Tax Planning To and Through Early Retirement | Cody Garrett & Sean Mullaney | Ep 565

25:52but it's so, it's like once you hear it, you cannot hear it. And okay, Sean just said, and of course, this is an extreme example, right? These people are living off of$200 ,000. That means their expenses are$200 ,000. But then he shifted and said in their earning years, they were earning$200 ,000. Well, these are obviously two totally separate things. And of course, Sean knows that. He was setting up a crazy example. But really, think about your current income. Okay. And this, guys, this ties into what you were saying a couple of minutes ago, which is people vastly overestimate the amount of income they're going to need or the amount of cash they're going to need, and therefore the amount of tax they're going to pay in early retirement.

26:31And it's because of this fundamental misunderstanding, which is, let's say you made $200 ,000 as a married couple, which is a great income. Well, in that, you're going to have that 20-odd thousand dollars of tax that Cody just mentioned. And by definition, to get to FI, you have a significant savings amount, right? So if you got to FI in 15 years, you probably had a 50 % savings rate. Okay. Well, you take your$200 ,000 of income, you subtract out even just say$20 ,000 of tax, even though we think it's going to be significantly higher than that with the FICA, which Sean mentioned, which is just the payroll taxes and then additional tax, but you're down to 180.

27:11You probably have 50 % savings rate on that. So your actual living expense, your life costs$90 ,000. That's what you need to replace people. This is the most important thing. It's not relevant what your income was. It's what does my life cost? That's what I need to replace in early retirement. And that's where this book comes in, which is basically saying we have all of these strategies, Congress, many Congresses and the presidents have showered us with benefits of, we get this massive standard deduction. We get this massive long-term capital gains. There are premium tax credits, which we can talk about also.

27:47When your anticipated needs and therefore your income is low enough, you are just simply not going to pay that much tax, which is wonderful. And this gets to an issue we tackle in the book. And we have a little saying in the book, pay tax when you pay less tax. What we have just demonstrated in this conversation, and none of this is about the exact dollars and cents, but what we have demonstrated is workers tend to pay a lot of tax. Retirees tend to pay relatively modest taxes on average. So when do you want to pay your tax? Do you want to pay your tax when you're working and you're paying a lot of it?

28:25Or do you want to pay your tax when you're retired and you pay a lot less of it? So we say pay tax when you pay less tax. And for the vast majority of Americans and the vast majority of listeners, you're going to pay less tax in retirement. So doesn't it make sense to push off the tax burden into retirement? And doesn't that have a lot of relevance for the whole traditional versus Roth conversation? And Cody and I are not anti-Roth. Let's be clear about that. But what we are for is assessing known trade-offs. And when we work and we put money in a Roth 401k at work, we are sacrificing a tax deduction at what might be our highest marginal rate.

29:07What we're essentially doing by electing a Roth 401k instead of a traditional 401k is we are electing to accelerate and increase taxes in most cases by paying them when we pay the most tax. When we do a traditional 401k, what we're saying is we're going to defer that tax. And by deferring it, almost certainly not 100 percent guaranteed, but very, very likely we are decreasing that tax. And we see commentators, and there are very influential commentators who just love Roth 401k, Roth 401k, you got to do the Roth 401k. Well, wait a minute. Isn't that in most cases, even for very affluent people, an invitation to both accelerate tax and increase tax by paying tax when you pay the most tax?

29:53So that's a lot of what the book is trying to get at is these marginal decisions and trying to pay tax when we pay less tax. And the reason, by the way, that most retirees will pay less tax in retirement is that even if the tax rates go up, their sources of taxable income go down. So I think the focus on the Roth versus traditional, you know, again, that the ongoing kind of debate about Roth versus traditional has been focused on the tax rates rather than focusing on your future sources of taxable income, which is certainly something that requires a step by step calculations. And one thing I'll add to this is you might be saying, well, I might not retire early.

30:32I might retire later. I might retire once a pension starts. I might retire after Social Security, etc. And one thing that we make sure to cover in the book is that we call these the five phases of retirement, if we want to go into more detail here. But there are unique strategies and tactics in each of those phases. There are both challenges, but also opportunities in each of those phases that we certainly want to talk about because we know that every listener, every reader is going to be in a different path to and through early retirement. And we didn't want to just focus on like one situation throughout the book.

