How Withdrawal Rates Impact Your Portfolio in Retirement
Many people spend years preparing for retirement by saving and investing, but planning shouldn’t stop once the paychecks do. Transitioning from earning income to withdrawing it from your portfolio is a major shift with a new set of risks and decisions. This period, known as the distribution phase, requires careful thought.
How much you withdraw each year can have a bigger impact on long-term financial security than many people realize. Without a well-structured strategy, even a sizable retirement account can be depleted faster than expected.
The Impact of Withdrawal Rates
The chart below shows how different withdrawal rates can impact a retirement portfolio’s lifespan. It assumes an individual retired in 2000 at age 65 with $500,000 and started taking monthly withdrawals.
Each line reflects a different withdrawal rate between 4% and 8%, showing how the portfolio fared through age 85. While all scenarios start at the same point, the paths quickly diverge, especially during periods of market volatility. The chart illustrates how a retiree’s withdrawal strategy can determine whether the portfolio lasts or runs out.
The message is clear: higher withdrawal rates tend to exhaust a portfolio sooner, while lower rates can extend its life. In this example, withdrawing 7% or 8% caused the portfolio to run out of money before age 85. In contrast, the 4% and 5% withdrawal rates helped the portfolio weather market declines.
Does a 4% Rate Still Cut It?
The 4% strategy not only preserved the portfolio but grew it over 20 years, showing how compounding can work even during retirement. No strategy can eliminate market risk, but a smaller withdrawal rate can extend the portfolio’s life and reduce the risk of outliving your savings. Taking a more conservative approach in the early years of retirement gives your portfolio time to recover from short-term losses and grow with the market.
A thoughtful withdrawal strategy is an important part of retirement planning. It’s not just about how much you’ve accumulated, but how you manage it. There’s no one-size-fits-all approach, and the method you start with doesn’t have to be permanent. Fixed withdrawal rates can provide a good starting point, but many retirees may benefit from more flexible approaches.
The Big Takeaway
For example, you could adjust withdrawals based on market conditions, taking smaller distributions in down years and larger ones in strong years. Another option is the bucket strategy, which divides assets into short-, intermediate-, and long-term segments.
By keeping at least 18 months worth of expenses in cash or short-term investments, you can avoid selling stocks during major market declines, such as those in 2008 or 2020. This gives long-term investments time to recover and can help create a steadier income stream over time. Everyone’s retirement looks different. Our goal is to help you create a withdrawal strategy tailored to your unique needs and goals when that time comes.
Roth Conversion Opportunities Now that Tax Cuts are Law
While many of us have been easing into the holiday weekend, policymakers in Washington have been working overtime.
Yesterday, the House passed Donald Trump's One Big Beautiful Bill Act of 2025 (OBBB), and today, the president is expected to sign it into law.
But, let's be honest: When Washington passes something with a name like "One Big Beautiful Bill," most of us tune out, right?
Because it sounds political.
Because it sounds complicated.
Because frankly, we might not care.
But here's the truth: if you're saving for retirement or already living in it, this bill just changed your wealth blueprint.
How so?
Strategic Roth Conversion Opportunities
Well, one of the biggest changes in the bill is that it makes the individual tax cuts from the 2017 Tax Cuts and Jobs Act (TCJA) permanent.
And while that may sound like a Washington talking point, it carries real weight for investors.
Why's that?
Because it extends what might be the longest window we've ever had for historically low income tax rates. And for those with sizable pre-tax retirement balances, that opens the door for one of the most powerful tax strategies available: Roth conversions.
Whether you're still saving, newly retired, or years into retirement, this is an opportunity worth paying attention to.
For example, if you're in the pre-retirement phase, converting to Roth now means locking in today's known tax rates, rather than gambling on what future tax policy might bring. And given the projected trillions in national debt added by this bill, the odds of higher taxes down the road just got higher.
And if you're already retired, this could be your moment to smooth out future Required Minimum Distributions (RMDs). Indeed, converting during your lower-income retirement years might reduce future taxable income and potentially save tens or even hundreds of thousands in lifetime taxes.
But Roth conversions aren't just about your tax bracket today. They're also about preserving your legacy for your heirs.
Because when you convert now, you're essentially prepaying the tax bill for your heirs at today's rates. And that's an enormous advantage, especially given the SECURE Act rules that now require most non-spouse beneficiaries to deplete inherited IRAs within 10 years.
At the same time, if your children are in their peak earning years when you pass on, then inheriting a traditional IRA could push them into higher brackets, eroding much of what you hoped to pass on.
But a Roth IRA, on the other hand, grows and distributes its proceeds tax-free and still gets ten years of tax-free compounding after your death.
No RMDs for you. No tax bill for them.
In short: A Roth conversion is one way to say to your family, "I've got this part covered for you."
What This Means for Your Retirement Strategy
Ultimately, Roth conversions are a powerful tool, but they're not without complexity.
That's because converting too much in one year can drive up your income, affecting more than just your tax bracket, it can increase your Medicare premiums.
At the same time, it can cause more of your Social Security to be taxed and for some, it may trigger the 3.8% net investment income tax or other surtaxes.
That's why this isn't a "just convert and see" strategy, it needs to be a coordinated, multi-year focused approach.
You need to time conversions wisely and you need to understand your marginal brackets, IRMAA thresholds, charitable giving opportunities, and how other deductions might offset conversion income.
Because you're not just trying to minimize taxes this year, you're trying to manage taxes and asset growth over decades, across generations.
