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Author: Kevin Lao

7 Compelling Reasons for Roth Conversions

Many people spend decades building the largest possible retirement account, only to discover they’re facing significant tax challenges in retirement. If you’ve saved north of seven figures and are approaching or already in retirement, you might be wondering whether Roth conversions make sense for your situation.

The truth is, Roth conversions aren’t the magic solution that some financial media personalities make them out to be. However, there are specific situations where converting your traditional IRAs or 401(k)s to Roth accounts can provide substantial benefits. More importantly, there’s a limited window of opportunity to make these conversions work in your favor.

In this guide, we’ll explore:

  1. Seven compelling reasons you might consider Roth conversions
  2. When these conversions make the most sense
  3. The critical timing window you need to understand.

Whether you’re just entering retirement or planning for the future, understanding these strategies can help you minimize your lifetime tax bill and maximize your retirement security.

What is a Roth conversion?

What is a Roth conversion? Simply put, it’s the process of moving assets from a pre-tax IRA or tax-deferred account, like a 401(k), to a Roth account. This transfer involves converting funds from accounts where you haven’t paid taxes yet into accounts where future growth and withdrawals can become tax-free.

How Does It Work?

When you convert to Roth, you’re essentially paying taxes today on the converted amount in exchange for tax-free growth and distributions in the future. For example, if you have $1 million in a traditional 401(k) and decide to convert the entire amount, you’ll pay income taxes on that full million dollars in the year you make the conversion.

Most people don’t convert everything at once because doing so would push them into the highest tax brackets. Instead, they might spread the conversion over several years. Using our million-dollar example, you might convert $100,000 annually over ten years, paying taxes on $100,000 each year rather than the full amount at once.

The essential question becomes: Does it make sense to pay these taxes now to potentially save on taxes later? The answer depends on several factors we’ll explore in the seven reasons below.

The Key Benefits of Roth Conversion for Your Retirement

Before diving into specific scenarios, it’s important to understand that Roth conversions offer several fundamental advantages. These benefits include

  • Eliminating future required minimum distributions
  • Creating tax diversification
  • Potentially leaving a more tax-efficient legacy for your beneficiaries.

However, these benefits come with a cost. You must pay taxes on the converted amount in the year of conversion. This means you’re paying taxes you wouldn’t otherwise owe until you reach the required minimum distribution age. The strategy only makes sense when the long-term benefits outweigh these immediate tax costs.

Reason #1: Convert to Roth to Reduce Future RMDs

The most compelling reason for many people to convert to a Roth is to reduce future required minimum distributions (RMDs). Once you reach age 73 or 75 (depending on your birth year), you must start taking distributions from your traditional retirement accounts, whether you need the money or not.

These RMDs can create what’s known as the “tax trap” of traditional retirement accounts. You’re forced to take these distributions, even if you have other income sources covering your needs, such as:

  • Social Security
  • Pensions
  • Taxable investment accounts

The problem compounds because RMDs increase each year as your life expectancy shortens.

Example

Consider a couple who have worked with me for nearly a decade. Both have pensions (one military, one teaching). Both are collecting Social Security and have enough guaranteed income to cover all their expenses. In fact, they were reinvesting excess income into their taxable accounts because they didn’t need it. When they reached RMD age, they suddenly had six figures of additional taxable income they had zero need for.

How RMDs Can Affect Your Retirement

Unwanted RMDs can affect you in several ways. They can

  • Push you into higher tax brackets
  • Trigger Medicare surcharges (IRMAA)
  • Make more of your Social Security taxable
  • Activate net investment income taxes on your other investments.

All of these consequences add unnecessary taxes to your retirement years.

By converting to Roth during your early retirement years, you can significantly reduce the size of your traditional accounts, thereby reducing future RMDs. Since Roth accounts have no RMDs during your lifetime, this strategy can help you maintain better control over your taxable income in later retirement.

Reason #2: Create Tax Diversification in Retirement

Having all your retirement savings in tax-deferred accounts creates a significant limitation. Every dollar you withdraw gets taxed as ordinary income. This lack of tax diversification can be problematic when you face unexpected expenses or opportunities.

Imagine you need a larger distribution for a new roof, unexpected medical expenses, or to help an adult child. If all your money is in traditional retirement accounts, you’ll pay income taxes on the entire withdrawal. Depending on your tax bracket, you might need to withdraw 20% or more to net the cash flow you need.

Tax diversification through Roth conversions gives you more flexibility. With money in Roth accounts, taxable brokerage accounts, and traditional retirement accounts, you can choose which “bucket” to draw from based on your current tax situation. This flexibility becomes especially valuable when managing your income to stay within certain tax brackets or avoid triggering other tax consequences.