31:01Yeah, I love those five phases. And I would like to dive into those here in a minute. But let's just take one more second and just be explicitly clear, right? So we're talking about the potential option for Roth versus traditional accounts. And as Sean has said repeatedly, there is nothing in this episode that is investment advice or financial advice to you specifically. The three of us are just talking here, obviously. But how I've always looked at this, and again, to be clear, Sean, you have always been a massive proponent of the Roth. I know we've had you on and you've helped open my eyes to some things like, hey, when you put money into a Roth, when you contribute to a Roth, you can pull that contribution out tax and penalty free at any time.

31:41That was really, I knew it in the back of my mind, but that was a revelation in terms of, okay, if you're having money parked somewhere and you have the option to put into a Roth and it's either a zero or one in essence, there's no reason not to put it in a Roth in that kind of absent everything else. We're not talking about any other circumstance. I'm just saying if you had the option and your question is, oh, but I don't want it tied up. It's not tied up. You can pull those out tax and penalty free at any time. So Sean, you're bona fides in terms of you're a Roth fan. But what we've always said here, and I think what you guys are talking about in the book very explicitly with numbers and examples is I've always called it control what you can control, which is I know what my marginal tax bracket is now on these contributions.

32:26And I think there is a very high probability if I was a betting person, which I think is how you have to look at these types of scenarios. If I was a betting person, there was a very high probability that I personally will be able to pull this money out at a lower tax rate. Just hard stop, end of story. So therefore, I try to max out my traditional accounts, anything that gives me a tax deduction in the current year now. Because that I can control. And I think because I follow the path to FI and my life doesn't cost that much in the cosmic scheme of things and the government showers these benefits on me.

33:01I think there's a very reasonable chance I'm going to pay zero dollars in federal tax in my particular situation. Now, if I had to pay a couple grand, if I have to pay a 10 % effective tax rate, am I going to cry about it? No, of course not. I'm still winning by miles. So that, guys, is how I look at this. I know that's kind of like an encapsulation of, I think I'm looking at myself as a reader of your book and saying like, okay, this is helping me get clarity on this. And I think people can read this book and look at their own situation and say, oh, I think I will fit into that. That is clear to me now.

33:35And I want to add there that I think a lot of this comes from this urgency of my only opportunity is to do Roth right now or never. You're going, I love Roth. And the only opportunity is to choose it now or never. And I think that this book certainly, or just this conversation as well, helps us slow down and understand it's not now or never with Roth. It's now, later, or never. And a lot of our book actually focuses on, hey, maybe not Roth up front through your workplace plan, but maybe Roth later, again, when your income tax profile is much, much lower. And I know Sean even talks about maybe even doing some, what he calls the hidden Roth IRA distributions or Roth conversions, maybe even paying 0 % tax on those conversions, not now, but later.

34:17Yeah. And taking some commentators' arguments on Roth 401ks to their extreme, if the only thing someone ever did at work was a Roth 401k, which is a theoretical possibility today, you get to retirement, whether it's early or conventional. And the one option not on the table is Roth conversions. So sometimes you'll see some of these commentators, they're all for Roth conversions, but then they're also all for Roth 401k contributions at work. And it's like, wait a minute. If you only do Roth 401k contributions at work, you can never do a tax advantage Roth conversion. So look, I'm not here to say that a Roth 401k can never make sense, but boy, traditional 401ks have a lot of advantages.

35:00One of them is a potential lower no tax Roth conversion in the early to mid part of one's retirement. Thanks for listening to Chooseify and for all your support of our mission here. The absolute best way to support Chooseify is when you sign up for your next rewards credit card to use our cards page at chooseabout.com slash cards. I keep this page constantly updated, so it should always be the top resource for you. Thanks for being part of our community and for your support. Well, let's talk about that, Sean. So give some detail on how that might work for somebody. And I assume this is the intersection of the significant standard deduction and lower income needs, maybe some living off either taxable brokerage or cash accounts or long-term cap gains, but why don't you paint the picture of how that would work specifically for someone?

35:50Yeah. So let me paint you the picture of what in the book we call the golden years. So this is the 66th through 69th birthday years. And if you have a married couple that both are in that range, boy, you can do some really good tax planning. So say that couple is retired and they're still living off taxable brokerage accounts. All right. They have so much green space for good Roth conversions, good tax planning, because they don't have to be claiming social security at this point. They're not subject to RMDs, and they don't even have to worry about the premium tax credit. So what that couple could do is they could live off these capital gains, and because of basis recovery, their income is really low.