And when lawmakers eventually raise taxes down the road, those who've already paid taxes at today's lower rates may be in a far stronger position, especially those with Roth assets.
So the smartest move right now might not be deferring taxes. It might be paying them strategically, while the sale is still on depending on what phase of retirement you're still in:
Pre-Retirement: You're Still Working
If you're still a few years away from retirement, the bill gives earners like you a bit of short-term breathing room: lower tax rates, enhanced deductions, and even some new savings tools.
That's good news on paper.
But zoom out.
The national debt is rising, future benefits could shift and market volatility may increase as policymakers navigate these tradeoffs in real time down the road.
That's why now's the time to take a fresh look at your tax strategy, both in terms of contributions (Roth 401k), Backdoor Roths and Roth conversions.
If You're Already Retired
If you're already retired, then the message here is even clearer: don't count on the government to do what it used to do.
Medicare and Social Security rules are evolving. Medicaid funding is tightening and support systems that once felt secure are becoming more fragile.
That's why clarity matters.
You can't control Washington, but you can create a retirement income strategy that works regardless of what happens there.
With smart planning, you can reduce your taxable income by taking advantage of income tax valleys to covert, preserve benefits, and make the most of the resources you've spent a lifetime building.
Where to From Here?
If you're still not sure how this bill affects your financial picture or how to use the current tax landscape to your advantage, then let's schedule some time to talk.
Because the key takeaway here is that there's likely a limited-time opportunity to make smart, strategic decisions that could save you and your family thousands in taxes over time, and position your retirement savings for tax-free growth long after this bill fades from the headlines.
That's why this moment presents a planning opportunity, especially for families with meaningful income, sizable retirement assets, or a desire to transfer wealth efficiently.
If you've been thinking about a Roth conversion, accelerating future income into the present, unwinding a concentrated stock position, or gifting assets to heirs or charitable causes, this may be the most favorable tax environment we'll see to do so for quite some time.
What to Make of One, Big, Beautiful Budget Bill?
Washington is moving forward with a new budget proposal that could reshape the tax landscape for years to come. And while the details are still being finalized, it’s crucial that you take the time to understand the broad strokes because they’re worth paying attention to.
Here’s what this means:
Lower Tax Brackets
At the center of the proposal is a permanent extension of the 2017 Tax Cuts and Jobs Act (TCJA).
These were the sweeping tax cuts that congressed passed during President Trump’s first term.
Those lower income tax rates were supposed to expire at the end of next year and this bill will now make them permanent.
What this means is that historically low tax environment we’ve been living in may stick around a bit longer, at least for the next four years.
Higher Itemized Deductions
The bill also adds in a few new deductions. There’s talk of expanding the child tax credit, offering tax breaks for things like tips and overtime, and even bringing back a deduction for interest on car loans.
One change that could really matter to higher-income households is a significant expansion of the deduction for state and local taxes, or SALT.
That’s because the TCJA capped SALT to $10,000 per household, which for many individuals in high-value zip codes, has been a thorn in their sides ever since.
Some Drawbacks
Now, not everything in the bill is a giveback. That’s because the Big Beautiful Bill would also roll back several recent reforms.
For example, remember the IRS’s free tax filing tool? Gone.
Or how about funding for IRS enforcement? Slashed.
And many of the tax credits for clean energy investments would also be reversed.
At the same time, there’s also a push to reduce spending on government assistance programs, like Medicaid and food benefits, by introducing stricter work requirements.
And while those cuts may not directly affect many affluent individuals, they nevertheless reflect a broader shift in where the government’s priorities are headed.
It All Comes at a Cost
When it comes down to it, all of these tax cuts come with a price tag.
Indeed, the Congressional Budget Office (CBO) estimates that the bill would add roughly three trillion dollars to the national deficit over the next decade.
And that’s not going unnoticed. Because credit rating agencies are already sounding alarms, with Moody’s downgrading the U.S. outlook just this past week.
So yes, there are plenty of changes packed into this bill, both good and some maybe not so good.
Some may feel beneficial in the near term, but others raise important questions about what’s sustainable, especially when it comes to how the government will eventually address its growing debt load.
What This Means for You
Now, if this bill passes (which it likely will) it will signal that the window for historically low tax rates may be closing.
How so?
Well, we’re in a rare moment where the rules are still in our favor. But that could change quickly.
But the fact is that the national debt is climbing at an unsustainable rate. At the same time, the budget deficit continues to grow with little sign of letting up.
And while this bill offers short-term tax relief to many high-earners, it does so at a long-term cost for the nation as a whole.
Eventually, future lawmakers may have little choice but to raise taxes to close the gap should borrowing costs rise .
That’s why this moment presents a planning opportunity, especially for families with meaningful income, sizable retirement assets, or a desire to transfer wealth efficiently.
If you’ve been thinking about a Roth conversion, accelerating future income into the present, unwinding a concentrated stock position, or gifting assets to heirs or charitable causes, this may be the most favorable tax environment we’ll see for quite some time.
Now, this isn’t about reacting to the news.
It’s about staying proactive and using what we know today to reduce uncertainty tomorrow because if lower tax rates are extended, that gives us more time to work strategically.
And if they’re not? Well, then we’ll be glad we took action while we still had time.
As always, we’re watching the developments closely. And we’re here to help you think through how this moment might apply to your financial picture.
If it’s been a while since we’ve reviewed your tax strategy, or if you’re wondering whether you’re making the most of this window, let’s talk.
