Using Your Lower-Income Years to Convert IRAs and Reduce Lifetime Taxes (120)

The years between your last paycheck and your first Social Security or RMD can be the most valuable tax planning window of your life. We call it the Golden Window, and it’s when your income is low, your tax brackets are flexible, and your choices can reshape your entire retirement. In this conversation I lay out the strategy that helped one couple save $180,000 in lifetime taxes without sacrificing lifestyle or taking more risk.

We unpack how to use low-income years to your advantage: converting pre-tax IRAs to Roth at favorable rates, harvesting long-term capital gains at 0% in some cases, and rebalancing or simplifying portfolios with minimal tax impact. Why delaying Social Security and pensions can open room to “fill” the 12% or 22% bracket with Roth conversions today to avoid 24% to 32% later. You’ll learn how proactive moves now can shrink future RMDs, reduce IRMAA surcharges on Medicare premiums, and lower the portion of Social Security that gets taxed.

You’ll also hear a step-by-step case study of Mark and Linda, both retired at 62 with most of their savings in IRAs. By living from cash and brokerage for five years and converting $60,000 to $100,000 annually before age 67, they moved $380,000 into Roth accounts, cut projected RMDs from $78,000 to $32,000, avoided IRMAA, and kept more of every benefit. Common pitfalls to avoid—claiming Social Security too early, turning on pensions immediately, skipping conversions, and ignoring bracket math—and a clear framework to plan year by year.

If you’re looking to build a smarter retirement tax plan and stop tipping the IRS, this breakdown gives you the blueprint. Subscribe, share with someone planning to retire soon, and leave a review with the question you want answered next.

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If you or someone you care about could use the help of a financial advisor and sees the value in establishing a financial plan, please reach out to me. 

Thanks for Listening! 

Jonathan

Episode Transcript

SPEAKER_00 (00:00):
Most retirees miss one of the biggest tax planning
and tax saving opportunities oftheir entire lives.
It's a period of time, if usedcorrectly, that can save you
tens or hundreds of thousands ofdollars.
And if you miss it, there's nogoing back.
It's called the Golden Window.
And today I'm going to show youexactly how to use it, where it

(00:23):
applies, when it applies, thebiggest mistakes I see people
make.
And I'll walk you through a realcase study of how clients saved
$180,000 in their lifetime taxessimply by using this strategy.
Let's jump in.
I'm Jonathan Bedner, certifiedfinancial planner, co-owner of
Paradigm Wealth Partners here inKnoxville, Tennessee.

(00:43):
And today we're going to talkabout tax planning and how you
can use this golden window foryour retirement plan.
What is the golden window?
The golden window is a period oftime after you retire, but
before pension and socialsecurity begins.
For many retirees, this is a twoto 10 year period.

(01:05):
And during this time, yourincome drops dramatically, your
tax bracket falls, and you nowhave the ability to control your
taxable income like neverbefore.
Most retirees don't even realizethis window exists because
they're so used to living off apaycheck.
But the IRS sees youdifferently.
When your income is low, the taxcode opens up massive

(01:28):
opportunities.
Roth conversions, capital gainsharvesting, selling rental
properties with minimal taxes,rebalancing a portfolio without
a tax hit, cleaning up messyaccounts sometimes that you know
just kind of get scattered orpositions kind of get wonky,
shifting money out of IRA taxtraps.

(01:49):
There's a plethora of optionsyou can utilize with some smart
tax planning.
This window slams shut onceSocial Security begins, once you
are forced to take RMDs, if yourpension starts, you take on a
part-time income.
Those things drive up yourincome tax bracket.
And so it reduces or starts toclose this golden window that

(02:13):
strategic people are using fortheir retirement and financial
planning tools.
Why is this window so powerful?
Let me explain.
Lower income means lower taxesand lower tax brackets.
If you say retire at 62 andSocial Security doesn't start
till 67, you may spend fiveyears with no taxable income.

(02:35):
You're living on savings or cashor non-retirement investments.
That means you're able to keepthat income, that tax bracket
low, and you might be in the 10or 12% tax bracket.
I've seen people in 0% capitalgains tax brackets doing some
strategic tax planning todetermine how they're going to

(02:57):
live in this window.
You even could go all the way upto the 22% bracket and still be
relatively low compared to whatit might be in the future.
This is when we start tostrategically fill those
brackets up and potentiallystart doing Roth conversions.
This is a huge win for retirees.

