The 0% Tax Bracket Most Retirees Walk Right Past

0:00The withdrawal rate conversation and the tax conversation are not separate entities. They are the same conversation, and the person who truly understands both doesn't need to be as conservative about their withdrawal rate, because they're keeping so much more of what they take out. The goal was never to withdraw less. The goal was always to keep more. Hello friends, this is Tyler Gardner welcoming you to another episode of your Money Guide on the Side, where it is my job to simplify what seems complex, add nuance to what seems simple, and learn from and alongside some of the brightest minds in money, finance, and investing.

0:41So let's get started and get you one step closer to where you need to be. Before we get into today's episode, I am genuinely thrilled to share this with you. After three years of listening to your questions and locking myself in a room to answer as many of them as I can, I decided it would be slightly more efficient to write a book. So I did. It's called Real Wealth, published by Norton out December 6th of this year. Yeah, the kid whose parents thought he might be illiterate until he was 21 and whose high school English teachers passed him on the condition he never took another English class, and I'm dang proud of how it turned out and what I believe it can and will do for all of you.

1:26Here are three quick reasons to pre-order right now, and I'll tell you exactly how at the end. One, you'll actually finish this book. I know, low bar, except it really isn't. I've spent two decades watching people's eyes go blank the moment I said asset allocation. I took that personally. This is my response. You know the look, and I refuse to be the cause of it. Number two, the number one comment I get thousands of times is, you left something out. You're right. I'm making 60 second videos about topics that deserve 60 minutes. This is my answer. Everything in one place. No countdown clock, no algorithm cutting me off.

2:11And number three, what I'm most excited about, every month through December, I'll be releasing an exclusive pre-order incentive, and April's might already be my favorite. Pre-order this month and you're automatically in for a free two-hour live event on Wednesday, May 6th, where I'll be expanding on some of the ideas present in the book and answering some of your most commonly asked practical and theoretical investing questions. This will be exclusively for people who pre-order. Here's all you need to do. Go to tylergardner.com, pre-order the book, then click the button on the page that says you've pre-ordered.

2:50Two minutes, you're in, and I genuinely cannot wait to do this with all of you. Real Wealth, December 6th. Your future self will appreciate having it all in one place. And now, on with the show. A few months ago, I did an episode on how I'd allocate a$2 million portfolio in retirement, 90 % stocks, 10 % money market, and how you could comfortably withdraw$120 ,000 to$200 ,000 annually without running out of money. That episode got more responses than anything I've done in a year and a half on this podcast, which I genuinely appreciate. And about a third of those responses were some version of, hey, Tyler, that's great, but you missed one big consideration, taxes, which fair enough, I left a giant door open, we all walked through it.

3:39But transparently, I try not to address multiple topics on a single episode, and this clearly leaves much undiscussed and underexplored. So today we're going back to the$2 million portfolio, same setup, same person, same plan, and we're talking about the tax layer that sits on top of all of it. Because here's the thing I want you to understand before we get into the specifics, and here's the thing that everybody who's written to me clearly does understand. The return on your portfolio is not the number that matters. Too many of us focus on the returns throughout our lives without even considering what our tax plan is doing to said returns.

4:24That is why the after-tax return on your portfolio is the number that matters. And most people, including some who are otherwise very thoughtful about investing, Treat taxes as something that happens to them rather than something they can significantly influence. And I want to start there today. Starting now, you can and should make it a priority to control taxes before anything else you do. It's the biggest mistake I made early in my business. I left a ton of money on the table for the old IRS to take, which they did gladly. and now I'm working tirelessly to focus on taxes above anything else I do.

5:07Now, the bad news, as we all know, they can't be eliminated entirely. I want to be clear about that. I'm not a tax attorney. I am not a CPA. And if I were going to give you advice specific to your situation, I would tell you to please find one before implementing any of this. Additionally, I can only imagine, because I've seen some of it, the garbage and nonsense to which you've all been exposed on social media, telling you to go buy 10 G-wagons, hire a private chef, take your family on business trips, in essence, vacations, go buy some real estate for fun just so you can learn about bonus depreciation, and then write it all off.