For example, if you’re trying to keep your income low enough to qualify for Affordable Care Act premium tax credits before age 65, having tax-free Roth money available for large expenses can help you maintain those valuable subsidies.

Reason #3: Hedge Against Future Tax Increases

While no one can predict future tax policy with certainty, there are reasons to believe tax rates could increase over time. The country faces nearly $40 trillion in debt, an aging population, rising healthcare costs, and increasing interest on government borrowing.

The Tax Cuts and Jobs Act, which lowered Federal tax brackets, was recently made permanent through the One Big Beautiful Bill Act of 2025. However, future Congresses could still change tax policy, and the federal government’s financial challenges aren’t disappearing.

If you believe tax rates might be higher in the future, paying taxes today through Roth conversions could be advantageous. This strategy essentially locks in today’s tax rates on the converted amounts. Even if you’re not certain about future tax increases, having some assets in tax-free accounts provides a hedge against this uncertainty.

The key is not to convert everything based on fear of tax increases, but to consider this possibility as part of a balanced approach to tax diversification.

Reason #4: Protect Your Spouse from Higher Tax Rates

One of the most overlooked benefits of Roth conversions is protecting a surviving spouse from what’s often called the “surviving spouse tax penalty.” This issue affects married couples where one spouse is likely to outlive the other by several years.

When one spouse dies, the surviving spouse faces a significant tax challenge. They lose the benefit of married-filing-jointly tax brackets, which are roughly double those for single filers. However, they may still have the same retirement account balances generating RMDs, and their living expenses might not decrease proportionally.

Example

If a couple was taking $50,000 in RMDs while filing jointly, the surviving spouse might still need to take similar distributions but would now face the compressed single-filer tax brackets. This can push them into much higher marginal tax rates than they experienced as a married couple.

This situation is particularly relevant if there’s an age gap between spouses or if family health history suggests one spouse might outlive the other by many years. By converting some assets to Roth during the years when both spouses are alive and can file jointly, you can reduce the traditional account balances that will generate taxable RMDs for the surviving spouse.

Reason #5: Take Advantage of Market Downturns

Market volatility can create opportunities for more efficient Roth conversions. When your account values drop during market corrections or bear markets, you can convert the same number of shares for fewer tax dollars.

For instance, if you own 100 shares of a stock worth $10 per share ($1,000 total), but the price drops 10% to $9 per share, you can now convert those same 100 shares for only $900 in taxable income instead of $1,000. Or, you could convert more shares with the same Roth conversion amount.  If the investment recovers, those shares will grow tax-free in the Roth account.

This isn’t about trying to time the market perfectly, but rather taking advantage of opportunities when they present themselves. If you’re already considering Roth conversions and the market experiences a significant downturn, it might be an opportune time to execute your conversion strategy.

The key is to have a conversion plan in place so you can act when these opportunities arise, rather than making conversion decisions based solely on market movements.

Reason #6: Limited Charitable Giving Plans

If charitable giving isn’t a major priority in your retirement plans, this can support the case for Roth conversions. Here’s why: one of the most tax-efficient strategies for people with large traditional retirement accounts is using Qualified Charitable Distributions (QCDs) starting at age 70½.

QCDs allow you to give money directly from your traditional IRA to qualified charities, and these distributions count toward your RMD requirement without being taxable to you. For someone already giving $10,000 annually to charity, QCDs can effectively reduce their taxable RMD dollar-for-dollar.

However, if you’re not charitably inclined or don’t plan to make significant charitable contributions, you won’t benefit from this strategy. In this case, Roth conversions become more attractive because you won’t have the QCD option to help manage your future RMD tax burden.

This doesn’t mean you should convert to Roth just because you don’t give to charity, but it can be an additional factor supporting conversion if you’re already considering it for other reasons.

Reason #7: Make Your Legacy More Tax-Efficient

Perhaps the most compelling reason for Roth conversions is creating a more tax-efficient inheritance for your beneficiaries. This has become increasingly important since the passage of the SECURE Act in 2019, which eliminated the “stretch IRA” for most beneficiaries.

Under the old rules, if you left a traditional IRA to your adult children, they could take distributions over their own life expectancy, potentially stretching the tax deferral for decades. Now, most beneficiaries must empty inherited retirement accounts within 10 years, significantly accelerating the tax burden.

Consider leaving a $3 million traditional IRA to an adult child who’s a high earner—perhaps a physician, attorney, or business owner already in the top tax bracket. Under the 10-year rule, they’ll need to add roughly $300,000 to their taxable income each year to fully distribute the account. This could result in hundreds of thousands of dollars in additional taxes.

