Cody Garrett and Sean Mullaney: ‘For Most Americans, You’re Going to Pay Less Tax in Retirement’

Hi Longview listeners, it's Christine Benz. We took a brief break from creating new episodes so that everyone on our team could enjoy the July 4th holiday. For this week we're rerunning one of our favorite episodes from the past year. Our conversation with financial planners and tax encyclopedias Cody Garrett and Sean Mulaney. We hope that you enjoy the conversation and we'll be back with a new episode next week. Please stay tuned for important disclosure information at the conclusion of this episode. Hi and welcome to the Longview. I'm Christine Benz, Director of Personal Finance and Retirement Planning for Morningstar. And I'm Amy Arnot, Portfolio Strategist for Morningstar. Our guests on the podcast today are Cody Garrett and Sean Mulaney. They're both advice-only financial planners and they're the co-authors of a new book called Tax Planning 2 and Through Early Retirement. Cody is a certified financial planner and the founder of Measure Twice Money where he helps DIY investors make informed decisions aligned with their values. He also leads Measure Twice Money which is an educational community for financial planners. Sean Mulaney is a certified public accountant and head of Mulaney Financial and Tax. He also writes the blog, FItaxGuide.com which is focused on the intersection between financial independence and taxes. Cody and Sean welcome to the Longview. Thanks for having us. Thank you so glad to be invited back. Well we're excited to have you here and to talk about your book which is called Tax Planning 2 and Through Early Retirement. So the book is focused on tax planning and early retirement and I'm wondering if you can talk about how you define that. There are people who retire very young like in their 40s but there are also people who retire a little bit young like in their early 60s. So who are you pitching the book toward? Yeah that's right Christine. So early retirement for the sake of this book we have to decide what order we define as early retirement. We define that as any time before Medicare eligibility which is typically the month of your 65th birthday. So we actually found a study out there that was kind of surprising that around 70% of Americans report retiring before them both voluntarily and involuntarily. So I would say with that said the book also does cover strategies and tactics through all phases of retirement through the end of life but we'll just say for this purpose today that early retirement is pre 65. Yeah I think if I remember correctly I think the average retirement age is around 62 so even people who aren't necessarily planning to retire early might end up doing so either because of a layoff or health issue or family obligations things like that. So we often hear you know kind of the caricature of an early retiree is that he or she is a high earning heavy saving person extremely frugal. Do most of the early retirees that you've worked with fit that profile? I would say most of the early retirees I work with are generally high earning and generally are high saving and investing. Now they have been helped by equity markets over the past decade and a half which have been very good in terms of returns. The one thing I don't typically see is extreme frugality really to any degree. Now to be fair most of the folks I work with have some identification with the financial independence sort of movement. Now it might just be oh you know from time to time I listen to one of those podcasts right it might be as simple as that. So I don't see extreme spending in terms of the folks I generally work with but I also certainly do not see extreme frugality. So Sean that was you speaking there I wanted to follow up on that and we do want to discuss tax planning first and foremost which is the focus of your book but wanted to ask about withdrawal rates for these younger retirees. Can you talk about how you counsel people as they're thinking about how much they can reasonably spend from their portfolios. I sometimes hear in the fire community sort of this adherence to 4% 4% but how do you encourage people to approach it? Yeah so this is Cody here I would say that I think the 4% rule has become kind of a rule of thumb in a good way. I think that 25 times annual expenses is often mentioned in the DIY the you know the financial independence community. I would say that I encourage anyone who is around that like 15 to 20 times invested that they might consider also this variable income sources so I often find that the 4% rule is seen as a rule rather than a rule of thumb and that means that a lot of DIY investors specifically they're just kind of assuming social security isn't there or if it is there it's kind of the the gravy on the mashed potatoes not the main entree. So I mean I do think that just ignoring social security altogether is a big mistake on the path to and through retirement. I'll also say going beyond the 4% rule in the fire community is also starting to consider risk-based guardrails so you know there's a lot of talk you know Derek Tharp income lab also Aubrey Williams from the by community he's actually teaching a lot of the DIY communities about this idea that life isn't linear and everybody adjust along the way so fire calc projection lab some of these other softwares again assuming you have the fundamental education and you know which assumptions are going into these software you can at least go beyond the 4% rule also including these variable sources of income along the way such as pensions social security etc. Related to that Cody you caution financial advisors against using money carlo simulations with very high success rates and you know it in