Here's How Retirement is an Endurance Sport
In many ways, retirement isn’t a goal, it’s an endurance sport.
I had the opportunity to compete in the Pittsburgh Marathon over the weekend and wanted to share a quick thought that came to me during the race:
To run the race, you not only have to train, but you’ve also got to be able to adapt your plan to uncontrollable conditions on race day.
We’ve often been led to believe that retirement is a singular destination, that all you need to do is show up at the starting line with the right-sized nest egg, and you’ll be set.
The reality is, however, that you have to prepare not just to be able to show up for race day, but also to sustain yourself along the way.
It’s not just about putting in the miles to go the distance; it’s about pacing, nutrition, hydration and attitude.
In retirement, pacing becomes your spending plan. Nutrition and hydration represent efficiently growing your wealth and protecting it. And your attitude? That’s staying disciplined when markets and life throw challenges your way.
A misalignment in any of these components is likely to fundamentally change your race day experience.
Heading into my taper week ahead of last week’s race, I felt like my training was solid and was certain that by race day, my body and legs would be fresh. But wouldn’t you know it, I woke up on Sunday morning with a cold and a case of bronchitis.
That’s the paradox of endurance training: you can’t control the conditions, but it does equip you to press through them.
You change and test the variables weeks in advance so you know how your body might adapt to the unknown stresses of the event.
And once you’ve trained for an endurance sport, you’re likely forever changed.
Because more often than not, you haven’t prepared for a single race; after months of deliberate effort, you’ve forged a new way of life.
Many people believe retirement planning is about maintaining their current lifestyle for the next 20, 30 or 40 years. But the right plan doesn’t just preserve what you have, it expands your horizons. It equips you to live a lifestyle you may not have envisioned before, opening the door to entirely new races you hadn’t even considered.
You see, retirement success isn’t about reaching a single milestone.
It’s about having the right habits, resources, and mindset to keep going strong over the long run no matter where your journey might take you, even under the least optimal conditions.
Frankly, the conditions presented to me on my race day were certainly less than optimal. In the end, I finished the race, but not in the way I had hoped. Even so, my planning and training enabled me to envision an outcome (finishing the race) beyond current circumstances (illness).
Whether you’re already executing your retirement plan or still fine-tuning it, it’s worth asking: do I have the right systems, support, and strategies in place to thrive mile after mile no matter what life throws my way?
Humble Brag
I had a proud-dad moment this weekend as my oldest, Lily, ran her first timed 5K.
It wasn’t about speed or competition, it was about building grit.
We laughed, we cried, and ultimately, we crossed the finish line together.
Here’s to the first of many more races we’ll run side by side in the years to come.
Income Tax Valley: The Most Overlooked Years in Retirement Planning
One of the biggest and most preventable tax mistakes high-net-worth retirees make is waiting too long to address the growing tax liability in their pre-tax retirement accounts.
Sure, you may have done everything right, like saving diligently and building a sizable nest egg so you can enter retirement with confidence.
But now, your IRA or 401(k) sits like a tax time bomb, waiting to trigger Required Minimum Distributions (RMDs) and inflate your taxable income well into your 70s and beyond.
Indeed, what many investors don't realize is that the years between age 59½ and when you begin taking Social Security represent a golden opportunity to defuse that tax burden.
That's because, with no 10% early withdrawal penalty, reduced earned income, and RMDs still a few years away, you're in a low-tax window, but one that won't last for too long.
And that's where Roth conversions come in.
That's because converting your pre-tax account during this window gives you more control over how and when you pay your taxes.
In fact, it allows you to strategically move money from tax-deferred to tax-free accounts, locking in today's rates and reducing tomorrow's surprises.
With that said, the key here is recognizing that this isn't just a planning opportunity; it's a problem-solving moment. One that can dramatically improve your long-term tax picture if handled wisely.
Why Timing Matters
Now, if you've just retired, the years between when you stop working and begin claiming Social Security is strategic.
That's because, more often than not, your income is temporarily low.
We call this the income tax valley.
You're no longer working, you haven't started taking Social Security, and Required Minimum Distributions haven't kicked in.
In fact, for many high-net-worth retirees, this is the lowest tax bracket they'll be in for the rest of their lives.
That's what makes Roth conversions so powerful in this window.
You can move money from tax-deferred accounts, like IRAs and 401(k)s, into a Roth IRA and pay taxes at a rate you choose, not one the IRS forces on you later.
What this means is that every dollar you convert now is one less dollar subject to RMDs down the road. That means lower future taxes, fewer Medicare surcharges, and more flexibility in how you take income later.
Ultimately, when it comes to tax planning in the income tax valley, you're either proactive now, or you'll be forced to be reactive later.
Even so, this is your chance to get ahead.
How This Works in Practice
So, what does this kind of planning look like in practice?
Well, let me tell you about my friend, Susan.
Susan is 62 years old, recently retired, and sitting on about $3.2 million in retirement savings, mostly in her traditional IRA and 401(k).
She's healthy and financially secure and plans to delay Social Security until age 70 to lock in the maximum benefit.
At first, Susan figured she didn't need to do much until her benefits started. But when she sat down with her advisor, she saw the bigger picture.
Her income during this income tax valley was low, around $50,000 a year, including capital gains distributions from a taxable account and some small dividends.
That gave her a unique opportunity to convert $100,000 a year from her IRA to a Roth and allowed her to stay within a lower tax bracket and avoid triggering higher Medicare premiums.
In fact, over the next eight years, Susan moved $800,000 into a Roth IRA.