36:31Well, that couple now has the standard deduction of$31 ,500. In 2025, they have an additional standard deduction as long as they're both 65 of 3 ,200, and they now have a senior deduction of up to$12 ,000. So some quick math on that is$46 ,000. Okay. Let's say their only income is a little bit of long-term capital gains, just a little bit of qualified dividends, and$1 ,000 of interest income. Okay. What that couple could do before the end of 2025 is a$45 ,700 Roth conversion. So go into the old traditional IRA, traditional 401k, move$45 ,700 to a Roth account. That's taxable. But what they've just done, in my example, they only had$1 ,000 of interest income.

37:23So the 45, 7 of taxable income we just created with that Roth conversion, that gets sheltered by the combination of the standard deduction, the additional standard deduction, and a$12 ,000 senior deduction. And the capital gain is likely not guaranteed. You got to measure twice on this, but you can see that the capital gain might not get to the top of that$96 ,700. So that would be a$45 ,700 tax-free Roth conversion. In the book, we call that a tailored taxable Roth conversion or a TTRC. And the idea there is that's free money. You literally just moved 45.7, in my example, from a tax-deferred account to a tax-free account, totally tax-free, fantastic planning.

38:12And this exists out there in the world. And so folks should be attuned to it, especially in what we call the golden years, 66 through 69. design whether you're single, you're married, you've got to be attentive to this. It could be a really good opportunity to get some money into a Roth account through a quote unquote taxable Roth conversion you pay zero federal income tax on. Yeah, that's incredible. And for people who are not in that age bracket, and we're talking somebody who's maybe early retired in their 40s, let's say, all is not lost. It's just you don't get those additional benefits, right?

38:45You get the$31 ,500 of if you're married, filing joint, of course, you would get that standard deduction. So that would be entirely tax-free on this Roth conversion. And then even, quote unquote, worst case scenario, the 10 % tax bracket goes up to$23 ,850, it looks like, for 2025. So you're talking, you could pull the$31 ,500 plus$23 ,850. So what is that? $54 ,850 for only 23.85 in tax, which is a tiny, tiny, tiny little effective tax rate that's somewhere somewhere in the vicinity of what a four and change percent. So, I mean, this is, this is why this book exists guys, right? Like this is why everybody needs to understand there's nothing to fear, especially for those of us in the five community in terms of some crazy tax bomb that I think people are somehow have in the back of their mind is going to befall them in some bizarre way.

39:39And like, it's hard to come up with a scenario. Anyway, Cody, we did this on a recent episode. Like you came up, it was the, the putting the middle-class trap to bed was our article. I'm like, you came up with the most extreme examples of like a worst case tax scenario. And it was still something at crazy low effective tax rate. And I think that's just such an important takeaway for everybody is like, there is nothing to fear. And these guys have explained it in great painstaking detail, like with a hundred plus examples of why there's nothing to fear. So Cody, I know that's a big mouthful, but I think you had a follow-up on that.

40:14Yeah. And what Sean described earlier, those golden years, that's what we call phase two of the five phases. And a lot of you might say, well, I mean, what do I do before that? So if I do retire early before Medicare, I know a big consideration, certainly Sean mentioned the premium tax credits, right? Those health insurance subsidies, if you're covered through the ACA, There's some changes coming, but also some opportunities coming. So if you'd like, Brad, you want to talk through some of those phase one opportunities? Yeah, let's do it. Sure, sure. So maybe we can hand these back and forth between me and Sean here.

40:44So phase one is that early retirement. And we call early retirement really any time before Medicare eligibility. So that'd be anybody retiring before 65. And we actually found some crazy stat out there that said about 70 % of retirees retire before age 65, which is kind of mind-blowing. So we thought this book would be for like a niche community and like, oh, wait, this book might be appropriate for 70 plus percent of Americans retiring before 65. So, you know, we talk about this order of operations for accumulation. Right. You hear about this all the time in terms of when you're working, what should you contribute to?

41:16Maybe you should get the employer match right through your 401k, at least contribute enough to get the match. Maybe you do HSA contributions, maybe do Roth IRA, backdoor, et cetera. But we don't talk much about, again, the drawdown. You can actually create a distribution order of operations. So Sean and I have laid out what, again, not advice for you, but our favorite or preferred approaches for that order of operations for the early retiree starting in phase one. And a lot of people in phase one, they might have money in a checking account, savings account, taxable brokerage, maybe a traditional IRA, maybe a Roth IRA, HSA.