the book that if you kind of plug in a success rate of 90 or 100 percent you might end up dramatically under spending can you expand on that? Yeah I think a big a common misconception here is that there's no probability of success quote unquote that can go higher than 100 percent so somebody's using a financial planning software you know those long-term projection softwares Monte Carlo analysis it might say hey you know spending a hundred thousand dollars a year it says I have a hundred percent probability of success so I feel comfortable now spending a hundred thousand a year but they don't realize if they bump that up to a hundred thirty thousand dollars a year it might still say a hundred percent probability of success so I first understanding maybe you know in those softwares maybe saying hey like what would bring it down to at least you know 99 percent 90 percent 80 percent etc to find out like what is that top threshold? But also realizing that another way to kind of verbalize or define this as Michael Kitsasoften says that it's not just the probability of success but it's the probability of not making adjustments along the way but even more so especially has were seeing books like die with zero come out in this attitude of there are only four parties that are going to spend your money right it's going to be you your family and friends your charitable organizations or the government that this hundred percent probability of success also means a one hundred percent probability of understanding and undergiving while you're alive when you can really invest in those experiences and memories while you can really enjoy it with the people that you're spending time with Sean do you have anything to add on the withdrawal rate front before we move over to taxes? Nothing in particular you know it's a question that is important it doesn't fascinate me anywhere near as much as taxes because generally speaking we adjust and so most folks for as much as we obsess over this question most folks are going to be successful in retirement if you could save enough to get to retirement financially successfully the odds are that your withdrawal rate will accommodate a financially successful retirement and if markets go down the odds are you're going to make appropriate adjustments and you mentioned taxes being fascinating and the whole issue of tax issues during retirement is very complicated topic with a lot to talk about why did you decide to focus largely on the early retiree cohort? Amy there's three main reasons first there's so many folks that this applies to especially as we see our older Gen X cohorts getting into their 50s and 60s there's just this is a very germane very relevant topic in the personal finance space that frankly has not gotten enough attention tax planning when we combine it with drawdowns second there's so much withdrawal confusion out there folks have no idea they've built up they know are I'm supposed to contribute to my 401k and it's good to have financial accounts and you know index investing has grown very popular over the last three decades that's all great but folks have no idea there's been no planning during our careers there's been no training during our careers for how do I sequentially take this money out in a tax efficient tax optimized way and it's a hard thing to do even on a podcast much less an Instagram reel or a tic-tac or anything like that so having a book with 300 plus pages that we could spend a lot of time on drawdown was very useful and then the third one is there's so much good planning out there and this really applies is can apply in your 50s your 60s or 70s there's so many different tactics and strategies that don't require radical changes to lived experience or financial outcomes Cody and I tend to advocate for simplicity and that's even true in the tax playing now yes some of the calculations can get a little wonky but rare is it that Cody or I would advocate for something that radically changes ones financial posture to achieve tax planning objectives so you know this applies to so many people there's so much withdrawal confusion and there's so much great planning on the plate that's why tax planning for early retirees was such an appealing topic and I'll add to that in terms of the CFP education I went through a few years ago, it was really focused on that kind of traditional retiree. They just happened to be retiring right when Social Security started, right at full retirement age, they're on Medicare, et cetera. But I think there's two things that have changed dramatically. Not just for the traditional retiree, but the future early retiree, is that pensions have largely gone away or been reduced, that shift from those defined benefit pension plans to now the defined contribution plans, 401(k)s, 403(b), TSP, et cetera. And with that comes more responsibility for Americans to fund their own retirement, but also it gives us some fantastic flexibility and tactics for how we control those drawdown strategies and tactics, and how we really reduce our taxable income along the way, so that I think the pensions are great in terms of providing that guaranteed income over time, but those naturally fill up those standard deductions lower brackets. So we're kind of teaching a new cohort that's going to retire with maybe just Social Security and their own savings and investments. So we're trying to teach that cohort how they can still gain clarity and confidence without that pension. Yeah, we want to switch over to discuss some of the specific strategies, but first I wanted to quote something that you write in the book, which is that it's time to move away from fear-based narratives about retirement taxes and toward quantitative analysis. So what