More importantly, she paid the taxes on these conversions on her terms.
In fact, she reduced her future RMDs by nearly $30,000 a year. And in doing so, she built a tax-free pool of money for later retirement and legacy planning.
Same accounts. Same retirement. It's just a smarter sequence, with a major long-term impact.
Why Roth Conversions Before Social Security Can Be Advantageous
So then, when it comes down to it, the window between age 59½ and claiming Social Security isn't just a quiet phase of retirement, it's one of the most powerful tax planning opportunities you'll ever have.
That's because Roth conversions during this time can reduce future RMDs, minimize your lifetime tax liability, avoid Medicare premium surcharges, and give you more control over how your retirement income is taxed.
And for high-net-worth individuals like yourself, the cost of inaction isn't small; it means tax savings that are compounded over decades.
If you don't take action now, it can mean bigger RMDs, potentially putting you in higher tax brackets, offering less flexibility, and allowing more of your retirement savings to go to the IRS instead of your family.
With that said, with the right strategy, this window of opportunity, your income tax valley, becomes a moment of leverage. It becomes a chance to take control, preserve more wealth, and shape a smarter financial legacy on your own terms.
At the end of the day, tax planning isn't about reacting to the past; it's about anticipating and being proactive about the future. And the retirees who plan ahead are the ones who spend with confidence and leave more behind.
The Market Feels Unstable — Here’s How to Stay on Track
There are times in market cycles when economic, geopolitical, and financial conditions converge in ways that create palpable uncertainty. In many ways, it can feel like standing on the precipice of an abyss.
Today, I would argue that we are in just one of those moments.
Often, it’s not just one event, but a cascade of interconnected developments that lead one to conclude that things are about to get bad.
History Often Rhymes
Early on in my career, it started with the failures of Bear Stearns and Lehman Brothers, the nationalization of Fannie Mae and Freddie Mac, and the bailouts of AIG and Citi, all of which signaled the fragility of the global financial system in 2008.
In 2020, early reports of health warnings, travel restrictions, and border closures eventually escalated into a near-total shutdown of the global economy, prompting widespread existential fear.
Now, in early 2025, we are experiencing heightened uncertainty as the resumption of trade wars with ambiguous objectives, shifting geopolitical alliances, and a retreat from post-war global institutions and a seeming move towards isolationism create a new political and economic reality. These shifts pose significant implications for the global economy and financial markets.
Needless to say, there is much to worry about in the current political, economic, and market environment. It’s enough to make any sane person want to bury their savings in their backyard.
How to Navigate the Uncertainty
That said, having been through multiple market cycles, being an avid student of history, and considering my background in macroeconomic strategy, I would like to share some thoughts on how to frame today’s environment and what you can do about it financially.
Firstly, I want to acknowledge that we are in the midst of an anxiety-provoking time in U.S. history. I am not going to discount the legitimate fear that many of us may be feeling right now amidst all the political tumult and economic uncertainties. This is a natural response.
With that said, when it comes to investing and the markets, it’s crucial to remember that we’ve been through similar challenges in the past. And with history as our guide, during times like these, it’s essential to remain committed to a long-term, disciplined investment strategy.
Make no mistake, what’s happening today will have significant implications for years to come.
Why It’s Essential to Stay Committed for the Long-term
However, history has shown that, from a capital markets perspective, risk assets tend to sell off during political and economic inflection points, before eventually recovering. These ebbs and flows are a natural part of the market process when key narratives change.
In fact, over the past 100 years, there have been many paradigm-shifting political and economic events, but stock prices continued to march higher thereafter. This point is evidenced in Figure 1.
To be sure, financial markets, after periods of uncertainty, do eventually recover as investors eventually adapt to new political or economic paradigms. Indeed, as figure 1 illustrates, risk asset prices are naturally biased to the upside because if they weren’t, then investing would not be much different from gambling, would it?
Nevertheless, you might say that now is not the right time to be in the markets and that you would prefer to get out. However, history has also shown us that exiting the markets at the wrong time could lead to major disappointment down the road.
For example, Figure 2 shows how missing even the best five days over the past 20 years could have led to significant missed opportunities in the markets. Indeed, back in 2008, it is arguable that peak market fear occurred at the end of the year, just a few months before the market bottomed out in March 2009.
Similarly, in 2020, peak fear occurred in late February before markets bottomed out in March and then took off again in April. Therefore, trying to time the markets or get out when it feels like things are starting to get bad might work against you over the near- and long-term.
Practical Steps to Take
So then, amidst all of this, what should you do about it all?
Well, in uncertain times, many investors often find themselves torn between taking action and standing still.
Here are six key strategies to consider regardless of where you stand today:
#1 Know Your “Sleep Well Number” (Cash Management)
When it comes to cash management, during times like these, it is crucial to know your “sleep-well” number. Depending on where you are in your retirement journey, having enough cash on hand to cover six to eighteen months of living expenses is something to consider now.
Having this number available will enable you to avoid making knee-jerk decisions with your portfolio, enable you to stay committed to your long-term strategy and avoid selling assets at an inopportune time.
#2 Rebalance Your Portfolio
Rebalancing your portfolio now allows you to take some risk off the table. Markets have rallied handsomely over the past eighteen months, which means that your current holdings are very likely out of alignment with your strategic asset allocation.
Rebalancing includes taking gains from positions that have done well in your portfolio and adding to positions that are underallocated in your portfolio relative to your strategic allocation. This approach ensures that you’re not taking any more risk than necessary with your investments.