In contrast, if you leave that same $3 million in a Roth IRA, your beneficiary still faces the 10-year rule, but they can let the money grow tax-free for the entire 10 years and then withdraw it all tax-free in year 10. The tax arbitrage can be substantial, especially if your beneficiaries are in their peak earning years when they inherit.

This strategy does require some educated guessing about your beneficiaries’ future tax situations, but if you expect them to be high earners when they inherit, the case for Roth conversions becomes very compelling.

When Should You Convert an IRA to Roth: The Conversion Window

Understanding when to convert an IRA to a Roth is crucial for maximizing the strategy’s benefits. The optimal time for most people is during the “Roth conversion window”—the period between retirement and the start of RMDs.

This window typically starts when you fully retire (or when the higher-earning spouse retires) and your employment income drops to zero or near zero. It ends when you reach RMD age, which is 73 or 75 for most people, depending on your birth year.

For someone who retires at 60 with an RMD age of 75, this creates a 15-year conversion window. During these years, your income might consist only of investment dividends, interest, and capital gains distributions—potentially putting you in much lower tax brackets than during your working years.

However, the conversion window has different phases with varying considerations:

Ages 60-65 (Pre-Medicare)

During this period, you’ll likely need health insurance from the healthcare exchanges, and you might qualify for valuable premium tax credits under the Affordable Care Act. Large Roth conversions could reduce or eliminate these credits, so conversions need to be carefully planned during this phase.

Ages 65-75 (Post-Medicare, Pre-RMD)

This is often the sweet spot for Roth conversions. You’re on Medicare, so you don’t have to worry about losing ACA premium credits. While large conversions might trigger Medicare surcharges (IRMAA), these costs are typically much less than the potential savings from reduced future RMDs.

The key is to use this window strategically. You might convert enough each year to “fill up” lower tax brackets—perhaps converting enough to reach the top of the 12% or 22% bracket, depending on your situation.

Understanding the Rules for Converting to a Roth IRA

The rules for converting to a Roth IRA are relatively straightforward, but there are important details to understand. Unlike Roth IRA contributions, there are no income limits on conversions—anyone can convert traditional retirement account funds to a Roth IRA, regardless of income level.

The converted amount is added to your taxable income for the year, so timing and amount are crucial considerations. You’ll want to work with your tax professional to understand how the conversion will affect your overall tax situation, including potential impacts on Medicare premiums, Social Security taxation, and other income-based benefits.

One important rule: if you have multiple traditional IRAs with different tax characteristics (some with deductible contributions, some with non-deductible contributions), the IRS requires you to convert proportionally from each account. This is known as the “pro-rata rule” and can complicate conversion strategies for some people.

How to Convert to a Roth IRA: Implementation Considerations

When you’re ready to move forward with how to convert to a Roth IRA, you’ll typically work with your financial institution to execute the conversion. This can often be done as a direct transfer between accounts, avoiding any risk of penalties or missed deadlines.

The most important consideration is having a plan for paying the taxes on the conversion. Ideally, you’ll pay these taxes from sources outside your retirement accounts to maximize the benefit of the conversion. Using retirement account funds to pay conversion taxes reduces the amount that can grow tax-free in the Roth account.

Many people use taxable investment accounts or cash savings to pay conversion taxes, viewing it as an investment in future tax savings. This is where working with a qualified financial planner becomes valuable—they can help you model different conversion scenarios and determine the optimal strategy for your specific situation.

Should I Convert My IRA to a Roth? Making the Decision

This question doesn’t have a one-size-fits-all answer. The decision depends on

  • Your current tax situation
  • Expected future tax rates
  • Retirement income needs
  • Legacy goals
  • The specific timing of your retirement

The strategy works best for people who expect to be in similar or higher tax brackets in retirement, have other sources of funds to pay conversion taxes, and have a long enough time horizon for the tax-free growth to offset the upfront tax cost.

It’s also important to remember that Roth conversions are about reducing uncertainty, not eliminating it. You can’t know with certainty what future tax rates will be or exactly what your retirement will look like. But by creating tax diversification through strategic conversions, you give yourself more options and flexibility in retirement.

The Bottom Line on Roth Conversions

Roth conversions can be a powerful tool for the right person in the right situation, but they’re not appropriate for everyone. The seven reasons outlined here provide a framework for evaluating whether conversions make sense for you.