are some of the fear-based narratives that you hear in the realm of taxes and retirement? I think there's a lot of fear-based language, words that pop out like bombs, traps, torpedoes, penalties, alongside a sense of urgency, like, act now before it's too late. I know that I was talking with Sean the other day. Anytime there's somebody selling a service or a product to help you on the path to and through early retirement, there's often this idea, this concept of kind of trying to convince you that, by the things you've done in your past financially, you kind of dropped into this well and you're stuck at the bottom of a well, and this professional who's selling their services and products kind of has a rope that they threw over and they're like, I'm the only one who can help you. So I think what bleeds leads in marketing, and I think these words, like, you know, the bombs, traps, torpedoes, again, like they spark fear and excitement about making change. I think that comes with the consequence of, you know, pre-retireies and retirees. Thinking that retirement is binary, it's like a now or never. Like, do I either have Roth or never have Roth versus the idea of having Roth now later or never? So I think, you know, a lot of this marketing has made pre-retireies and retirees assume that every decision needs to happen now or never, and it's, you know, like, act now before it's too light. And I'll add to that, that the commentary also often leads into a political bias, and a lot of times, even when I'm an unspoken bias, this idea that as soon as the other political party comes back into the White House, you're going to get crushed with taxes. And in the book, we actually describe how, you know, both major parties have actually, they've actually made taxes even more favorable, specifically for retirees over the past 10 years. And Sean, in reading through the book, one of the key messages is that taxes in retirement are kind of a series of interlocking parts and that one decision affects another. So in light of that, do you think that standalone tools like a Roth IRA calculator, for example, are those kind of fundamentally flawed? All right, so I think tools can be valid. Now, I will say, they're not my cup of tea because they boil down to someone else's judgment about the future, reduce to computer software. Who is that person? How do I assess their assessment and judgment? So to my mind, it's not all that appealing to use those tools, but it is perfectly valid, and just because not my cup of tea doesn't mean it can't work for DIY retirees or other financial planners. That's all well and good. But I agree with you, Amy, that, you know, sometimes I see people asking online, oh, should I do this Roth conversion? I'm already, you know, I'm 67 years old, I'm collecting my Social Security. Should I do a Roth conversion this year? And I step back, I say, why are you collecting your Social Security? And this person will say, well, I have a million dollars in brokerage accounts. And I say, wait a minute, what are we doing here? You don't need that Social Security right now. You have a million dollars in brokerage accounts. Now, of course, unless they've taken it, I believe it's in the last six months, they have that one dual run Social Security claiming I'd have to look into the details about. But yes, I think it's time to stop think about should I do a Roth conversion? Right. It's time to think about strategically, how should I be arranging my drawdown? And then we can start to marry in additive tactics, such as Roth conversions, which could be very low text. Maybe zero tax. In fact, it's certainly a possibility and wants mid to late 60s. So, look, I'm not a huge fan of, you know, calculators that say, well, you've got to convert up to the 24% bracket. Because, how do I assess that judgment? And, you know, what do we think about the future of taxation? And I think we have to come to our own independent judgments. And for getting that, we should be thinking about a strategic drawdown strategy before we even get into the Roth conversion conversation. So, Cody, you mentioned that both political parties have made changes to make things look a little better for retirees from a tax standpoint over the past decade. At the Boglehead's conference in October, Ed Slaught projected a slide showing that tax rates today are quite low relative to history and suggesting that they're likely to go higher. So, can you talk about what kinds of assumptions people should make about the future direction of tax rates? And also perhaps you too could weigh in on the types of assumptions that you make in your practices when you're thinking about taxes in the future. Sure. I think that the, actually, the question or the assumption about the tax rates going up in the future is actually kind of the wrong assumption to make. So, rather than asking, will tax rates increase in the future, really I should be asking, will my sources of taxable income increase in the future? So, we even have some examples in the book that even if the tax rates, marginal tax rate brackets were to double or increased by 50 percent, etc., that it's really based on not the tax rates, but when will my taxable income be higher? So, I really make assumptions in terms of tax rates based on what's currently known and within our control. And I will say, going back to this last year before the one big beautiful bill, like, you know, a lot of people were assuming that those pre-tax cuts, jobs act, adjusted for inflation are coming back. And there's this push, like, oh my gosh, like I have to convert to Roth, have to convert to Roth. And at that point, I would say that I did assume that they were going up because that's what was set to happen, right? So, I