#3 Stick to Your Long-term Plan
When in doubt, stick to your plan. Remembering your long-term plan is essential during market uncertainty. That’s because it is easy to become distracted and search for a salve to relieve the unease in the near term when things start going off the rails.
However, it’s crucial to remember that your financial plan was created to help you navigate not just the good times, but also uncertain times like the ones we’re experiencing today.
#4 Reconsider Big-Ticket Purchases
If you are contemplating purchasing a new home, car, or other big-ticket item, you may want to consider holding off on any moves for the next few months. This approach will allow you to preserve cash and ensure that you are not locking yourself into a decision at an inopportune time.
#5 Sharpen Your Pencil
At the same time, it is worth sharpening your pencil. Warren Buffett is known to have said, “Be fearful when others are greedy, and greedy when others are fearful.” Depending on your living situation and cash position, fear-driven market sell-offs often provide opportunities to purchase assets at a discount.
If you are in a solid cash position, keeping an eye out for favorable buying opportunities once we have more clarity on the political and economic environment could be worthwhile.
#6 Consider Tax Planning Opportunities
Finally, market sell-offs also present an opportune time for tax planning. And a key tax planning approach includes completing a Roth conversion. That’s because lower portfolio values often translate to lower taxable values. Remember, Roth conversions are not just a fourth-quarter tactic but a year-round opportunity.
Similarly, market downturns can present opportunities for tax-loss harvesting. This approach involves selling stocks at a loss and buying a similar but not identical asset. Even if you do not have gains to offset the losses, you can carry forward the losses as a tax asset to offset future capital gains.
The Big Takeaway
When it comes down to it, the big takeaway from an investment perspective is to stay invested for the long term even though the near term seems so uncertain. While we may be headed for a dark period in the months ahead, I am reminded of how essential it is to remain optimistic.
Viktor Frankl, a Holocaust survivor and author of the book, “Man’s Search for Meaning”, points out in his work that those who adapted and sought meaning in each moment, especially in trying times, had greater ability to endure trials and uncertainty than those who did not.
Make no mistake, we are likely headed for some very trying times in the weeks and months ahead. From a political and social perspective, we do not have a roadmap for navigating what lies ahead, which means we will have to take things one moment at a time. As difficult as that may be, however, finding purpose and direction in uncertain times has always been a defining trait of those who successfully emerge from such events.
What’s more, from a financial perspective, history has repeatedly shown that uncertain times like these often create opportunities for those who stay the course. That’s why having a solid financial plan and a disciplined investment strategy is essential now more than ever. While the near-term outlook may be uncertain, remaining objective and committed to a well-thought-out financial plan continues to be the best way forward.
Five Reasons Why a Roth Conversion Might be Right for You
You've done everything right: you've worked hard, built a successful career, and saved for the future. But there's one piece of the puzzle that could quietly erode your wealth if you don't plan for it: taxes.
Retirement isn't just about how much you've saved, it's about how much you get to keep. And if most of your retirement savings are in tax-deferred accounts like a 401(k) or traditional IRA, the IRS has plans for that money. That’s why tax planning is crucial now more than ever.
In fact, when it comes to IRAs, those withdrawals you take in retirement will be taxed as ordinary income, and when you turn 75, Required Minimum Distributions (RMDs) will force you to take money out, even if you don't need it.
But here's the thing: what if you could pay taxes on your own terms?
What if you could lock in today's lower tax rates, reduce your future tax burden, and create a more flexible income strategy for retirement?
That's where a Roth conversion comes in.
In fact, by converting a portion of your tax-deferred retirement savings into a Roth IRA, you pay taxes on that money now and at a rate you can control.
In return, your Roth IRA grows tax-free, and when you need to withdraw in retirement, there are no additional taxes owed.
What's more, there are no RMDs, no surprise tax bills, and a better plan for passing wealth to your heirs when it comes to your Roth IRA.
But the big question here is is it the right move for you?
Well, the answer depends on several factors, including your current and future tax rates, your retirement timeline, and how you want to structure your income.
So then, let's break down five key reasons why a Roth conversion could be one of the smartest financial decisions you make in 2025.
#1 Would You Rather Pay Taxes at Today's Rates or Risk Higher Rates in the Future?
First things first, would You Rather Pay Taxes at Today's Rates or Risk Higher Rates in the Future? Think about it: do you believe taxes will be lower in the future? Or do you think they'll go up?
If you're like most people, you're betting on higher taxes. And that's not just a guess. The tax cuts currently in place are set to expire after 2025, which means tax rates for high earners could rise significantly. If nothing changes, the top tax bracket will jump from 37% back up to 39.6%.
And even if the Tax Cuts and Jobs Act is extended, there's no guarantee that tax rates won't go higher in the future given our country's massive debt burden.
Indeed, with rising government debt and shifting tax policies, higher taxes could become the norm. So then, if you wait to withdraw from your tax-deferred accounts in retirement, you could find yourself paying much more in taxes than if you had acted earlier.
That's where a Roth conversion lets you take control. Because instead of waiting to see what happens, you can lock in today's lower rates and create tax-free income for the future.
How so? Well, let's say you convert $500,000 from a traditional IRA to a Roth IRA today while you're in the 24% tax bracket. In this case, you'll likely owe $120,000 (24% of $500,000) in taxes today.
Now, let's assume you wait 10 years, but by then, higher tax rates push you into the 35% bracket. With that same amount, assuming no growth of your savings, you'd likely owe $175,000 (35% of $500,000).
