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The Cheapest Tax Years of Your Life: Roth Conversions Before Social Security Starts · Align Your Retirement

• 0:00
  SPEAKER_00: Hey, welcome back to Align Your Retirement.
• 0:02
  SPEAKER_00: I'm Hazel Secko, CFP and CDFA, founder of Aligned Financial Solutions, a fee-only fiduciary financial planning firm for executive women.
• 0:11
  SPEAKER_00: Today's episode is about the cheapest tax years of your entire life, a short window in early retirement that most high earners walk straight past, and that closes for good once required withdrawals begin.
• 0:24
  SPEAKER_00: Let's get into it.
• 0:25
  SPEAKER_00: For most of your life, your income is high, so moving money from your pre-tax 401k into a Roth is expensive.
• 0:33
  SPEAKER_00: Then you retire.
• 0:35
  SPEAKER_00: The paycheck stops, but for a few years before Social Security turns on, often at 70 for the women I work with, and before required minimum distributions begin at your RD age, which is 73 if you were born in the 1950s, and 75 if you were born in 1960 or later.
• 0:55
  SPEAKER_00: Your taxable income drops to the lowest, it'll be for the rest of your life.
• 1:01
  SPEAKER_00: That low income stretch is the conversion window.
• 1:05
  SPEAKER_00: In those years, you can move pre-tax money into a Roth and pay tax on it at bargain rates, and it never gets taxed again.
• 1:15
  SPEAKER_00: Here is the part that makes it urgent.
• 1:18
  SPEAKER_00: You cannot get it back.
• 1:19
  SPEAKER_00: The window is not a strategy you can run whenever you feel ready.
• 1:24
  SPEAKER_00: It is a fixed amount of cheap bracket room available for a fixed number of years.
• 1:29
  SPEAKER_00: And then it is gone.
• 1:31
  SPEAKER_00: Every year you're in the window and do not use it, that year's low bracket rim vanishes.
• 1:38
  SPEAKER_00: You cannot roll it forward.
• 1:40
  SPEAKER_00: And when required withdrawals begin, they force your income up permanently.
• 1:45
  SPEAKER_00: Your brackets fill on their own, and the cheap room is gone for good.
• 1:49
  SPEAKER_00: This is one of the few financial decisions that is genuinely use it or lose it.
• 1:54
  SPEAKER_00: So why do high earners of all people miss it?
• 1:58
  SPEAKER_00: I see three patterns constantly.
• 2:00
  SPEAKER_00: One, you do not recognize the dip.
• 2:03
  SPEAKER_00: You have spent 30 years with a high income, so when it drops in early retirement, your brain reads it as less money, not a tax opportunity.
• 2:13
  SPEAKER_00: You have never been trained to see a low-income year as valuable.
• 2:17
  SPEAKER_00: It feels like a step down, so you don't act on it.
• 2:20
  SPEAKER_00: Two, you wait to be sure.
• 2:23
  SPEAKER_00: High earners are careful, analytical people.
• 2:27
  SPEAKER_00: So you decide to wait and see how the first couple of years go.
• 2:30
  SPEAKER_00: But every year you spend waiting is a year of window room you can never recover.
• 2:36
  SPEAKER_00: Caution here is expensive.
• 2:38
  SPEAKER_00: Three, you let someone else close a window on you.
• 2:41
  SPEAKER_00: The moment you turn on Social Security, your income jumps and the window narrows or disappears.
• 2:48
  SPEAKER_00: A lot of women claim at 62 or 65 for peace of mind without realizing they just shut their own conversion window years early.
• 2:57
  SPEAKER_00: And your CPA is not going to catch it either.
• 3:00
  SPEAKER_00: They file what happened.
• 3:02
  SPEAKER_00: They're not the ones sitting you down in June saying, this is the cheapest tax year of your life, let's use it.
• 3:08
  SPEAKER_00: So the years slide by, RMD age arrives, and the required withdrawals make the decision for you, the expensive way.