wasn't making assumptions about the tax cuts, jobs acts, or OB/BB coming into play until it did. So, I would say, kind of from like a mindfulness practice and perspective, I encourage clients to say, hey, what's currently known and what's within our control? And then I think, you know, Sean, I love like his, a lot of his political study in this. He created this chart in the book called the Litany of Recent Tax Cuts for Retirees. And it was really fascinating to me to learn how much taxes specifically, by the way, tax rates might go up, but will they go up for retirees specifically? Yeah, Cody, a few thoughts, right? So, some commentators say, well, look at the 1950s. The marginal tax rate at the extreme was 90%. We're in these historically low tax brackets in the year 2025. And I step back from that and I say, well, I can cherry pick that all day. I can go to the year 1916 and say the highest marginal tax bracket was 15%. So, aren't we in historically high tax brackets? Right? I think that analysis sort of falls apart just because we can cherry pick all day, by the way, war tends to increase tax rates and anti-war from what I'm seeing is a pretty popular position right now. But let's step back for a second. Let's look at what's most relevant here, which is the recent behavior of the politicians, right? From 2015 to now, when we record in late 2025, we see time after time, both parties tax cut after tax cut after tax cut for retirees. And during that time period, one, we've had ridiculous national debts and deficits. And two, we've had commentators saying that taxes are going up on retirees. The only problem with those predictions is the future keeps happening and the future keeps happening small or sometimes large tax cuts for retirees. So, at some point, we have to step back and question this assumption that, oh, of course, taxes are going up on retirees in the future. And we also have to think about the political incentives of those who make the laws Congress and the president. In the process of writing the book, we came across an interesting stat from the 2024 election. This statistic claimed that 58% of the electorate in the year 2024 was age 50 or older. So, you have almost three-fifths of the electorate either retired or with their eye firmly on retirement. That does not exactly scream out taxes are going up on retirees. And look, I don't trust politicians all that much, but I do trust politicians to not turn on a dime against their own interests. And those claiming that taxes are going to go way up for retirees are essentially making a claim that today's and tomorrow's politicians are going to turn on a dime against the politicians' own interests. And I struggle to get there. And my thinking is that in the relevant future, for the future of those in the audience who are in their 40s, 50s, 60s, and 70s, thinking about their tax rates and retirement, the odds are those tax rates are going to look something like they look today. I think there's some chance maybe on the margins there might be some very small tax increases. There's also a chance that on the margins there'll be very small tax decreases. Think about folks in the year 2024, just a year ago, if you'd said, Hey, do you guys think taxes are going to go up or down in the future for retirees? Almost all of those people would have said, of course, they're going up. Well, guess what happened? July of 2025 happened. We got the new senior deduction, the extension of the standard deduction being higher, the extension of the lower brackets. Taxes have gone down this year on retirees, even though a year ago, most folks would have said they were going to go up on retirees. >> Even though it sounds like there are are pretty powerful reasons why politicians may want to keep taxes relatively low or reduce them for retirees, do you think that the deficit could kind of force Congress's hand at some point and maybe counteract some of those forces so that they would have to increase taxes even on older adults? >> Amy, the first question I'd ask in response to that is why hasn't the 30 plus trillion deficit or debt required increases in taxes on retirees thus far? In this table that we have of the litany of tax cuts for retirees over the past decade, at the far right column, we include the prior year, September 30th federal debt and it goes up and up and up and yet still the politicians keep cutting taxes for retirees. Second, the politicians can print money, there's so many tools in the toolbox by the way, this year wasn't a year of only tax cuts. If you're an importer, you know that some Americans are paying higher taxes this year. Think about tariffs for a second. Think about tariffs, we had a big tax increase in year 2025, and think about the political environment that caused that to happen. Tariffs appealed to a key constituency in swing states. Think former auto workers in the state of Michigan. Think current auto workers in the state of Michigan. You had a key political constituency behind a tax increase. And so it happened. Now, where's the key political constituency that's going to be for tax hikes on retirees? I'm not seeing it. I'm not here to say there's, you know, everything we say in the book on this podcast is using logic and reason as best we can to provide a best explanation for what the future is likely to contain. Is that 100% guaranteed? Of course not, but that doesn't need, we can't use logic and reason to approach this considering the incentives of the policy makers. The people who are going to make this decision. I'm not getting to a place where I can comfortably say, yeah, you know, there's going to be these massive tax hikes on retirees in the future. And in the year 2025, we haven't had a very