That's a $55,000 difference, just for waiting.
And here's where it really adds up: if that $55,000 in tax savings were invested instead at an average 7% annual return, it could grow to over $400,000 in 30 years, all because you converted when rates were lower.
So then, by making a move today, you're not just reducing taxes, you're potentially adding hundreds of thousands of dollars to your retirement savings all by paying some tax today, to save a lot more in the future.
#2 Do You Want to Avoid Required Minimum Distributions (RMDs) That Could Inflate Your Tax Bill?
The next thing to consider when it comes to determining whether a Roth Conversion is right for you is whether you're comfortable paying your anticipated RMDs.
Now, you may not need the money, but the IRS does.
That's because by the time you're age 75, you'll be required to start withdrawing money from your traditional IRA or 401(k), whether you want to or not. And these Required Minimum Distributions (RMDs) aren't just forced withdrawals, they're taxable income.
Now, depending on how large your retirement accounts are, RMDs can push you into a higher tax bracket, trigger higher Medicare premiums, and cause more of your Social Security benefits to be taxed.
That's where a Roth conversion can help you get ahead of this problem. Because Roth IRAs aren't subject to RMDs, converting today means you keep more control over your income in retirement, instead of letting the government decide for you.
So then, how does this work? Well, let's say you're 65 years old with a $2 million traditional IRA, and it grows at 6% per year. Here's what happens if you don't convert any of it to a Roth.
By age 75, your RMD starts at $87,591 per year. But each year, Uncle Sam forces you to take out more and more money from your IRA each year. So then, by age 90, your RMD balloons to $258,741 per year.
That means you'll be withdrawing more and paying more in taxes, whether you need the money or not.
However, if you convert a portion of your IRA to a Roth before RMDs kick in, you might be able to reduce your future tax burden and avoid being forced into withdrawals you don't want to take.
Put a different way, this isn't just about tax savings, it's about having more flexibility in how you use your money in retirement. So then, wouldn't you rather make that decision yourself or have Uncle Sam force you to take money out of your savings? That’s where prudent tax planning comes into play.
#3 Do You Want to Leave More to Your Heirs Without a Tax Burden?
You've spent a lifetime building wealth, and now you're preparing to pass it on. But do you really want the IRS to take a big chunk of what you leave behind to your children?
Because here's the thing: if your heirs inherit a traditional IRA, they'll be forced to withdraw the full balance within 10 years, and every dollar they take out is taxed as ordinary income.
So then, if they're in their peak earning years, those withdrawals could push them into a much higher tax bracket, costing them hundreds of thousands in unnecessary taxes.
A Roth IRA, on the other hand, passes on tax-free savings to your heirs, and no forced distributions for a spouse. In other words, no income taxes for your kids and no surprises when they inherit your wealth.
How does this work? Well, let's compare a $1 million traditional IRA and a $1 million Roth IRA passed down to your children.
If the money stays invested for 30 years at 7% annual growth, here's what happens. With a traditional IRA, your heirs must withdraw all funds within 10 years, and assuming they invest it, after taxes, it grows to $5.8 million.
However, if you left behind the same $1 million in a Roth IRA, it's possible that the portfolio would grow tax-free to $7.6 million and be available for tax-free withdrawals. That's a $1.8 million difference, all because of taxes.
Even if your heirs don't need the money right away, a Roth IRA lets them delay withdrawals until it makes sense for them, avoiding tax spikes and keeping more of your legacy intact.
So then, if you're planning to pass on wealth, the question is simple: Do you want your money to go to your family, or to the IRS?
#4 Could a Roth Conversion Help You Save on Medicare and Social Security Taxes?
Most people don't realize that their Medicare premiums and Social Security benefits are tied to their taxable income. In fact, the more income you report in retirement, the more you could pay for healthcare and the less of your Social Security you'll actually get to keep.
How does this happen? Well, it happens because withdrawals from a traditional IRA count as taxable income. So then, even if you don't need the money, those withdrawals could push you above key income thresholds, and trigger higher Medicare premiums which could make up to 85% of your Social Security benefits taxable.
A Roth IRA on the other hand avoids this issue because withdrawals don't count as taxable income. That means you can take money out as needed without pushing yourself into a higher tax bracket or triggering unexpected penalties.
How so? Well, let's take a couple who are 67 years old and are planning to retire soon. They have $1.5 million in a traditional IRA and $60,000 in combined Social Security benefits per year.
Now, if they start taking $80,000 per year from their IRA, they're likely to face a few complications. First, their Medicare premiums likely will increase due to IRMAA (Income-Related Monthly Adjustment Amounts). Next, they could find that up to 85% of their Social Security benefits become taxable and so, their total tax bill and healthcare costs jump by over $112,000 over their retirement.
Now, let's say this same couple converts $300,000 over three years into a Roth IRA before claiming Social Security and Medicare. In this case, their taxable income stays below Medicare surcharge limits, their Social Security remains largely untaxed and they save over $112,000 in combined healthcare and tax costs.
So then, this isn't about avoiding taxes, it's about planning ahead, especially when it comes to balancing retirement income with goverment benefits. From this perspective, why give more to the IRS when you can keep more for yourself through prudent tax planning?
#5 Are You Planning a Move to a Lower-Tax State?
Finally, where you live in retirement matters a lot, especially if you're considering a Roth conversion.