41:52But for the most part, again, kind of across these phases, it's almost like, how can we reduce the amount of ordinary income? One of our lessons of the book is actually keep ordinary income low in retirement. So how would you do that? How would you retire early and keep ordinary income low? The first thing is to say, how can I live off of money without any income, ordinary or capital gains? And that might be simply living off of checking accounts, savings accounts. And then you go, what's the next step after that without ordinary income? It's maybe selling some appreciated securities, maybe selling some of that VTSAX we keep coming back to, right?

42:25With that basis recovery that we mentioned that you're not taxed on what you sell, you're taxed on what the realized capital gain was, the difference between the amount you bought it for and the amount you sold it for. So checking savings taxable brokerage, you might actually have enough money right there to live on that you actually don't need anymore. And again, you could have a very, very low tax rate. We also talk about, it's really important in phase one before Medicare, if you are covered by the ACA, the health insurance coverage, that premium tax credit eligibility is based on your modified adjusted gross income.

42:57And for simplicity today, we can just say your total sources of gross income, or some people call it taxable income, but your goal is to control income and keep your investment earnings low, right? Also keep really all income sources as low as possible, but without going too low. And maybe, Sean, I'll let you take over for this. There's this idea that you actually want gross income in early retirement if you're covered by the ACA. That's right, Cody. So there's an issue about qualifying for a so-called premium tax credit, which is a big subsidy against your ACA insurance premiums. If you don't have sufficient income, based on the way the rules are written, you don't get one of these things.

43:35So it could be a disaster to show very low income, well, what's the easiest way to show at least this modicum of income? Generally speaking, at least 100 % to 138 % of the federal poverty level for your household size. The easiest way to just quickly turn that on in early retirement is to do a Roth conversion. That way you get to the requisite threshold in your state just to make sure you turn this thing on and great. You just did a tax-free Roth conversion and oh, by the way, you'd now qualify for thousands of dollars of premium tax credits. And Brad, this is actually though an area where we need to be at least somewhat conservative because people love these Roth conversions.

44:14And in fact, sometimes you'll see online, oh, I need to do a Roth conversion, which I generally disagree with that. It can be beneficial, but it's rarely a need. Although if we're going to lose out on thousands of dollars of a premium tax credit, we can go ahead and call it a need. But sometimes people say, well, I know I need to be doing big Roth conversions early in retirement. and I generally say probably not. But one of the things to consider in the first part of retirement with Roth conversions is you're essentially subject to two levels of tax at that time if you're on an ACA plan because you're subject to the federal income tax.

44:46Okay, we always know that. But you're now also subject to a reduction in the premium tax credit based on having more income. And that could be anywhere. I mean, it really, it could be 2%. It could be into the teens in terms of a percentage reduction in terms of the effective tax rate on that, even though it's not really a tax, but it behaves like a tax. So we have to plan for it like a tax. So it's a time to be conservative. But like Cody's saying, there can be times where you need to turn on the premium tax credit and why not do a modest Roth conversion to do that? Sean, two quick questions. So I think you said something like you want to have your income over, I don't know, 138 % was the number that I thought I heard of the federal poverty level of income.

45:28That's before the standard deduction, I'm assuming? Yes, that's just income. It has nothing to do with the standard deduction. And that's to avoid Medicaid eligibility based on income level, based on your state's rules. And so that's a little bit of a rabbit hole we can't get into today. But essentially, my understanding is most states are going to say, you're income eligible for the state's version of Medicaid if your income for the year is below 138%. That's a general rule, just a rule of thumb. You got to look at your own state's rules. So we want to avoid that. And the way we avoid that is by just triggering some Roth conversions and rounding up in that case, not rounding down, just to make sure we don't have too little income because we don't want to qualify based on income for Medicaid.

46:14And now we can't get a big premium tax credit against our ACA medical insurance plan, which is probably what we're going to want to be on. We're not going to want to be on Medicaid from a planning perspective. We're going to want to be on an ACA plan. And the book, we go through the four tiers, bronze through platinum. And we talk about the computing premium tax credits, planning for this. People worry that they can't retire because of health insurance. And I would argue for 95%, maybe more of the audience, if you have financially sufficient assets, you should be able to retire because the ACA plans, while not perfect, are good enough to prevent financial ruin in the event of high medical need.