favorable environment for taxes on retirees. Is that 100% guaranteed to continue? No, but I do think a relatively friendly tax environment for retirees is likely in the relevant future of most of those listening to this podcast in 2026. We wanted to delve into some of those specific strategies that people can do to try to reduce their tax bills in retirement. Starting with the pre-retirement phase while you're still working and saving, all of us workers have kind of a fork in the road where we could contribute to our traditional tax deferred accounts, Roth accounts, or use non-retirement accounts like a taxable brokerage account. Can you talk about some key principles that we should bear in mind when we're trying to decide which of those accounts to fund? Yeah, I think first of all, we need to understand that those traditional retirement account contributions, those are excluded or deducted from gross income, the taxable income at your highest marginal income tax rate in that year from the top down. I think this is one of the biggest concepts that we really had to come to is that when you're contributing to these traditional retirement accounts, when you're contributing, those contributions are excluded or deducted from your highest marginal tax rate from the top down, but then in retirement when either distributing or converting those dollars, those are added to taxable income from the bottom up. So I think one of the questions we have to ask ourselves with first the traditional or Roth workplace retirement plan contribution decision is we need to ask when I distribute funds from this account in the future which other income sources might fill up the standard deduction and those lowest ordinary income tax rates, the 10% the 12% etc. I have a quick example here. So in 2026, a single taxpayer reaches the 22% marginal tax bracket. Once their ordinary income exceeds about $52,000. So let's say somebody earns $75,000. They contribute $20,000 to a traditional 401k. So they're saving 22%, so saving about $4,400 on that contribution. Then in retirement, that same person, if there are no other income sources at that point, if they distribute it, they would have to distribute over $240,000 from that same account, which is three times what they earn while working to have an effective average tax rate of 22%. So I think this idea that a lot of people think, "Hey, I'm paying 22% my last dollar," they start to think that they're paying taxes at 22% on all their income. So I think really stepping back and thinking about the progressive tax system helps us understand the first decision on do I contribute to traditional or Roth workplace retirement accounts. I think now moving to the Roth IRA or the traditional IRA, I think that's kind of the secondary thing. Most high earners, they're not forgoing a tax deduction by contributing to a Roth IRA, but they would be for going that if contributing to a Roth 401k, 403B, etc. And then lastly, I think the tax will brokerage accounts. I love these accounts, by the way, but I say, be careful about foregoing taxes to build up taxable accounts, those checking savings tax will brokerage. Those are my favorite accounts for the short term savings objectives while you're working. So if you're saving up for that home down payment, paying for a new car, maybe building up an emergency fund, that's where I prioritize flexibility and short term savings objectives over the tax optimization. But most listeners to this podcast are most likely going to be able to contribute a little bit to each thing. So I would start by saying traditional or Roth workplace retirement accounts at work, then maybe doing a Roth IRA at home, maybe using the back to a Roth IRA, and then moving to the taxable brokerage accounts for either extra savings or if you're trying to build up savings for specific short term objectives. So one of the recurrent themes in the book is that always prioritizing Roth contributions isn't necessarily the right call and you might be better off funneling your savings into a traditional tax deferred account. Do you think that people just don't fully understand the way that marginal tax rates work? I've seen a lot of examples online where people go through the math of, you know, well, either you're going to pay taxes upfront or you're going to pay when you withdraw and ends up being the same. But do people kind of not fully understand that you're getting the tax break on the highest tax bracket. But when you're making withdrawals, you have to fill up the brackets before you're reaching that higher tax bracket. >> I think there's a lot of wisdom in what you're saying. So Cody and I stand for the radical proposition that you should pay tax when you pay less tax. And for most Americans, you're going to pay less tax in retirement. And I think two things are sort of misunderstood here. One is when you put that money in a traditional 401k, every dollar benefits at your highest marginal rate, right? So, you know, let's say you're in the 24% tax bracket, every dollar is getting a 24 cents on the dollar benefit that goes into that traditional 401k. And some people say, well, you know, that's a terrible deduction because you got to pay it right back in retirement. Well, I say two things. One, most deductions, you don't get to pay to yourself. This is one of the few deductions you get to pay to yourself, not to the bank or to a charity. So, that's a pretty cool thing. But then second, the taxation of retirees tends to be light. And it goes back to what you were saying, Amy, you go back through the brackets. And this is a particularly powerful planning opportunity for those who find themselves early retired, where maybe the only thing they're living on is traditional IRA