4 Tax Moves That Can Save You 6 Figures - Part 1 of 2

Wealth building isn't just about finding the next Tesla, it's about plugging the leaks in your bucket as we've gone over, and sometimes the smartest move is simply not stepping on your own dang rake.

Hello, friends, this is Tyler Gardner, welcoming you to another episode of your Money Guide on the Side, where it is my job to simplify what seems complex, add nuance to what seems simple, and learn from and alongside some of the brightest minds in money, finance, and investing.

So let's get started and get you one step closer to where you need to be.

Before we get rolling today, a quick and familiar ask.

If you've been enjoying the show, I would be eternally grateful if you left a quick review on Apple Podcasts or shared this episode with a friend who has that, I swear I'll figure out retirement someday, look in their eyes.

It's one of the best ways to help us continue to grow this community.

Plus, it tells the almighty podcast algorithms that I'm not just another middle-aged man in flannel muttering about Roth IRAs to my dogs in the Vermont woods.

Which, to be fair, I am, but I'd like more people to overhear it if it's actually useful.

And thank you so much to the thousand or so of you who have already left reviews.

I read every one, even the one that said, sounds like my brother-in-law, only slightly less depressing.

I'll take it.

Now, today we're doing something a little different.

This is a two-part series on tax strategies in your 50s.

Why two parts?

A, because if I tried to cram all of this into one episode, your brain would leak out your ears somewhere around provisional income.

And B, because the moment I started writing, I realized there was so much material that it began to look less like a podcast outline and more like Tolstoy's War and Peace, the unabridged version, and nobody wants a four to five hour podcast episode about RMDs, not even me.

So here's how it's going to work.

Part one, today, we'll cover the first four strategies.

Roth conversions, withdrawal sequencing, making your taxable accounts more tax efficient, and tax loss harvesting.

Part two, next week, we'll get into four more.

the health savings account triple play,

social security timing, plus two bonus strategies, why I'm calling them bonus, I don't know, for the generous and family-minded among you.

Charitable giving and gifting assets to your kids to take advantage of their lower tax brackets, what the pros call bracket shifting, and what most parents call finally making those basement years pay off.

So think of this like a Netflix drop a la squid game.

I'll arbitrarily chop it right in the middle, leaving you quasi-baffled, confused, and possibly annoyed.

But unlike Squid Game, I'll actually release part two before you've completely forgotten who the characters are, or in this case, why you cared about tax brackets in the first place.

You can wait and binge both episodes back to back, or take them one at a time.

Each is designed to stand on its own, but together they give you the full toolkit.

Today's topic is one many of you have been asking for.

How to think about taxes in your 50s.

I know, riveting.

Just the sort of thing you'd hope someone might whisper to you on a beach vacation.

But stick with me, because your 50s are the decade where smart tax moves can make or break the rest of your retirement plan.

We tend to obsess far too much over what return we're making on one mutual fund versus another, and far too little over what we actually get to keep.

And hear me, now and forever, the tax game matters more than squeezing out an extra half percent return in fund A versus fund B.

That's not me being clever.

That's just arithmetic.

You deserve this, my friends, because your 50s are the stage of life where the kids are hopefully off your payroll, or at least not raiding the fridge like raccoons at midnight, and you're finally starting to think about how to stretch those retirement dollars so they last.

So, across these two episodes, I've pulled together eight of the smartest, most practical tax strategies I'd personally use in my 50s, moves that can literally save you six figures over a lifetime.

And today, we'll tackle the first four.

Strategy number one, Roth conversions.

Now, everyone and their cousin talks about Roth conversions.

And everyone and their cousin, in turn, doesn't quite know when to do them, how to do them, or why they'd ever willingly pay taxes early.

And, as always, there isn't one right answer.

There's no one size fits all.

I talk to plenty of people each week for whom a Roth conversion would be about as useful as a solar panel in a Vermont snowstorm.

But, and here's where I'll get bossy.

If I could staple one idea to the inside of your fridge right now, it would be this.

A, get a new fridge that doesn't allow staples on the inside.

B, there exists a magic window of time, usually in your late 50s or early 60s, when converting money from your traditional IRA or 401k into a Roth IRA is one of the best moves you could make.

And here's why.

Taxes don't behave politely across your lifetime.

They spike, they dip, they hop around like an overcaffeeinated toddler.

During your working years, your paycheck shoves you into peak brackets.

Once you retire, but before Social Security or RMDs kick in at age 73, your taxable income often drops dramatically.

Then later in retirement, Social Security plus mandatory withdrawals shove you right back up again.

So that dip in the middle, that's the tax sweet spot.

Ignore it at your peril.

It's essentially a a fire sale on future taxes.

