The Investment Scientist

I have a client who is planning to take a year off to take care of her mother, another one who has quit his job to launch a new business, and yet another one who has retired early and needs to wait a few years to receive her pension and social security. 

What they all have in common is that they will have at least one year during which they will have very low or even no income. I have been thinking about how they can take advantage of their situations to increase their lifetime wealth-being, or more specifically to reduce their lifetime tax liabilities. Here are two strategiesI came up with: 1) Roth Converstion and 2) Tax Gain Harvesting. 

Folks who save money for retirement usually stash their money in three types of accounts: taxable accounts like banks and brokerages; tax-deferred accounts like IRAs, SEPs and 401ks, or tax-exempt accounts like Roth IRAs and HSAs. 

With tax-deferred accounts, once you are over 71 years old, there will be a RMD (required minimum distribution) that will increase as you age. If you invest well, eventually this RMD will push you into the higher tax brackets like 35% or even 37%. Here is a table of tax brackets for 2024.