or 401k distributions. Okay. Well, it's first taxed against the standard deduction, then the 10% bracket, 12% bracket, 22% bracket. And you're spending at that point in life forms a natural break on your taxable income in a way it didn't during your working years. So, it tends to be that taxation and retirement is relatively light. And if taxation retirement is not light, right, meaning you are paying higher rates than you may have even been on the margins during your working career. Well, that comes with it a coincident event. And that coincident event is incredibly high financial success. So, for all the worrying about these tax traps and the widow's tax trap and oh no, you might have some inefficiencies in retirement. Those inefficiencies come with incredible financial success. Now, I'm not here to say we shouldn't do any planning to avoid those inefficiencies far from it. But I am here to say, well, wait a minute. Have we lost for the forest for the trees? I thought the point of retirement accounts taxed, advanced or otherwise, was to get me and my spouse to and through retirement with financial success. Well, if a traditional IRA or traditional 401(k) does that and it's so successful that creates some marginal inefficiencies in the later part of our retirement, I think it did a pretty good job. That's like a garbage time touchdown in the Super Bowl that you won. So that's my approach on that. Cody, I want to follow up on something you said, which is the role of taxable accounts. You said that you really like them for a lot of retirement savers. And as I was reading through the book, it struck me that they're especially useful if someone plans to retire a bit early. Can you talk about why that is? Why they are actually not. So what's the cost of the taxable account? So what's the cost of the taxable income that's taxed potentially at ordinary rates? So that's a combination of saying, hey, you know, take money out of taxable accounts before at location, you're going to be reducing the ordinary interest income coming off of those bonds. And by the way, by keeping, let's say you can have 100% stock in your taxable assets. Let's say the market goes down. So even though the market's going down in your selling stock, you can jump over potentially to those pre-tax accounts, sell bonds, and buy stock simultaneously. Again, your asset location can change, but your asset allocation that you desire stays the same. But when you sell stock even in a down market, even though you're selling stock down, I mean, you're buying it low in the other account, simultaneously, you might be able to take advantage of what happens when the stock market goes down and you sell stock. If it's an taxable account, then you receive the opportunity to do maybe some either tax loss harvesting. Maybe you have some tax lots with some unrealized capital loss. And you might also have the opportunity for simply less realized capital again than you had before. So it really sounds counterintuitive. I think that simplicity is key moving right into retirement. But once you have a fundamental clarity and confidence in retirement, you might want to consider, hey, even though I'm holding stocks in my taxable account and drawing from this first, even if the stock market goes down and I'm worried about sequence of returns, I can still sell those stocks with less capital gain or maybe a capital loss, go into those pre-tax accounts and immediately rebalance back to my desired asset allocation without affecting sequence of returns risk. But the last thing we want to do is add a big chunk of taxable income, including a really aggressive Roth conversions and the early part of retirement when we care most about sequence of returns risk. So what about for people who are in the very common situation of returning with the bulk of their money and traditional tax deferred accounts? They don't have much in those taxable accounts. They might not have much in Roth accounts. What strategies should they be considering? So it's funny. So I think that the strategy actually doesn't change that much. So this question about retiring with the bulk of their money and traditional, I would say that the strategies don't change that much. You just have less taxable assets in terms of runway. So taxable accounts would likely still be spent first. I would say that the Roth accounts, one big thing, kind of a common misconception. A lot of us think that your health savings accounts are HSAs and a Roth IRAs. We're really excited about this tax-free, long term, tax-free growth. And I would say that I would really, especially if you're retiring with mostly traditional retirement accounts, and maybe you have some Roth or HSAs, maybe you use those Roth accounts by those tax-free accounts to tactically avoid jumps into higher tax brackets, or maybe some of those Irma brackets, some other things that people are concerned about in retirement. Let's say I'm at the top of the 24% bracket about to jump into the 32, and I only have traditional, and maybe a little bit of Roth money, maybe I actually jump into that Roth money early to avoid jumping into those higher tax brackets. Another consideration here is that if you're retiring early, so specifically before age 59 and a half, you might also have to consider some early distribution strategies to avoid the 10% early withdrawal penalty. So we talk about the book step-by-step, there's substantially equal periodic payments, also called SEPP 72T plans, or the rule of 55. So the reason I mentioned this is, let's say you retire at age 55, and you only have traditional retirement accounts. That's an opportunity to say, hey, even though I don't have any taxable assets, maybe I can still take money out of these retirement