You can take dollars from your traditional IRA, convert them to Roth, pay tax now while you're in a lower bracket, and then let them grow tax-free for the rest of your life.

And the Roth has a superpower.

No required minimum distributions.

You decide when to pull the money, not the IRS, which, if you've ever had the IRS dictate your cash flow, is about as liberating as ditching dial-up internet for broadband.

Time for some numbers.

Vanguard research shows well-timed Roth conversions can save a typical retiree $50,000 to $150,000 in lifetime taxes.

That's not chump change.

That's the difference between taking an annual vacation in Florence or, more depressingly, spending your golden years flipping through Costco travel brochures whispering, isn't it pretty to think so, a la Jake Barnes in Hemingway's Sun Also Rises.

And for the estate planning types out there, Roth dollars pass tax-free to your heirs, meaning your kids won't curse your name every April 15th.

They might curse you anyway, but at least not for the retirement accounts.

Of course, there's a catch.

Anything you convert counts as taxable income in that year.

Convert too much, and you've just shoved yourself into a higher bracket, defeating the entire point.

This is why you don't just eyeball it.

This is why you don't listen to Uncle Larry, who read on Reddit, you can just convert it all at once and never pay taxes again.

You fill up the lower brackets carefully.

Example, in 2025, the 22% bracket for married couples filing jointly goes up to about $206,700 of taxable income.

If you're below that, you can convert just enough to top out that bracket without spilling into the 24%.

That's the sweet spot.

And a final wrinkle, Roth conversions can bump your Medicare premiums, those lovely Irma surcharges, and nothing says happy birthday like realizing your tax strategy just made your Part B more expensive.

But even then, it's often worth it to dodge monster RMDs later on.

So here's your practical playbook.

Start by running a tax projection for the first five years after you retire, but before Social Security.

Next, target conversions that fill up your 22 or 24% brackets, both low by historical standards.

Next, spread them out over several years instead of doing this all in one big chunk.

And revisit annually.

The IRS is always fiddling with brackets.

your income will change, and as we all know, life happens.

And if you want to nerd out, yes, Vanguard has a white paper, and the IRS has publication 590B, which I've read, so you don't have to.

Imagine Moby Dick, but instead of Wales, it's tax codes.

I don't recommend it for light reading.

Bottom line, if you're in your 50s, start penciling in your tax sweet spot, pay some tax now, let your Roth grow tax-free, and thank yourself later.

Or if you prefer the Vermont metaphor, which, come on, you knew it was coming, stack your firewood in August, not January, do it now and future you, shivering at 14 below, will thank you, or at least curse you slightly less.

Strategy number two, withdrawal sequencing.

If strategy one was all about timing, Strategy two is about the order that you take the money back out.

Think of it as retirement's version of the eat your leftovers before they go bad rule, because the order in which you draw down your accounts has a massive impact on how long your money lasts and how much the IRS gets to nibble off the top.

Here's the fun bit.

You're never really taught about this.

No high school teacher ever leaned over your desk and said, pss, taxable first, then IRA, save Roth for last.

We got the Pythagorean theorem, which I've used exactly never, but not withdrawal sequencing, which could literally add years of financial life.

Here's the principle I'd suggest you think about, boiled down.

Start with your taxable accounts, then move to your traditional pre-tax accounts and save your Roth for last.

Why?

Because each bucket has its own tax personality.

Starting with taxable accounts or brokerage accounts, these are full of after-tax money.

You pay capital gains on growth, dividends will show up as income, but they're very flexible.

No 59.5 clause, and cap gains are often taxed lower than your ordinary income.

They're like that first carton of milk in the fridge.

It's already open, already paid for, and expires sooner than you'd like.

Next, I'd move to pre-tax accounts.

401ks, traditional IRAs, 403Bs.

These are the IRS's favorite favorite piggy bank.

Every dollar that comes out is taxed as ordinary income.

And if you wait too long, required minimum distributions, RMDs, will force withdrawals whether you need them or not.

Finally, Roth accounts.

These are the unicorns.

They grow tax-free, come out tax-free, and have no RMDs in your lifetime.

They're like a lasagna that you stashed in the freezer, perfectly preserved, compounding its deliciousness year after year after year.

So let's make this stick by continuing that kitchen metaphor.

Your first fridge, taxable accounts, is like the sushi leftovers.

Delicious, but if you don't eat them immediately, you're playing bacterial roulette.

Fun fact, it's not the fish that'll get you, it's the rice.

Nothing like death by vinegar.

Your second fridge, pre-tax, has chili.

It ages nicely, but every time you open it, the IRS, or your 35-year-old kid still living at home, takes a bite.