5:50Most of that, my friends, is what we like to call in the industry tax fraud. And most of those people telling you that are what we call ding-dongs. Now, back to what we can do legally and seriously. Taxes can be managed. They can be anticipated. They can, in some cases, be dramatically reduced with some fairly simple decisions made at the right time. And the people who do this well don't have secret information. They just understand the rules and plan accordingly. Today, I'm going to give you five of the most important tax considerations for someone drawing down a$2 million portfolio in retirement.

6:31We're going to try to keep it real, keep it specific, and keep it grounded in actual 2026 numbers, because I'd rather give you something you can use than something that makes you feel smart, but doesn't really help you in any actual way. And if you stick with me until the end, I want to leave you with something that I think reframes the entire withdrawal rate debate. The 4 % rule, the 5 % rule, dynamic spending in a way that nobody talks about, but everyone I think needs to hear. So you might want to stick around because I really do think we can wrap this all together very nicely. And as always familiar ask if you find any of this useful review on Apple or Spotify is genuinely the best thing you can do for the show as it helps others find the show and lets me know that someone out there in personal finance land is listening and getting at least some inspiration to take action today.

7:26All right, let's get into taxes. Consideration number one, the pre-tax time bomb, what it actually costs to pull from a traditional IRA or 401k or that money that was never fully yours to begin with. Let's start with the foundational issue. Because if you don't understand this, everything else is harder to follow. And I lead with this because based on data leading into 2026, the vast majority of U.S. retirement assets remain in pre-tax, tax-deferred accounts, even as Roth options grow. While a specific finalized percentage for 2026 is not yet calculated, obviously, data through today indicates that pre-tax accounts, such as your traditional 401k, your traditional IRA, simply dominate our total retirement assets.

8:26Why does that matter? Well, when you put money into a traditional 401k or IRA, you got a tax deduction on the way in. That was the deal. You didn't pay taxes on the money when you earned it, and at the time, it felt like you had somehow cracked the personal finance code. Free money. Well, not really. You delayed those taxes until you pulled the money out in retirement. And your investment growth inside those accounts has been compounding tax deferred the entire time. That part's a good thing. But here's the part that doesn't always get said clearly enough. Every single dollar you pull out of a traditional pre-tax account is counted as ordinary income in the year you take it.

9:12Not capital gains. Not some special retirement income rate. Ordinary income. Also known as the worst type of income imaginable for tax purposes. This is the same rate that applies to your salary, your freelance work, your consulting income. It goes right on top of whatever else you're earning that year and gets taxed accordingly. For 2026, the marginal tax rates are 10%, 12%, 22%, 24%, 32%, 35%, and 37%. The standard deduction is$32 ,200 for married couples filing jointly and$16 ,100 for single filers. So let's run the numbers on our$2 million retiree, and let's assume for simplicity they're married filing jointly, their entire$2 million is in a traditional IRA or 401k, and they want to pull out$120 ,000 this year or roughly 6 % of the portfolio.

10:12They start by taking their$32 ,200 standard deduction. That brings their taxable income down to$87 ,800. For 2026, the 22 % bracket for married filing jointly kicks in at income above$100 ,800. And the 12 % bracket covers income between$24 ,800 and roughly$100 ,800. So the vast majority of that$87 ,800 is sitting in the 12 % bracket. That's actually not terrible. But here's where it gets a little complicated. First, Social Security. If you're receiving Social Security benefits and have other income, up to 85 % of your Social Security benefit can be added to your taxable income. This is one of the most widely misunderstood tax rules in retirement.