accounts. They're not locked up like a lot of commentary says around there. Like there's access in that example of to the rule of 55. You have to be thoughtful about if you're gonna keep your money in your 401k, 403b, or other qualify plan versus roll that into a traditional IRA. But again, there's a lot of things to think about, but I would say that don't be scared if the bulk of your money is in traditional retirement accounts. That probably means that you had some incredible tax deferral opportunities along the way. And I think what happens is when retirees are starting to draw down for these accounts, they look at the taxes they're paying and get a little scared, but they forget about all the benefits that were given to them when they were deferring that income while working. - We often hear people complain about required minimum distributions, they don't like paying taxes on them, and they worry about the fact that they're taking money out of their portfolios. But you make the point that the RMD parameters are pretty generous and conservative. Can you talk about that a bit more? - Yeah, and the world has changed here. And I think too many advisors are still singing off the 2017 song sheet. So let's think about three big changes when it comes to the taxation of RMDs that have occurred in the last eight years. The first one is lower tax rates and the higher standard deduction. These were initially temporary for eight years, starting in December of 2017, they're now permanent. Both those developments are essentially tax cuts on RMDs. The standard deduction is actually a big tax cut, having a higher standard deduction has this great effect of lowering the tax burden on RMDs the way the tax rules work. So that's one big change from 2017. Second big change is the IRS and Treasury starting in 2022 changed the RMD table. So most RMDs have been reduced because of this change in the table. I believe it's roughly 7% it varies RMD to RMD. But essentially by reducing the amount of each year's RMD, you're reducing the highest tax portion of that RMD. So that's another big change that few have commented on. And that the third one is the delay in RMDs, right? If we were talking, we were having this conversation eight years ago, we'd be saying, well, RMDs start when you turn 70 and a half. Well, now if you are born in the year 1960 or later, meaning you're 65 or younger as you're listening to this podcast, maybe 66, if it's 2026, your RMDs don't start 70 and a half. They start at 75. Congresses have now canceled four or five RMDs and oh, by the way, the RMDs they canceled are the four or five RMDs most likely to happen by definition. And you have to step back and say, well, wait a minute, how much are these RMDs? Like what percentage of the account do we have to take out? At 75, you have to take 4.07% of the account. Is that a safe withdrawal rate for a 75 year old? I certainly would argue it is. What about at 85? It's going to be a huge number. Well, it's 6.25%. Again, is that a safe withdrawal rate? 6.25% for someone who is 85 years old. So I think it's time for practitioners, for retirees, for those thinking about retirement, to update our thinking when it comes to these RMDs. They have very much changed since the year 2017. And it turns out they're not all that onerous and they don't require that large of a taxable distribution when they start, which again is 8.75 for those born in 1960 and later. And I'll just quickly add to that for those terribly inclined. At the point that RMD start, you already have access to those qualified charitable distributions. There's a quick reminder here that I've heard this a lot that a lot of people assume that, let's say, I have a $300,000 RMD. It's somehow perceived that you have to spend that money. It's not that you have to spend that money. You simply have to turn that asset into income. You just have to pay ordinary income taxes on that income. But it's up to you what you want to do with that net distribution. So the government is not forcing you, you know, they're not taking the RMD. They're forcing you to receive it as taxable income. By the way, a lot of people are even saving and investing their RMD along the way for maybe some future inheritance. Yeah, such an important point, Cody. I wanted to ask, and it's a huge topic, but Roth conversions. You've touched on a couple of times. Can you share any rules of the road? Maybe talk about life stages when it tends not to be super advantageous to consider Roth conversions, as well as when people should lean into them potentially. So Christine, I would start with the pre-medicare years. So these are the years that many early retirees are going to be on an ACA medical insurance plan. And thus, the so-called premium tax credit could be a very significant planning consideration. And as we record this in November of 2025, this is an area subject to flux. We don't know what the 2026 parameters on the premium tax credit are going to be. But regardless of that, when we are trying to manage for premium tax credit, we're essentially subject to two levels of taxation, federal and state income taxation, and reduction in premium tax credit, that functions like an income tax. So if we're going to be subject to two levels of income tax in this one and only one part of retirement, that's not a great time to trigger additional taxable income for most retirees. So I would argue that for those retirees, thinking about managing for premium tax credit and who have an opportunity to get thousands of dollars annually for premium tax credit, the Roth conversion is probably not an ideal tactic. But let's go to what we refer to as the golden years. Generally speaking, our 66th through 69th birthday years, these four