In fact, if you're planning to move from a high-tax state like California or New York to a no-income-tax state like Florida, Texas, or Nevada, the timing of your Roth conversion could save you tens, if not hundreds of thousands of dollars in state taxes.
That's because when you complete a Roth conversion, you'll also end up paying state taxes in the year you convert. So then, if you do a Roth conversion while living in a high-tax state, you could owe state income tax on that conversion. But if you wait until after you move, you could pay zero state tax on the conversion.
How does this work? Well, let's say you have a $1.5 million traditional IRA and are moving from California to Florida. You decide to convert the full amount before moving and California state tax (13.3%) on $1.5M conversion leads to $199,500 owed in taxes.
Now, let's say you wait until after you move to Florida where you pay no income tax. Here, you could effectively save $199,500 in taxes just by planning your move before coverting.
But what if you plan to stay in a high-tax state? A Roth conversion might still be a smart move, especially if state tax rates are expected to rise. In other words, locking in today's rates could still be a win.
Regardless, if you're thinking about moving, or even if you aren't, state taxes should be part of your Roth conversion decision. Because when it comes to taxes, timing is everything.
So, What's Your Next Move?
Let's be honest. Nobody enjoys thinking about taxes. However, whether you think about them or not, you will pay them on way or another. So then, the real question is not if you will pay taxes, but when and how much.
Right now, you have an opportunity to do some prudent tax planning. Tax rates are at historic lows, and you still have time to plan. Most importantly, you have the ability to decide what happens next, which might not always be the case.
So what's your plan?
Are you going to wait and hope the tax code works in your favor? Are you going to let the IRS determine how much of your wealth stays with you and how much goes to them? Or are you going to take control of your financial future while you still can?
Here is what we know. Tax rates are expected to rise in the coming years. Required Minimum Distributions could force you to withdraw more than you need, potentially pushing you into a higher tax bracket. If you plan to pass on wealth, your heirs could face a significant tax burden unless you make a plan.
Medicare premiums and Social Security taxes can increase unexpectedly, but with the right strategy, you can avoid these unnecessary costs. And if you are planning to move to a state with lower or no income tax, the timing of your Roth conversion could save you thousands of dollars.
That sounds like a lot. But here's the good news.
You do not have to figure this out on your own. You have time to plan. You have the ability to make smart decisions today that will give you more financial freedom in the future. Most importantly, you have options.
That is why I am here. Let's run the numbers, talk through your options, and build a strategy that works for you. The best time to plan for your future is today.
If you are ready to take the next step, schedule a call and let's get started.
How to Review Your Cash Flow and Retirement Spending Assumptions
This video offers a detailed walkthrough of how to scrutinize your annual spending, compare it against your projections, and adjust your retirement planning accordingly.
Understanding these elements is essential for ensuring that your financial habits support your future retirement lifestyle.
Key Benefits:
- Enhanced Financial Awareness: Gain a clear picture of where your money goes and how it impacts your future.
- Strategic Adjustments: Learn how to adjust your spending and savings to better align with your retirement goals.
- Informed Decision Making: Empower yourself to make decisions that optimize your financial well-being.
- Increased Preparedness: Ensure that you are on track to meet your retirement needs without compromise.
Key Steps:
- Analyze Your Annual Spending: Review and categorize all expenses from the past year to understand spending habits.
- Compare Actual vs. Projected Spending: Assess how your real expenditures stack up against your budgeted projections.
- Adjust Your Retirement Strategy: Make necessary changes to your financial plan to better support your desired retirement lifestyle.
FAQs:
Q: How often should I review my cash flow and retirement projections?
A: Review your financial projections annually or whenever there is a significant change in your income or expenses to keep your retirement plans on track.
Q: What is a Monte Carlo simulation and how does it help in retirement planning?
A: Monte Carlo simulations use probability models to predict various outcomes in your financial plan, providing a range of possible retirement scenarios based on your spending and saving habits.
Q: Can adjusting my spending habits now really make a difference in my retirement?
A: Absolutely. Even minor adjustments in spending can have significant long-term effects on your retirement savings, enhancing your ability to enjoy a comfortable retirement.
Schedule a Consultation:
If you need personalized assistance with your financial planning, don’t hesitate to schedule a consultation.
We’re here to help you tailor a financial strategy that meets your unique needs and goals.
Open Enrollment – Tips to Avoid Costly Mistakes
This quick video guide offers practical tips on tackling open enrollment without stress. From understanding deadlines to exploring additional benefits and choosing between an HSA and FSA, we cover everything you need to make the most out of your healthcare benefits.
Key Benefits
- Save Time: Quick tips to streamline your enrollment process.
- Ensure Accuracy: Avoid common mistakes that could cost you.
- Increase Savings: Uncover hidden benefits and tax advantages.
- Reduce Stress: Proactive steps to manage enrollment smoothly.
- Make Informed Choices: Understand the nuances between HSA and FSA to make better decisions.
Next Steps
- Act Early: Set reminders for reviewing your benefits options two weeks before the deadline.
- Explore Benefits: Thoroughly investigate all available fringe benefits for additional savings.
- Understand Your Accounts: Decide whether an HSA or FSA is more appropriate based on your health plan and financial strategy.
FAQs
Q: What’s the difference between an HSA and a general-purpose FSA?
A: HSAs are available only to those with a high-deductible health plan and allow you to contribute pre-tax income. FSAs are less restrictive but cannot be combined with HSAs for medical expenses.
Q: Can I change my benefits choices after the enrollment period?