11:06People think Social Security is tax-free. It is not for most people with any other meaningful income. If our$120 ,000 withdrawal is happening alongside a Social Security benefit of$30 ,000, you may find yourself adding$25 ,500 of that benefit onto your taxable income, pushing your effective taxable income considerably higher than you'd planned. Now, obviously to me, the quick fix of this is don't take out$120 ,000 from the pre-tax unless you have to because of R &Ds and account for that$30 ,000 when you're planning. Second consideration there would be IRMA. This is not technically a tax, but it functions exactly like one.

11:48IRMA, the income-related monthly adjustment amount, is a Medicare surcharge for higher-income retirees. In 2026, if your modified adjusted gross income as a married couple exceeds certain thresholds, you will pay significantly more for Medicare Part B and Part D premiums than someone with lower income. The first IRMA tier for married couples filing jointly triggers at modified adjusted gross income above roughly$218 ,000 in 2026. But these cliffs can be steep. And if you're doing large Roth conversions or selling assets in a particular year, this is a number worth knowing. Third, and this is one that tends to sneak up on people, required minimum distributions.

12:37RMDs are the minimum amounts you you must withdraw from your traditional IRA, SEP IRA, and 401k starting after you turn 73. The RMD age is currently 73, is scheduled to rise to 75 for those born in 1960 or later, starting in 2033. Now, here's the problem. If you've been diligently not touching your 2 million pre-tax account, letting it grow, pulling minimally, by the time you hit 73, you might have $3 million,$4 million, or more sitting there. And the IRS will then require you to withdraw a calculated percentage of that balance every year, whether you need the money or not. If you're 78 years old with a$100 ,000 IRA balance, your RMD would be roughly$4 ,545.

13:29Now scale that to a$2 million account, and you're looking at withdrawals of$80 ,000 to$90 ,000 a year at minimum, all counted as ordinary income on top of social security, on top of whatever else you have. Now, again, if you know that you're going to get that as the RMD, plan accordingly, you probably wouldn't need$120 ,000 from elsewhere. The lesson here is not don't save in pre-tax accounts. Those accounts were and are a fantastic tool to get you where you are. The lesson is understand that you have a silent partner in your pre-tax account who has been patient for a very long time, but is going to show up eventually.

14:09Yes, the government. Planning for when and how that partner gets paid is the entire game, and it is largely within your control. This episode is brought to you by Element. My sister's a marathoner who treats Element like a food group. When I told her I was partnering with them, she called me for 17 minutes. The first 10 were enthusiasm and catching up. The last seven were logistics about how many boxes I could get to her and how quickly I could do it. I've also mysteriously been reconnecting with a lot of old cycling friends. Years of radio silence, and now my phone seems to be buzzing. It's wonderful, genuinely touching, but each call seems to end the same way, with some variation of, so what's the Element sponsorship situation exactly, followed by their giving me an unprompted shipping address.

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15:45So, instead of calling me, congratulating me, and then giving me your mailing address, go to drinkelement.com slash Tyler. Become an insider, get the pink lemonade, and if my sister calls, just know she's been working on her pitch for weeks. That's drinkelement.com slash Tyler. This episode is brought to you by Built. You've heard me talk about Built as the loyalty program that lets you earn points on rent wherever you live, and they just leveled up even more. As of 2026, homeowners can also earn up to 1.25x points on their mortgage payments. This is thanks to Bill's three new credit cards, the Palladium card, Obsidian card, and Blue card.

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17:22Terms and limitations apply. Subject to approval and eligibility, Built cards are issued by Column N.A., member FDIC, pursuant to license from MasterCard International Incorporated. Consideration number two. Roth conversions, the best tax move most people do too late, or why the years before RMDs are the most valuable tax planning window of your life? Here's a question I want you to sit with for a moment. When in your life is your taxable income likely to be at its lowest? For most people, the answer is the years between retirement and age 73. The window after you've stopped working and before social security, RMDs, and other income sources have fully stacked up.

18:10In that window, if you're living off savings rather than generating new income, your taxable income can be surprisingly low. And that, it turns out, is one of the most valuable planning windows you're ever going to have. This is where you might consider looking into Roth conversions. In theory, it's a simple concept. You take money out of a traditional pre-tax account and you move it to a Roth account. You pay ordinary income taxes on the amount converted in the year you do it. In exchange, that money and all future growth on it will come out of the Roth completely tax-free. No taxes on withdrawals, no RMDs during your lifetime, none.