years have some really good attributes. One, we don't have to manage for premium tax credit. Two, we don't have to claim social security. We can delay that to age 70 and increase the amount annually collected by delaying. And three, we're not subject to RMDs. So these four years, the world tends to be our oyster. And during these four years, we have a high standard deduction. And we now have the senior deduction. Now that's quote unquote temporary. for four years, we'll see if that is really temporary or not. But regardless, these four years tend to be the best, in my view, the best Roth conversion years because we don't have required income, we could delay Social Security, we're not managing for premium tax credit. These are the four years I think most retirees should be most thinking about Roth conversions. Now, let's play it out to when we turn 70 and now we have to be taken to Social Security or we're absolutely leaving money on the table. Of course, we're going to claim it. Now it becomes a lot tougher because that Social Security is filling up the standard deduction, maybe the 10% bracket, maybe even into the 12% bracket. Creating income at that time can also be deleterious because it can increase the amount of Social Security subject to income tax. It can reduce the new senior deduction. So those years, once we start claiming Social Security, I struggled to say that Roth conversions are going to be all that advantageous. And then for those born in 1960 and later, we start taking our RMD at 75. Now I start questioning the need for Roth conversion because one thing about RMD is a few comment on is RMD is somewhat self-correcting problem. This year's RMD reduces next year's RMD to a degree. And so if we're already hiving down these retirement accounts and we're worried about RMD's and we're taking an RMD, why are we so gung ho on the Roth conversion post RMD's when the RMD itself is starting to manage for the future RMD quote unquote problem? It's a really interesting point about how RMD's are sort of self-correcting. So Cody, if I'm an individual investor or a consumer trying to plan for retirement, are there any good tools available that can help someone with tax planning before and during retirement or are the best tools mainly for financial professionals? Yeah, so I like to break these into two parts. I think first of all, with very careful assumptions and also a fundamental education about how tax prep and tax planning works. First off, we have to think about what are some tools for current year and last year's more on the tax prep size. So tax prep usually looks backwards and tax planning usually looks ahead, maybe even decades ahead. So for current year or previous year tax prep, you might look at things like dinkytown.net. Again, this is, you know, do your own due diligence on these things, but dinkytown.net has some, at least what I found are some helpful tax calculators. That's on like the DIY, like the non-professional side on the financial professional side. A whole list of plan is becoming really popular with kind of looking at, hey, like let's look at like three different, you know, customized scenarios for what your tax return might look like. If we do Roth conversions, if we don't, how much does that increase the taxation of social security, right? As Sean mentioned, and then for long term projections, again, be very careful with those assumptions that somebody else has made for you. Again, the outputs are only as good as the inputs, right? So definitely measure twice when doing that. That long term projection software for retirement, including tax planning. I think the two most common for the DIY are the non-professional are bolden, which used to be called new retirement, now called bolden, bolden.com. And then Perlana, don't have that off the top my head, but Perlana is more of an excel-based tool that was actually built within the Boglehead community. There was an excel-based tool, but now they have a browser-based tool. That's called Perlana. Those are both available to the public. And then again, financial professionals typically are using something like a whole list of plan, e-money, right capital, money guide pro. But a lot of those are only accessible to financial professionals. Well, Cody and Sean, I know we have just scratched the surface of some of the topics you cover in the book. Thank you so much for being here. We've learned a lot and we've really enjoyed speaking with you today. Thank you guys. Thank you so much for inviting us. Thanks again to all of the view. Thank you for joining us on the long view. If you could, please take a moment to subscribe to and rate the podcast on Apple Spotify or wherever you get your podcasts. You can follow me on social media at Christine Bens on LinkedIn or at Christine_Bens on X. And at Amy Arnaut on LinkedIn. George Cassidy is our engineer for the podcast. Jessica Bebble produces the show notes each week and Jennifer Garrett copy edits our transcripts. Finally, we'd love to get your feedback. If you have a comment or a guest idea, please email us at the long view at Morningstar.com. Until next time, thanks for joining us. This recording is for informational purposes only and should not be considered investment advice. Opinions expressed are as of the date of recording and are subject to change without notice. The views and opinions of guests on this program are not necessarily those of Morningstar Inc. and its affiliates, which together we refer to as Morningstar. Morningstar is not affiliated with guests or their business affiliates unless otherwise stated. Morningstar does not guarantee the accuracy or the completeness of the data presented herein. 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