Finally, your third fridge, the Roth, has a perfectly frozen lasagna, probably with some Boves vodka sauce, and it'll last forever and taste amazing later.

So don't eat the lasagna before the sushi, yading-a-ling.

So which fridge do you raid first?

Exactly.

Sushi, then chili, then lasagna.

The numbers back this up.

Morningstar research shows that this sequencing can extend the life of a retirement portfolio by two to five years compared to random or reversed order that I just went over.

Two to five years may not sound like much, but when you're 87 and deciding between another winter of heating oil or Boca Rattan, those extra years suddenly matter.

One more wrinkle for the estate planners out there.

Taxable accounts do benefit from something called a step-up in basis when you die.

That means your heirs reset the cost basis to the date of your death, potentially wiping out decades of capital gains.

Translation, if you hang on to taxable assets long enough, the IRS may get nothing, which is one very justifiable reason to also hang on to some of your taxable brokerage later in life.

Of course, as with all things, exceptions exist.

If you're in a low-income year, pulling from an IRA might let you fill up a low bracket and make RMDs lighter later.

Or maybe you're dodging Medicare surcharges and need to mix and match.

But as a default playbook, taxable, then pre-tax, then Roth, it keeps it simple, it keeps it straightforward.

Here's your quick, actionable playbook.

Inventory your accounts.

Write down what is in your taxable, pre-tax, and Roth.

Bonus points if you can find them all without swearing at whatever password manager you use.

Next, estimate your annual spending need, how much you need to live your life, not just survive on ramen and regret.

Then, set a withdrawal order that works for you.

Default to taxable, then pre-tax, then Roth, but adjust annually for bracket filling and what makes sense for you.

Finally, rebalance as you go.

Selling in taxable accounts is a sneaky way to rebalance your portfolio anyway.

And again, for those who want to nerd out, the Bogleheads wiki on withdrawal strategies is excellent.

Vanguard and Morningstar both have Monte Carlo models where you can play with this and different types of variants to your heart's desire.

The bottom line, sequencing is not sexy, and nobody brags at a cocktail party that they took $20,000 from their taxable before touching their pre-tax IRA.

But this unglamorous little habit is one of the biggest levers you have to extend portfolio life and shrink your tax bill.

Think of it as the broccoli of financial planning.

Nobody gets excited about broccoli, but it will, in fact, keep you alive longer and possibly smugly outlasting your neighbor in bokeh.

Strategy number three,

tax-efficient investing in taxable accounts.

Here's a fun surprise that's not actually fun, and this just happened to my father, so trust me, I hear about it.

You open your mailbox in April, you see a 1099 from your brokerage, and realize you owe taxes on money you never even touched.

No, you didn't sell anything.

No, you didn't cash out.

You just got caught in the wonderful world of dividend distributions and fund turnover.

Welcome to Phantom Income.

It's the financial equivalent of your neighbor dropping their compost bucket in your backyard and then asking you to pay the disposal fee.

Here's how it works.

Many mutual funds, especially actively managed ones, which is why I scowl at them like they've just cut me off in traffic, are constantly buying and selling stocks.

Every time the fund sells at a gain, those gains get passed on to you as a taxable distribution.

Even if you clicked that innocent little reinvest dividends button, The IRS doesn't care.

They still want their cut.

So suddenly you're writing a check for money that never even said hello to your bank account.

The fix?

Tax-efficient investing.

If you're going to hold money in a taxable account, don't fill it with investments that behave like overexcited slot machines spitting out taxable events.

The best tools here, as the best tools are in most places, are broad market ETFs or index funds with low turnover.

Why?

Because they're boring, and boring when it comes to taxes is beautiful.

An S ⁇ P 500 index fund might have 2-3% turnover a year compared with 60 to 80 to even 100% turnover for many actively managed funds.

Active managers need to look busy.

They have to justify their fees somehow.

And ironically, their attempts at genius usually just mean more taxable distributions for you.

It's like hiring a babysitter who insists on remodeling your kitchen every time you leave the house.

On the dividend side, be mindful.

Dividend growth funds sound really appealing, but if you don't actually need those dividends, they're just taxable income on a schedule.

Growth-oriented funds, on the other hand, quietly compound without showing up in your mailbox like a tax-collecting Jehovah's Witness.

No offense to the witnesses, the knocking gets a little tiresome.

And if you do need income from taxable accounts, consider municipal bonds.

The interest is generally federal tax-free and often state tax-free if you buy your own state's municipal bonds.

For folks in high tax brackets, the after-tax yield from munis can actually beat corporate bonds.

But just remember, munis are more sensitive to interest rates and, depending on your state, about as easy to find as a good bagel in rural Vermont.