47:00Look, we could all be in car accidents. You always need to have at least some modicum of medical insurance, in my view, to prevent against financial ruin. And I think the ACA plans are good enough in that regard so that medical insurance for the vast, vast, vast majority of the listeners should not be a gating issue in terms of, do I retire or do I not retire? And I'll add there that there's this concept in 2026 or starting in 2026, that bronze is gold, as Sean calls it, that a lot of people say, well, you know, there's been this big issue actually in 2025, really that there's fewer and fewer plans that are HSA eligible, high deductible health plans, those ADHPs.

47:39And one great thing, even though there's a subsidy cliff that's coming back in 2026. And I will say there's a lot of fear thrown around that the premium tax credit's going away. That's one of those like, oh, just go a little bit further in the education to understand what's really going on here. The subsidy cliff is coming back if your income falls above the 400 % federal poverty level. But one thing that is happening positively as an opportunity is that starting in 2026, all of the bronze plans through the ACA are going to be HSA eligible high deductible health plans. And keep in mind too, that we've been talking about this income level that you have to keep your income a certain level, but not too high, not too low.

48:19You know, the Goldilocks just right. One thing about these HSA eligible plans is that HSA contributions, one, do not require earned income. So even if you're retired and not earning income, you can still contribute. So it's not like an IRA with earned income requirements. But two, your HSA contributions actually reduce your modified adjusted gross income. So again, you can pair these things together for incredible opportunities. Yes, even though the subsidy cliff is returning, you might have an opportunity to control your sources of gross income and maybe even have an HSA eligible plan if that's right for you.

48:53Yeah. And Sean and I talked about this in great detail on episode 557, which is just about two months ago. So if anybody wants to take a look back at that, we talk about the OBBB, the one big, beautiful bill, and talk about implications for the FI community. That was a really important one. So, right. It's so interesting, this health insurance. And of course, you guys talk about this in terms of the tax and getting in this Goldilocks, but just kind of taking a step back for the larger FI community. So many people ask this question, like you guys said, it's like, how am I going to get health insurance in early retirement.

49:30It's like, it's as if people have amnesia that the ACA exists. Like it exists. This is really simple. Like there is a cost to it, obviously, but if your income is low enough in early retirement, you get these premium tax credits and your health insurance premiums are going to cost very, very little. But regardless, there's no surprise here. And you can just purchase a plan. I saw one of these clickbaity type articles that I'm going to attribute it probably maliciously to like market watch or something like that. It was like, I'm 62 years old. I have$2.8 million, but I don't think I can retire before 65 because what am I going to do about health insurance?

50:06It's like, lunatic, there's the ACA, just buy the plan. You have$2.8 million. Give me a break. And not for nothing, but there's also out-of-pocket maximums. It's very hard for somebody with financial assets to get ruined by, and this is not to say, obviously, we all know there are major problems in our country and we're not going to adjudicate this now with health insurance and costs and totally separate issue, right? We could have fun talking about that another time. But if you have financial assets, it's highly unlikely you're going to be ruined by health insurance or healthcare costs. Does it mean it's palatable?

50:40Does it mean it's wonderful? Of course not. I'm not arguing that, but there's a cost for this. And that's a really nice thing. So, okay, Ted talk over, but Sean, I'm going to ask you one more question. I asked you about how does the standard deduction fit into that federal poverty level? Similarly, but I suspect it might be a different answer. We're saying that there's the option to basically harvest long-term capital gains at potentially a 0 % long-term capital gains rate. But what's the interplay here with ACA? Does that quote-unquote income count against ACA subsidies or is this an entirely separate thing?

51:18So Brad, capital gains income is income for ACA premium tax credit purposes. So that could be both a feature and a bug. It's mostly a feature because what happens is you get to early retirement. If the only assets you had was Roth accounts, I'm just giving some extremes. Well, now you have zero income. You have no way to qualify for a premium tax credit. Or if you get to early retirement and the only assets you have our traditional retirement accounts. Now there's planning that can make this work, but it becomes a lot more challenging because every dollar you spend is a dollar that increases your income that then reduces your premium tax credit.

51:55Taxable accounts are a little bit like the Goldilocks. It's right in the middle, right? You spend the$100 ,000, but your income isn't $100 ,000. It's$100 ,000 less the basis. So maybe the basis was$60 ,000. Now your income's$40 ,000. That's a pretty good place to be from a premium tax credit position. And so that's part of the reason, there are many reasons we really like those taxable accounts, spending those down in the first part of an early retirement. But yeah, that's a great way to help control your income is by spending down the taxable accounts first and only reporting the capital gains income, which is this difference between value and basis.