A: Typically, you cannot change your benefits post-enrollment unless you experience a qualifying life event such as marriage, divorce, or the birth of a child.
Q: Are there benefits to enrolling early in the open enrollment period?
A: Enrolling early gives you ample time to review and compare plans without the pressure of a closing window, potentially leading to better decisions and less stress.
Schedule a Consultation
If you need more personalized assistance or have specific circumstances to discuss, schedule a consultation with one of our experts today
We're here to help you navigate your benefits confidently and make choices that best suit your needs.
Market Update: Is it a Correction or Something Bigger?
What do you do when the market takes a turn you didn’t expect? Do you panic? Do you make quick decisions? Or do you take a step back and look at the bigger picture?
As we step into the first few months of 2025, the market has given investors plenty to think about. Stocks started the year on a strong note, but since then, we've seen a pullback. The S&P 500 briefly entered correction territory, bringing its year-to-date return down to -5%.
Similarly, the Nasdaq 100, home to some of the biggest names in tech, is down 7% this year, while the small-cap Russell 2000 has fallen 9%. And the what about the Magnificent 7 of Microsoft, Apple, Meta, Alphabet, Amazon, Nvidia, and Tesla? They’re down nearly 15%.
So what’s really going on? More importantly, what should you do about it?
What’s Behind the Market Selloff?
Well, it’s easy to blame market swings on one big event. But in reality, it’s rarely just one thing because there are likely a few reasons this year’s recent pullback.
First, the stocks that led the charge last year are the ones struggling the most today. And it’s not unusual to have yesterday’s winners become today’s laggards. Indeed, figure 2 shows us that the biggest winners of 2024, like tech stocks and the Magnificent 7, have become 2025’s underperformers.
Why?
Because last year’s rally was built on enthusiasm, especially around artificial intelligence. And when enthusiasm drives prices higher, valuations get stretched. Investors pile in, positioning gets crowded, and eventually, the weight of that momentum starts to break down.
That’s what’s happening now.
Second, investors, both individual and institutional, came into 2025 with a high level of exposure to stocks. In fact, some of the largest institutional investors like pension funds, endowments, and insurance companies held a record share of their wealth in equities.
And that strategy works well when markets are climbing, but when momentum reverses, institutional investors start deleveraging. And when they unwind positions quickly, it amplifies the selling pressure.
Finally, there’s the policy backdrop. What started as optimism around pro-growth policies under the Trump administration has shifted to uncertainty. As we’ve written about before, concerns about spending cuts and the impact of tariffs have raised questions about economic growth.
Because the fact of the matter is that investors don’t like uncertainty, and right now, they’re adjusting to a new, highly uncertain reality.
Market Volatility vs. Economic Reality
So, does all this mean the economy is struggling? That’s a great question. And here’s where we need to separate perception from reality.
The stock market reacts quickly to new information, but that doesn’t always mean the economy is following the same path. One way we can test that is by looking at real-time economic data.
For example, the Federal Reserve’s Weekly Economic Index (WEI) tracks real-world activity using data points like unemployment claims, rail traffic, steel production, and tax withholdings.
And right now? It’s still positive (Figure 3).
Another piece of the puzzle is the bond market. High-yield credit spreads, which are essentially the difference in yield between risky corporate bonds and safer U.S. Treasuries, are a great way to measure financial stress.
And today, those spreads remain near all-time lows (Figure 4). Indeed, if we were facing a deeper economic problem, we’d expect to see those spreads widen. The fact that they haven’t tells us this market selloff could be more about repositioning than it is about a fundamental crisis.
With that said, no one rings a bell when we’ve entered a recession. And it’s very well possible that a policy error from the current administration could push the economy into a downturn. For now, however, the data continue to reflect modest economic growth.
Is This Normal and Can the Market Selloff Continue?
Now, if you’ve been investing for a while, you likely know that market volatility isn’t new. But let’s be honest, knowing that doesn’t make it feel any better when stocks drop, does it?
So what should you do?
Well, one of the best things we can do is put this moment in perspective. For example, since 1928, the S&P 500 has experienced a decline of 5% or more in 91 of the past 98 years.
Read that again.
In almost every year on record, we’ve seen the market pull back like this. And yet, time after time, markets have recovered. Investors who stay the course, who focus on the long-term, are the ones who have been rewarded.
So let me ask you: What’s your plan?
Because the difference between reacting and responding is having a plan. The key isn’t trying to predict every market move. It’s making sure you’re positioned to succeed no matter what happens next.
And that’s why sticking to a disciplined process and having a long-term perspective matter over the long-run.
The Bottom Line
Market volatility often feels personal. It’s your retirement savings on the line, isn’t it?
And so, when you see headlines about market swings, it’s easy to wonder, “Is this the beginning of something bigger? Am I missing something? Should I be doing something differently?”
So then, if that’s where your mind is right now, you’re not alone.
But more importantly, you’re not powerless. You don’t have to let fear dictate your financial future. You can make decisions based on a thoughtful strategy rather than short-term emotions.
Whether you’ve been working with our team for years or you’re just starting to explore your options, here’s what I want you to hear: clarity, confidence, and peace of mind don’t come from guessing the market’s next move. They come from knowing you have a plan that’s built for moments like this.
Because at the end of the day, the market will move up.
It will move down.
That’s a given.
But those who stay focused on the long term, those who stay diversified and patient, won’t just weather today’s volatility. They’ll be in the best position to thrive beyond it.
So, the real question isn’t what will the market do next? The real question is: Are you ready for whatever comes next?