“The best time to plant a tree was 20 years ago, the second best time is now. ”

Many people are not aware that it’s possible to build a 100% tax free retirement and by the time they learn about it, the opportunity has passed. I’ll write about this in a future article but don’t let that stop you from doing the next best thing. Seize the opportunity you have today with the “Golden Window.” This is the period of time available to most people reading this article today. This refers to the time between turning age 59½ and when RMD’s begin at age 73. During this period, opportunities are available that can dramatically transform how much wealth retirees keep in their pockets vs. paying to the government. Read on to learn more about how this might apply to you and what you can do to plant that tree.

What is the Golden Window? This is the time period when savers are eligible to begin withdrawing retirement funds penalty free and tends to also be their lowest income years. Strategically shifting assets between pre-tax retirement, Roth and Taxable accounts during this period can dramatically change how much of your hard-earned assets will eventually pass to the government.

This opportunity begins with what tends to be savers largest retirement asset, their pre-tax IRA. Typically called a 401(k) or IRA, these accounts hold dollars that have never been taxed and will be taxed when withdrawn at ordinary income rates. If you don’t pull funds out, the government will force you to begin withdrawing funds at your required beginning date; the end of the Golden Window. This is currently the year you turn 73 and is expected to be 75 by year 2033. Moving funds out of this account during low-income years and into a Roth account can often provide meaningful tax savings through a Roth conversion.

How to determine if a Roth conversion is right for you and how much to convert

Step 1: Determine your tax bracket

Add up all your taxable income and subtract the standard deduction amount from your total before locating it in this table. The standard deduction for a married couple filing jointly in 2025 is $31,500 or $15,750 if filing as single. Visit https://www.irs.gov/filing/federal-income-tax-rates-and-brackets for additional tables. If your income does not fully fill up the tax bracket you are in, there is likely opportunity to fill up the bracket with a conversion. Additionally, if the next bracket is only marginally higher, say 12% instead of 10% or 24% instead of 22%, it may be worth converting up to the next bracket.

Step 2: Determine if your tax bracket is likely to change

You may still be in your peak earning years and paying tax at your highest rates. This may not be an appropriate time to begin your conversions. Even if you have room in the 22% tax bracket to convert but anticipate being in a lower bracket in the future it may pay to forego converting today. However, if your tax bracket is likely to never change, it may make sense to convert at the higher brackets now to benefit from tax-free compounding over time and wealth transfer to future generations.

Step 3: How much to convert

Armed with the knowledge of what tax bracket you are in; calculate how much more income you can recognize without bumping yourself into the next higher tax bracket. This is the amount you should convert this year. It’s important to point out this process can take place annually and the “Golden Window” is approximately 14 years in length.

Step 4: How you pay the tax matters

This is where having a taxable brokerage account is a powerful tool. When funds are converted to a Roth account, there will be a tax bill. If the tax bill is paid with IRA funds, it will force you to pull out more IRA funds than what the tax bill calls for. This is because the funds pulled out will need to be taxed, then the amount leftover is used to pay the tax for the conversion. Instead, pull the funds out of the brokerage account, pay the tax, and move on.

Is transferring a substantial part of your wealth to the next generation important?

Pre-tax IRA funds are the worst asset for transferring wealth to beneficiaries. Following the Secure Act 2.0, most non-spouse beneficiaries will need to withdraw all funds within 10 years. Beneficiaries tend to be in their peak earning years when they receive an inheritance. This means the reported income from the IRA gets stacked on top of their working income that is already getting taxed at their highest lifetime tax rate. Odds are they are in a higher tax bracket than the retiree who named them as beneficiary. It is not uncommon to see that balance taxed at close to 50%. The grantor likely intended for more to remain with their beneficiary. If your goal is to transfer wealth to the next generation, it is important to consider them and their likely tax rate in your decision. Favoring a larger Roth balance over an IRA makes sense here.

What if I don’t have enough time to convert my funds?

This is one of the great uses of life insurance. IRA funds can be used to pay the premiums on a life insurance policy. Life insurance is passed to beneficiaries’ tax free and funded with IRA dollars. This has the affect of converting an asset that will be taxed at a much higher rate, 50% in some instances to 0%. This typically makes the most sense when the IRA balance is too large to convert via Roth conversions in a timely fashion.

What if I already retired without a Roth IRA?

There are two possible solutions in this case. One is to pick up a part time job and use the income to satisfy the earned income requirement that is necessary to open and fund a Roth. Conversions can then commence once opened. The other option is to move funds from an IRA to taxable brokerage account. This is best utilized when income is below $96,700 for MFJ. The reason for this is how funds are taxed in a brokerage account. Long term capital gains taxes are a layered tax. This means they are determined after accounting for your ordinary income. If your ordinary income is below $96,700, they are taxed at 0% at the federal level. States may impose their own taxes. This makes them relatively comparable to Roth accounts.

Do all funds need to be converted?

No, the lower tax brackets afford you the ability to still pull funds out every year and pay very little tax. While no tax would be wonderful, it is more about how much tax you pay over your lifetime. Having an IRA balance is good, it’s when it’s too large that taxes become a problem.

I pay very little tax today, why would I want to pay more?

Remember, it is about the tax you will pay over your lifetime or your beneficiaries’ lifetime. Your tax bill may be very small today while the funds sit inside your IRA untouched but with investment growth there can be a much larger looming tax bill. This is definitely a case of the proverbial “kicking the can down the road.” I’ve seen many instances where someone’s current effective tax rate was around 10% but when RMD’s hit they are paying at 22%. Then when the balance transfers to the beneficiary, it is taxed at close to 50% because the beneficiary is a high earner.

Possible reasons not to convert?

You currently need your IRA to cover living expenses
You don’t have taxable funds to pay the tax bill
You plan on giving a substantial amount to charity. Qualified Charitable Contributions (QCDs) are available from age 70½, up to $100,000 annually (indexed for inflation in 2025) and can satisfy RMDs while excluding funds from taxable income. This is a powerful tool for charitably inclined retirees.

Seizing the “Golden Window” is often more an art than science and there is no one-size-fits-all. Often, this is the time people choose to consult with a professional and I would advise doing so. There can be unintended consequences by focusing only on only one area of planning at the expense of others.

Hopefully, this article will benefit you, a friend or family member.

Thank you for taking the time to read this planning commentary. I pray it helps you or someone you care about.

Kyle Lottman, CFA, CMT, CPA
Wealth Management Advisor
Elevate Capital Advisors

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