52:31Yeah. And even the capital gains, those long-term capital gains, you know, we've been talking about their tax at 0%. even if they're taxed at 0%, they're still included in that gross income number for ACA. So that's a really important point that just because you don't pay taxes on a certain type of income doesn't mean it's excluded from that federal poverty level income level. Right. So this is a constant balancing act, right? And I think that's what everybody needs to look at their own situation. What's most advantageous for them? But like we've talked about, to get these ACA credits, you need to be above roughly 138 % of this federal poverty level.

53:06but there's now the 400 % cliff where if you're over that, you don't get any AC subsidies. But then we're talking about, oh, but wait, we have this long-term capital gains that's at 0 % up to 96 ,700 married filing joint. But if you fully max that out, your taxable income, let's say you did Roth conversions for 31 ,500, which would be the standard deduction. So that that wipes that up, but it's still income. And then you have 96 ,700 of gains that you harvested. Well, your tax return is going to look like you have$128 ,200 of taxable income. Yeah. We said before your tax liability is going to be zero, which is marvelous, right?

53:49But I think there's a very high probability your ACA premium tax credits are going to be zero or minimal. If If you're showing$120 ,200 of taxable income in that case, am I on the right track here, guys? Yeah, I'd say you are, Brad. I think people worry about, do I do Roth conversions or do I optimize for premium tax credit? And I think if you read through our book and you agree with our logic and our reasoning and conclusions, you're probably going to say, you know what? I'm going to optimize for premium tax credit. I think that's where most people would land because they're going to say, well, wait a The golden years are coming up, so I could probably do some Roth conversions then.

54:31And they're going to find that the taxation of RMDs isn't as bad as people have been made to believe it is. So they're going to say, you know, I'm going to take the bird in the hand today. I'm going to optimize on premium tax credit. So, you know, I think that is a tension we see in the community sometimes is like, oh, you know, I got to get a premium tax credit. But I know I got to do Roth conversions like, well, wait a minute, slow down. Premium tax credit matters. Roth conversions can be beneficial, but the odds are you probably don't need to do them. And if it's going to really reduce or eliminate a premium tax credit, that's a good indication.

55:03Oh, maybe the Roth conversion doesn't make a whole lot of sense this year. And to tag onto that, should I do Roth conversions or tax gain harvesting? Which one should I prioritize? You need to keep in mind that diversification is more important than tax optimization. I will say that if your only investment is in an individual company, right, I would prioritize diversification and doing some tax harvesting or realizing those capital gains over doing some of these optimized strategies and tactics. But as Sean's mentioning, if you have some optionality, you're already well diversified across, you know, we have our preferences, right?

55:34I would say that typically you're focused on the PTC, the premium tax credit. And if you need to fill up at least to get to that 138, you're most likely going to try to do that with Roth conversions because that's ordinary income. And also, again, everybody likes a tax-free Roth conversion. Guys, this episode has been chock full of information, but I think those last couple of minutes were maybe the most important takeaway for me. And I think for everybody else is there's no need. I think this is Sean. I'm so glad you've said that repeatedly. Like everybody needs to take a breath. Yes. All of these things exist.

56:06And again, as people in the fight community, we have been showered with benefits, right? The tax code is so advantageous to us, but just because it exists doesn't mean you have to take advantage of it in its fullest every single year, just in a vacuum. There are other considerations. And I think that's what these guys did such a marvelous job explaining. And this is another cool thing that, again, was not altogether obvious to me is because you have this diversification, because maybe your life is not going to cost as much, and we have so many different options before Medicare kicks in and we can get health insurance that way, maybe we should prioritize premium tax credits before then.

56:48And we don't have to go all out on Roth conversions and long-term cap gains. There's going to be plenty of time to do that. So I know there's that allure. There's that pull for us to like, oh, but I can do this. I can get$128 ,000 and change. This is so great. It is great. Let's be clear. But you have to look at what's the best for you in totality across a 30 to 50-year retirement potentially. And I think, guys, that is something you've opened my eyes to here of, okay, it's not a race, right? Like we can take a breath and we can say, there's a time and a place, there are seasons for these things.

57:24And I think where you allocate your time and energy in terms of this planning can and will change across those seasons of life and these phases, as you're calling it, the five phases. That's right. I also mentioned that chapter 29 of the book is called a return on hassle, that a lot of time we learn all these tactics. You know, we call them tactics in the book. We We share the tactics that we know and love, but we also have a chapter called Return on Hassle. And we actually mentioned over a dozen tactics for optimization that might not be worth the hassle. We call this the Return on Hassle ROH here that you think about the time, the energy, and attention that's required to optimize every little thing, which most times optimization is really a form of procrastination, which is really pushing an avoided fear into the future.

