we do Roth conversions, if we don’t, how much does that increase the taxation of Social Security, as Sean mentioned? And then for long-term projections, again, be very careful with those assumptions that somebody else has made for you. Again, the outputs are only as good as the inputs. So definitely measure twice when doing that.
That long-term projection software for retirement, including tax planning, I think the two most common for the DIY-er, the nonprofessional, are Boldin, which used to be called New Retirement, now called Boldin, Boldin.com. And then Pralana, don’t have that off the top of my head, but Pralana is more of an Excel-based tool that was actually built within the Bogleheads community. There was an Excel-based tool, but now they have a browser-based tool. That’s called Pralana. Those are both available to the public. And then, again, financial professionals typically are using something like a Holistiplan, eMoney, RightCapital, MoneyGuide Pro. But a lot of those are only accessible to financial professionals.
Benz: Well, Cody and Sean, I know we’ve just scratched the surface of some of the topics you cover in the book. Thank you so much for being here. We’ve learned a lot, and we’ve really enjoyed speaking with you today.
Garrett: Thank you, guys.
Mullaney: Thank you so much for inviting us.
Arnott: Thanks again to both of you.
Benz: Thank you for joining us on The Long View. If you could, please take a moment to subscribe to and rate the podcast on Apple, Spotify, or wherever you get your podcasts.
You can follow me on social media @Christine_Benz on X or @Christine Benz on LinkedIn.
Arnott: And @Amy Arnott on LinkedIn.
Benz: George Castady is our engineer for the podcast, and Kari Greczek produces the show notes each week.
Finally, we’d love to get your feedback. If you have a comment or a guest idea, please email us at TheLongView@Morningstar.com. Until next time, thanks for joining us.
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