So let's put this in plain English.

Tax-efficient investing is basically the art of not shooting yourself in the foot.

If you don't need income, don't generate it.

If you do, generate it in ways that the IRS can't get their myths on it.

Here's your practical checklist.

Start by auditing your taxable holdings.

Translation, look at last year's 1099s and ask, did I really need this taxable surprise?

Then move high turnover funds into tax-sheltered accounts.

That's where your REITs, bond funds, and dividend machines belong.

Next, keep taxable for tax-efficient growth.

Think broad market ETFs, tax-managed funds, or even individual stocks you'll hold for decades and eventually pass on to your kid still living in the basement, hopefully along with a chili they keep stealing.

And if you need income, explore municipal bonds, especially if you're in a high bracket and your state actually has a muni market bigger than a lemonade stand.

If you want to go deeper, once again, the Bogleheads wiki on tax-efficient fund placement is the gold standard.

It's not a thriller novel, but it will save you money, which is better than most thrillers, honestly.

And will this save you millions?

Probably not.

But tens of thousands over a decade?

Absolutely.

And the best part is, this isn't about working harder.

It's about doing less, or more specifically, having your fund managers do less, which is my favorite kind of financial strategy.

Because remember, wealth building isn't just about finding the next Tesla, it's about plugging the leaks in your bucket, as we've gone over, and sometimes the smartest move is simply not stepping on your own dang rake.

Finally, strategy number four, tax loss harvesting, or making lemons into the best lemonade we can.

It's a strategy that sounds grim, but it's secretly very useful.

Sometimes your investments will go down.

Shocking, I know.

But instead of sulking about it or yelling at CNBC as if Jim Kramer personally shorted your portfolio, you can sell those losers, lock in the loss, and then use it to offset gains elsewhere.

In plain English, it's turning portfolio lemons into tax lemonade.

And the rules are surprisingly generous.

You can use capital losses to offset capital gains dollar for dollar.

Common misconception here is that you can only offset $3,000 of gains.

Not true.

You can offset whatever you have enough losses to offset.

Now, If your losses exceed your gains, you can use up to $3,000 additionally a year to offset ordinary income.

Any leftover losses, they can even roll forward into future years, like the financial equivalent of that box of cables you're convinced will someday be useful.

The only landmine here that you need to know about is the IRS wash sale rule.

That says you can't buy back the exact same security within 30 days and still claim the loss.

So if you sell Apple stock today, you can't buy Apple stock tomorrow and pretend nothing happened and you've got a nice little loss on paper.

The IRS sees you.

They're like that friend who remembers exactly how many cocktails you had at their wedding and insists on bringing it up every single year.

The workaround is simple.

Swap into something similar but not identical.

Sell Coke, buy Pepsi.

Sell your S ⁇ P 500 ETF and for 30 days, maybe hold a total market ETF or a large cap blend fund.

You keep your portfolio exposure, but you still get to book the loss for tax purposes.

Again, is this going to save you millions?

Probably not, but over time, combined with the other strategies, systematically trimming losses and using them to offset gains, if you needed those gains, can save you tens of thousands of dollars.

And best of all, it requires almost no heroics, just a little discipline and a willingness to admit that sometimes, yes, you bought the wrong stock.

Here's your part one wrap-up.

There are four powerful moves that we've already gone over.

Roth conversions in your tax sweet spot, sequencing your withdrawals like a fridge management pro,

keeping your taxable accounts tax-efficient so you don't pay tax on money you never even saw, and tax loss harvesting if you are invested in anything that has losses and you're looking to offset some gains.

But good news, we're only halfway there.

In part two, next week, we'll cover the following: the most underrated account in retirement planning, the health savings account.

Then we'll move to how Social Security can either be your best friend or your nosy neighbor, depending on when you claim.

Then we'll move to two bonus strategies for the generous and family-minded among you: donor-advised funds for charitable giving and bracket shifting by gifting assets to your children.

So if you liked today, make sure you subscribe so you don't miss part two.

And if you really liked it, and for some reason you're still awake after 30 minutes of tax talk, consider leaving a review.

It does help more people discover the show, which means fewer Americans wandering into retirement with nothing but confusion and Costco muffins.

Until then, stack your firewood early, eat your sushi before your lasagna, and make sure the IRS only gets what it's actually owed.

As always, I hope this gives you something to think about throughout the week and helps you get one step closer to where you need to be.

Thanks for tuning in to your money guide on the side.

If you enjoyed today's episode, be sure to visit my website at tylergardner.com for even more helpful resources and insights.

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Until next time, I'm Tyler Gardner, your money guide on the side, and I truly hope this episode got you one step closer to where you need to be.