58:10So we do mention, even though we have like a hundred plus examples, step-by-step calculations, we also have an important chapter on return on hassle saying, hey, you don't have to do every form of optimization to make it to and through early retirement successfully. Okay, guys, this has been absolutely awesome. I know there's so much in the book. We could spend dozens of hours talking about this here, but I think we've both given a significant amount of value to the listener listening to this episode today and also maybe given them a little appetite to go out and buy this book. And I think it's a really, really important book.

58:44Obviously, the five phases of retirement, we can't go through all of them. But I think we touched on phase one and two, which phase one is what the vast majority of us are in right now, retirement through age 65. But really, many of us are pre-retirement, clearly. But the one thing we did mention in passing that I wanted to double back to before we close the episode out is RMDs. We mentioned that very, very much in passing. Sean, you said we'd come back to it. I love to close these loops. So let's close it. Yeah. So Brad, I think there are going to be some listeners in the audience today saying, hey, you know, I'm hearing the points about maybe traditional 401ks during my high working years and maybe being a little conservative with my Roth conversions in the early part of my retirement.

59:26But doesn't that leave me as a sitting duck? Doesn't that leave me in a place where RMDs are just going to crush me in my 70s, 80s, 90s, right? That's the fear and it's this inchoate. Few people ever put numbers to it, but it's like, oh no, these RMDs are going to crush me. Well, have the rules on RMDs changed, say in the last decade? Think about Brad, you and Jonathan recording the first few episodes of Chooseify. I believe that might've been December of 2016, January of 2017, right? Exactly right. Good memory. Back then, if you went to any personal finance source, any FI source, they're going to tell you, oh, these RMDs, they're really bad.

1:00:08There was no debate back then. RMDs, bad. Okay. Well, has anything happened between Brad and Jonathan recording episode one and us recording episode 600 or whatever this is today? All right. Three major developments have occurred since then. The first one is the tax rates significantly cut, standard deduction significantly increased. TCJA now made permanent by the one big beautiful bill. And so that significantly reduces the taxes on RMDs. So that's one development. Okay, fine. Second development, RMDs are done based on a table factor, which is a life expectancy we talk about in the book. It's going to be a little boring for the show today.

1:00:53But what happened is in 2022, all those life expectancies increased. The IRS and Treasury issued new regulations. And so that had the effect of lowering the annual amount of the RMD. Okay. So that's another development. Big change, but okay. Third development. Politicians of both parties got together at two different points and said, you know what we're going to do? You know how these RMDs start at 70 and a half? Nah, forget that. We're going to make it 72. So that's one or two RMDs taken off the table. And then in 2022, they said, nah, forget that. If you're born in 1960 or later, meaning everybody thinking about an early retirement today, we're going to start RMDs at age 75.

1:01:36So in the eight years since Brad and Jonathan started ChooseFI, tax rates on RMDs have gone down. Standard deduction has gone up significantly. So those two reduced taxes on RMDs. The factors have increased, reducing the amount of RMDs. And oh, by the way, those first four or five RMDs you're supposed to have distributed out and pay taxes on, we canceled those. Those happen to be the RMDs that are most likely to happen by definition. So essentially, the world on RMDs has radically changed since Brad and Jonathan started the podcast. Yet few commentators have reassessed RMDs. And in the book, we have a whole chapter literally reassessing RMDs.

1:02:20And our conclusion is essentially this. RMDs are rarely harmful from a lived experience perspective and from a financial success perspective. Sometimes if you're very, very, very successful, RMDs will create what we call negative tax arbitrage. It will be a bad outcome in the context of a very, very successful financial person, a rich elderly person. But essentially, if you're only moderately rich or less successful, RMDs are probably going to be later taxed than that rate you got on the way in to go back to the beginning of the show. And if you aren't convinced that RMDs are more of a nuisance than something to fear, I'll also add that qualified charitable distributions, which is a way to give money directly to charity with your IRAs, traditional IRAs in retirement, those QCDs, they originally said, hey, those are going to start at age 70 and a half.