18:52The math on this works beautifully in the right window. Here's a good example. Let's say you retire at 62. Your only income this year is$20 ,000 from a part-time consulting project. You're married filing jointly. Your taxable income after the standard deduction is essentially zero. The 12 % bracket for married filing jointly, remember, goes up to roughly $100 ,800 in 2026. That means you could convert roughly$80 ,000 to$100 ,000 from your traditional IRA into a Roth IRA and pay only 12 % federal income tax on it. Now, compare that to the alternative. You do nothing, the account grows, you hit 73, and the IRS forces you to take RMDs that push you into 22 % or 24 % brackets.

19:44You've paid a higher rate of money you may not have even needed yet. Now, here's where we're going to have a quick, very real, very blunt, come to Jesus moment that should ground us all. Remember that we exist in a marginal tax rate system. That means that when your income crosses certain thresholds, the tax brackets, only that additional income is taxed at a higher rate. I say this because even though it might be obvious to some of you, A, I've worked with countless clients who were very smart and sharp and didn't know this well into their 70s. And B, if we really sit down and do the math on the difference between your staying in the 12 % versus your crossing into the 22 % or 24 % with a few thousand or 10 ,000 bucks, we're not talking about the difference between your enjoying retirement playing mahjong and you're selling organs just to pay the rent.

20:42The personal finance world loves to create fear-based content around the need for you to stay in certain brackets. And that's hopefully coming from a place of love. But hear me now. If you don't want to endlessly optimize your life and you cross into the 22 % bracket or the 24 % bracket for a conversion on some ordinary income, guess what? You're fine. Relax, and you didn't have to deal with the headaches and the paperwork that required for those who did choose to convert to save a few bucks and aggression. All that said, the Roth conversion window is still worth knowing about. Roughly ages 60 to 72 for most people.

21:25That's the single best tax planning opportunity in retirement, and a striking number of people either don't know about it or don't use it because they have an allergic reaction to voluntarily paying taxes. I understand that impulse, but voluntarily paying 12 % to avoid being forced to pay 24 % later is not a punishment. It is basic arithmetic. And if you do have the time and energy and you do want to go through the little bit of paperwork, I'd encourage you to at least look into it. One quick addition, there's also a new senior deduction worth knowing about in 2026. tax payers 65 and older can claim an additional 6 ,000 deduction per qualifying taxpayer available whether you take the standard deduction or itemize.

22:07And it phases out at a 6 % rate for those earning over 75 ,000 single or 150 ,000 joint. This is new from the One Big Beautiful Bill Act passed in 2025, and it meaningfully lowers the tax cost of conversions for early retirees who qualify. A few important caveats here. First, Roth accounts come with a five-year rule when we're talking about conversions. You need to have had your Roth IRA open for at least five years before a qualified withdrawal is tax-free if you converted. So if you're late to this, open a Roth now even if you're only putting a small amount in, just so you can start that clock.

22:50Second, large conversions will raise your modified adjusted gross income, which means you need to be careful about IRMA Medicare surcharge cliffs and the social security taxation thresholds I mentioned in consideration number one. Third, and I'll say this again and forever, please run these numbers with a CPA. The general principle is sound. I stand by that, but the execution needs to account for your specific income accounts and timeline. Now, if you're listening to this and thinking, I'm already in my 70s and I didn't do any of this. I hear you and we'll get to that. The answer is not as dire as it feels.

23:29There are still some moves available. Consideration number three, the taxable brokerage account, the most underused retirement tool in the arsenal. This one surprises people and quick personal confession. I don't even know why I'd call it a confession because I'm very proud of this. Though I am in a high tax bracket right now, and I'm doing my best to put as much in a pre-tax SEP IRA now as I hope to be in a lower tax bracket in my 60s, I'm ultimately prioritizing my taxable brokerage account now as well in a way that I never have before. And here's why. We've spent decades being told to max out our 401ks, fund our traditional IRAs, take that employer match, defer, defer, defer.