• 3:16
  SPEAKER_00: And the cost compounds straight into the widow's penalty.
• 3:20
  SPEAKER_00: Here's the sting: every dollar you don't convert in the window stays in your pre-tax account and keeps growing.
• 3:27
  SPEAKER_00: So your required withdrawals are bigger.
• 3:30
  SPEAKER_00: Your brackets are higher.
• 3:31
  SPEAKER_00: And if you're married, when one of you passes, the survivor gets hit with the widow's penalty on an even larger pre-tax balance.
• 3:39
  SPEAKER_00: Same money, single filer brackets.
• 3:42
  SPEAKER_00: Missing the window does not just cost you now, it quietly raises your taxes for the rest of two lifetimes.
• 3:48
  SPEAKER_00: One more thing.
• 3:49
  SPEAKER_00: The reason this is emotionally hard, and I see this with almost every client, is that using the window means voluntarily paying tax.
• 3:57
  SPEAKER_00: You do not technically have to pay yet.
• 4:00
  SPEAKER_00: Your brain fights it.
• 4:01
  SPEAKER_00: Writing a check to the IRS in a year, you finally have breathing room feels wrong.
• 4:06
  SPEAKER_00: But that is exactly the trap.
• 4:08
  SPEAKER_00: The comfort of not paying now is what costs you and the survivor so much more later.
• 4:15
  SPEAKER_00: The women who do this well are the ones who can hold two things at once.
• 4:20
  SPEAKER_00: Yes, it is uncomfortable to prepay tax.
• 4:23
  SPEAKER_00: And yes, it is the single highest return move available to me right now.
• 4:28
  SPEAKER_00: You don't have to convert everything.
• 4:30
  SPEAKER_00: You just have to stop letting the window close on autopilot.
• 4:34
  SPEAKER_00: Find out if you're in the window, if you have stopped working or will soon, and you have not yet started Social Security, or reach your RD age.
• 4:44
  SPEAKER_00: You're likely standing in it right now.
• 4:46
  SPEAKER_00: That is the trigger to act, not to wait.
• 4:49
  SPEAKER_00: Map your income for each year until 70.
• 4:52
  SPEAKER_00: Every year with room below the top of a sensible bracket is a year of window you can use or lose.
• 4:58
  SPEAKER_00: Decide before December, not next spring.
• 5:01
  SPEAKER_00: Conversions have to happen in the calendar year.
• 5:04
  SPEAKER_00: And since 2018, a conversion cannot be undone.
• 5:07
  SPEAKER_00: A conversion you plan to do soon in a window year that ends is a conversion that never happened.
• 5:13
  SPEAKER_00: If you want the full mechanics of how a conversion actually works, I did a deep dive on that in the Roth conversion window, why your 50s are the most important tax decade.
• 5:23
  SPEAKER_00: I will link it right here.
• 5:24
  SPEAKER_00: Watch that next if you want to go one level deeper on the math.
• 5:28
  SPEAKER_00: If you're not sure whether you are in the window or how much room you actually have, start with my free retirement readiness assessment.
• 5:36
  SPEAKER_00: It takes about three minutes, gives you a personalized snapshot of where you stand and ask a version of these exact questions.
• 5:44
  SPEAKER_00: No account required.
• 5:45
  SPEAKER_00: The link is in the description.
• 5:47
  SPEAKER_00: And if you want someone to map your actual window year by year and size the conversions for your situation, I offer a free align call.
• 5:56
  SPEAKER_00: The link is right there too.
• 5:58
  SPEAKER_00: No pressure, no product sales.
• 5:59
  SPEAKER_00: Follow align your retirement wherever you listen.
• 6:02
  SPEAKER_00: I'm Hazel Secko.
• 6:04
  SPEAKER_00: Retirement is too important to wing.
• 6:05
  SPEAKER_00: I'll see you next time.