1:03:11They haven't increased that age as they've increased the RMD ages. So the charitable giving has been even more preferable, including those with RMDs so they can include a portion or all of their RMDs in their qualified charitable distributions. And also, I think it's really important in the book, we also cover a lot of these fears around nuisance taxes like IRMA, which is like the Medicare surcharges, which, based on my analysis, we'll never exceed 3 % of a household's income. It's like, oh, that's not that bad. And then also we talk about the widow tax trap. There's a lot of fear, certainly in the more traditional side of retirement, that if there's a surviving spouse, suddenly they don't get as much of a standard deduction and they get the compressed tax rates.

1:03:51So we also cover, again, it's a serious planning topic, but it's seriously not something to fear. I mean, again, I can go talk about these tactics all day long. There's 38 chapters plus the intro, but I'm just really glad to be here to really provide education to your listeners. Yeah, no, I greatly appreciate it, guys. And yeah, just kind of my last word on the RMD is, yeah, I mean, they're more of a seemingly like a nuisance to me than anything, just because I don't really want to be required to take anything out of my accounts. I want to do it on my own volition. But is it really that big of a deal?

1:04:22No, it's really not. It's not like there's anything special about the way this is taxed. It's taxable income. I need money to live off of. and okay, I have to take some certain amount as a required minimum distribution. And that's just the deal. And if by some freak chance that RMD is higher than the amount of money that I need to live on that year, well, it's not like something terrible happens. It's not like the money gets confiscated or something crazy. I just put that money in my taxable brokerage and I move on with my life. This is one of those things that it sounds a lot worse. It sounds like a boogeyman, but really when you dive into it, it's like, okay, this is at best an annoyance just because you have to remember to do it and et cetera, et cetera, but it's not that big a deal.

1:05:05So yeah, I'm glad, I'm glad we slowed down on that for sure. So gentlemen, the book is fantastic. It's absolutely fantastic. So tax planning to and through early retirement, like I said, the day this publishes, the book comes out officially the following day. So September 23rd, 2025, where can people find it? Where do you want people to go? Give me some more information. Well, Brad, yeah. Thanks so much for having us on. It's going to be available Amazon and Barnes and Noble online. My experience is most people are getting their books on Amazon today. So if you look up on Amazon tax planning to and through early retirement, it'll certainly pop up.

1:05:43And by the way, there's a Kindle or ebook version. There's a paperback version. So buy the one that best suits your preferred style for reading. And yeah, I mean, I think it's going to make a really good contribution. That's the hope is that it's going to make a contribution to education and, you know, dispelling some of the fears that folks have about taxes in retirement. Yeah. And I can certainly vouch for that. This is, it's a very detailed book in the best possible way. It doesn't read like a textbook. It's not boring, but it's detailed and it has to be, and it's important. And I'm glad you guys spent such a significant amount of time.

1:06:19I mean, hard work, effort. I know this is, as we said before, a labor of love. And I just wanted to thank you both really for your contributions to the FI community, to the Choose a Buy community specifically, and for bringing this book to the world. I think it's really important. Oh, thanks so much, Brad. All right. So to everybody listening, you can just search for this on Google, search for it on Amazon. We will have a link in the show notes, but just search tax planning, two and three early retirement. You can't miss it. And until next time, Thanks for being part of the Chooseify community, and thanks for listening to the show.

1:06:51Thank you for listening to today's show and for being part of the Chooseify community. If you haven't already, the best ways to get involved are first, subscribe to the podcast. So you're listening to this on a podcast player, just hit subscribe, and then subscribe to my weekly newsletter. I actually sit down every Monday and write this by hand, and I send it out Tuesday morning. So just head over to choosefi.com slash subscribe. And it's really, really easy to get on the newsletter list right there. And I would greatly appreciate it. It's the best way to get in touch with me. You can actually just hit reply to any of those emails and it comes directly to my inbox.

1:07:27So that's the way that I keep a pulse of the community and how we keep this the ultimate crowdsourced personal finance show. And finally, if you're looking to join an in real life community, we have choosefi local groups in 300 plus cities all around the world. So head to chooseify.com slash local, and you'll find a list of all of those cities in 20 plus countries all across the world. And if you're just getting started with FI, or you have a family member or a friend who you think would be interested, two easy ways. Chooseify episode 100 is kind of our welcome to the FI community. And even though it's a couple of years old at this point, it still stands up.

1:08:05And it's a really great just starting point to get an understanding of what is financial independence what are we doing here why are we looking to live a more intentional life where we save money and use it as a springboard to live a better life and then choose if i created a financial independence 101 course that's entirely free just head to choose if i.com slash fi 101 and again thanks for listening

1:08:36Thank you.