24:15And that advice is largely correct, especially when we're in high tax brackets. But it creates a world where many disciplined, diligent savers arrive at retirement with the vast majority of their assets in pre-tax accounts and almost nothing in a regular taxable brokerage account. This, to me, creates a massive problem. Because here's what a taxable brokerage account gives you that your IRA does not. First, full flexibility. No rules, no age requirements, no withdrawal penalties, no forced distributions. You can take out exactly as much or as little as you want, whenever you want, for any reason, without the IRS having any mandatory opinions about it.

25:02Second, you get considerably favorable tax treatment on long-term gains. When you sell investments in a taxable brokerage account that you've held for more than a year, you pay long-term capital gains rates, not ordinary income rates. In 2026, single filers can earn up to$49 ,450 in taxable income or$98 ,900 for married couples filing jointly and pay 0 % federal capital gains tax on long-term gains. 0%. We're going to come back to this in consideration four because it deserves its own section. Third, the step up in basis at death. This is one of the most powerful and underappreciated features of taxable accounts.

25:48When you pass assets held in a taxable brokerage account to your heirs, the cost basis of those assets steps up to the market value at the time of your death. If you bought VOO at$200 a share 30 years ago, and it's now worth$800, and you die holding it, your heirs inherit it at$800 basis. They could sell it the next day and owe zero capital gains taxes. This makes taxable accounts extraordinarily efficient for estate planning relative to IRAs, where every dollar inherited is typically fully taxable as ordinary income, and many people I know who have inherited pre-tax IRAs were then pushed into higher brackets, resulting in just one more additional headache they didn't want to have.

26:38This episode is brought to you by Copilot Money. I have a group chat with four of my closest friends from my finance days. Between the five of us, we have decades of experience managing other people's money, multiple licenses, and, I say this with love, a genuinely embarrassing amount of opinions about expense ratios. These are not people who download budgeting apps. These are people who tend to mock budgeting apps. Yet, every single one of them uses co-pilot money, unprompted, voluntarily. One of them texted me last month just to say, and I quote, I finally feel like my financial life is in one place from a guy who used to manage eight-figure portfolios.

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28:50Tax Day has officially come and gone, but I have one quick question for you. How did your CPA treat you this tax season? Did they reach out proactively, walk you through your options, and make you feel like a priority? Or did you hear from them in mid-March, feel slightly rushed, and wonder afterward if you left money on the table? That second experience is not normal. You just haven't experienced what a great CPA can do for you and your business. Yet. A great CPA is a year-round partner, not a once-a-year fire drill. And Q2 is the best time to make a switch because your new CPA has bandwidth, your numbers are fresh, and there's a full year ahead to make moves that actually matter.

29:39And right now, Gelt is offering two things for new clients who sign up before June 30th. First, if you filed an extension, a focused 30-minute session with a CPA to find everything that can still impact your 2025 taxes before the October deadline. It's a paid add-on, and depending on what they find, it frequently pays for itself immediately. Second, for any new client onboarding in Q2, Gelt will go back through your recent returns and find deductions you may have missed, and in many cases, recover them. Also a paid add-on, and also one that often costs you nothing net by the time they're done.

30:19Both are time-sensitive and neither is available year-round. So, if you're a business owner or a high net worth individual, and if your CPA made you feel like an afterthought this season, go to joingelt.com slash tyler, that's j-o-i-n-g-e-l-t dot com slash tyler, and find out what a better experience looks like. Fourth, tax loss harvesting. In a down year, you can sell positions that are sitting at a loss, book those losses, and offset gains elsewhere, or offset up to$3 ,000 of ordinary income, and then reinvest in a similar position. Similar position. Avoid that wash sale. The loss doesn't mean you get out of the market.