(03:19):
During your working years, yourtax typically at higher rates,
maybe the 24% rate or the 32 orthe 35% or the 37.
And, you know, those higherrates eat a lot of your cash
flow.
In retirement, if you do thiscorrectly, your tax bracket
might drop to 10 or 12%.
And converting IRA dollars at12% to avoid 32% later is a huge

(03:46):
delta that goes right to yourbottom line.
It's not just smart, it's one ofthe biggest financial and tax
planning strategies you canimplement in your financial plan
today.
However, there's a limitedwindow where we can do this.
You see, at 73, the IRS requiresyou to start taking what's

(04:08):
something that's called an RMD,a required minimum distribution.
And if you haven't done properplanning, these RMDs can easily
push you into higher taxbrackets, increase whole
securities, trigger MedicareIRMA surcharges, which are
increased Medicare premiums.
That's very painful andfrustrating for clients, in my

(04:29):
experience, as we've workedthrough this, who don't do the
proper planning and they end uppaying more for Medicare, they
get really frustrated.
And so when this happens andyou're not strategic, these RMDs
become a little bit of a taxbomb in your plan.
They drive your tax brackets up,causing you to pay more taxes.

(04:49):
If executed correctly, Rothconversions during the golden
year will shrink your RMDrequirements, and that reduces
future tax liabilities goingforward.
Social Security can also becomemore tax efficient.
Strategic planning for SocialSecurity starts to reduce how
much of your benefit is taxed.

(05:11):
Traditionally, up to 85% of yourSocial Security could be taxed.
However, with proper taxplanning, some retirees keep 50
to 100% of their benefits justby having some tax planning in
their retirement plan.
Let's walk you through a casestudy of a couple who use this

(05:33):
golden window to benefit theirretirement plan.
Meet Mark and Linda.
They're retired at 62, and Markhad a small pension starting at
67, and Social Security wasplanning to be turned on at 67
as well.
They had$950,000 in IRAs,$120,000 in a brokerage account,

(05:54):
$40,000 in cash, and they neededabout$70,000 a year to live on.
Very modest income, didn'trequire a lot, just covering
kind of their basic expenses.
So they needed about$70,000 ayear.
When we first met, they plannedto take Social Security
immediately, turn Mark's pensionon at 67, and would draw the

(06:15):
rest of their income needs fromtheir IRAs.
On paper, the plan worked.
You know, they had a comfortableretirement.
It looked like they could, youknow, live comfortably to and
through the rest of their days,but it wasn't tax-wise.
It wasn't strategic from a taxplanning perspective.
And they were ending up givingup way more money in taxes than

(06:36):
was necessary.
It's turned out to be a littlebit of a disaster.
So here's the problem.
If they took no action by age73, they would be forced to
withdraw nearly$78,000 per yearjust in RMDs.
That would push them into ahigher bracket, trigger IRMA
penalties, and cause them tohave more cost than necessary

(07:03):
just to pay uh pay the Piper, ifyou will, pay Medicare penalties
or surcharges, pay more taxliability.
And so it was less cash flowthat they kept, even though
their income looked higher.
Their second problem was thegolden window was wide open from
62 to 67, and you miss it.

(07:23):
Their income would be close tozero if they executed it
correctly.
So this was the perfect time todo this.
Luckily, when we met, our planand our recommendation for them
was to delay Social Security at67, delay the pension until 67,
and use the cash and brokerageaccounts to cover living

(07:44):
expenses.
They had a couple of CDs, youknow, they had some savings that
they could utilize.
And so we could use that moneyto live on, keep their taxable
income low, and complete thoseRoth conversions of$60,000 to
$100,000 a year over thatfive-year period until pension
started at 67.

(08:05):
We could even continue to do iteven when pension started
because we still didn't haveRMDs until 73.
But the real sweet spot is doingthis when you have no income at
all, not from Social Security,not from pension, no from not
from RMDs.
Um, because that's when you haveyour lowest tax brackets as a

(08:27):
retiree.
When they executed our plan,here were the results.
They moved$380,000 from IRAs toRoth accounts.
That money now grows tax-freefrom now on for them to use
later on in life or for theirkids to inherit tax-free.
Their future RMDs dropped from$78,000 down to$32,000.

(08:48):
They avoided Irma surcharges.
They reduced the taxation oftheir Social Security, and their
lifetime tax bill fell$180,000.
Five very impactful benefitsjust by having a little bit of
strategy.
That's money they keep now intheir pockets, not having to tip

(09:09):
the IRS.
Most retirees fall into one ofthese traps.
They take Social Security toolong, excuse me, they take
Social Security too early.
They take a pension immediatelybecause it's there, because they
can get to it.
They ignore Roth conversions.
They don't understand IRMA andIRMA surcharges.
They don't understand taxbrackets.

(09:30):
They're not planning ahead forRDs.
They're really just treatingtheir retirement plan, their
income plan, their strategy as,you know, set it and forget it.
Turn the paychecks on and don'tworry about it.
And, you know, often there'sbetter ways to create and build
these retirement plans.
And the golden window is aonce-in-a-lifetime strategy.

(09:53):
You don't want to miss it.
If you have questions about thisand how we can help, we're happy
to have a discussion with you.
You can schedule some time at mylink in the about us section.
My calendar link is there.
You're welcome to schedule sometime.
If you haven't already liked andsubscribed to this channel,
please like and subscribe.

(10:13):
Share it with someone you mayknow.
You know, our goal is to helpyou live with confidence and
clarity in your retirement.
Be confident in your retirement.
Have a wonderful day.