  1. Reducing RMDs
  2. Creating tax diversification
  3. Hedging against tax increases
  4. Protecting a surviving spouse
  5. Taking advantage of market downturns
  6. Limited charitable plans
  7. Creating tax-efficient legacies

The decision to convert requires careful planning and coordination with your overall retirement plan. Consider working with a qualified financial planner who can model different scenarios and determine the optimal approach for your specific situation. The goal isn’t just to minimize taxes, but to create a retirement plan that maximizes your financial security and peace of mind.

At Imagine Financial Security, we help individuals over 50 with at least $1 million saved navigate complex retirement decisions. If you are looking to

  • Maximize your retirement spending
  • Minimize your lifetime tax bill
  • Worry less about money

You can start by taking our Retirement Readiness Questionnaire on our website at www.imaginefinancialsecurity.com, so we can learn more about how we can help you on your journey to and through retirement.

Not quite ready to take the questionnaire, but want helpful tips and resources? Sign up for our monthly newsletter and/or subscribe to our YouTube channel. This is for general education purposes only and should not be considered as tax, legal, or investment advice.

Ep. 125: 12 Roth Conversion Landmines That Could Cost Retirees Thousands

Last week, we covered why Roth conversions can beso powerful in retirement planning.

This week, we’re talking about what can go wrong.

In this episode, I walk through 12 real-world hurdles and“landmines” that can shrink — or completely eliminate — your Roth conversion window. These are the exact issues I see with retirees and pre-retirees whohave built substantial wealth in traditional IRAs, 401(k)s, and other tax-deferred accounts.

We cover:

  • Social Security timing
  • Pension income
  • Spousal employment
  • Selling a business
  • Deferred compensation plans
  • IRMAA surcharges
  • ACA premium tax credits
  • Inherited IRAs and the 10-yearrule
  • Tax-inefficient investments
  • The new senior bonus deduction

And more.

If you’re planning for retirement and want to minimize lifetime taxes while maximizing flexibility, this episode will help you avoid some very costly mistakes.

I hope you find it helpful.
~ Kevin

Are you interested in working with me 1 on 1?⁠⁠⁠⁠⁠⁠⁠⁠ 

⁠⁠⁠⁠⁠⁠⁠⁠You can start with our Retirement Readiness Questionnaire linked on our website so we can learn more about how we can help in your journey to and through retirement.

Connect with me here:

Or, ⁠⁠⁠⁠⁠⁠⁠⁠visit my website

This is for general education purposes only and should not be considered as tax, legal, or investment advice.

 

 

Ep. 124: 7 Reasons Retirees Should Consider Roth Conversions

If you’re approaching retirement with a large 401(k) or IRA balance, this episode could save you and your beneficiaries hundreds of thousands in future taxes.

In this episode I’ll break down 7 strategic reasons to consider Roth conversions and explain when Roth conversions actually make sense for retirees and pre-retirees.

Too many financial “gurus” push Roth conversions as a one-size-fits-all strategy. In reality, timing matters. Tax brackets matter. Medicare premiums matter. Legacy planning matters.

You’ll learn:
✔️ How Roth conversions can reduce future RMDs (Required Minimum Distributions)
✔️ Why retirees get trapped by large IRA balances later in life
✔️ The hidden “widow penalty” surviving spouses face
✔️ How Roth IRAs can create tax-free retirement income flexibility
✔️ Why the SECURE Act changed inherited IRA planning forever
✔️ How Roth conversions may protect your children from massive tax bills
✔️ The best Roth conversion window for retirees ages 55–75
✔️ When NOT to do Roth conversions
✔️ How market downturns can create Roth conversion opportunities
✔️ The impact Roth conversions can have on IRMAA, Social Security taxation, ACA subsidies, and Medicare premiums

Whether you have $1M, $3M, or more saved for retirement, understanding Roth conversion planning could dramatically improve your retirement income strategy and long-term tax efficiency.

Are you interested in working with me 1 on 1?⁠⁠⁠⁠⁠⁠⁠⁠ 

⁠⁠⁠⁠⁠⁠⁠⁠You can start with our Retirement Readiness Questionnaire linked on our website so we can learn more about how we can help in your journey to and through retirement.

Connect with me here:

Or, ⁠⁠⁠⁠⁠⁠⁠⁠visit my website

This is for general education purposes only and should not be considered as tax, legal, or investment advice.

Trump Accounts: A Complete Guide to Retirement Savings for Children

We’re approaching a significant milestone in the history of financial planning. July 4th, 2026, marks the one-year anniversary of the One Big Beautiful Bill Act. This presents a unique planning opportunity that many families are just beginning to understand: Trump Accounts.

If you’re a parent or grandparent thinking about your children’s financial future, or if you’ve reached a point where you want to practice legacy planning with a “warm hand” instead of waiting until you’re gone, Trump Accounts offer an entirely new approach to retirement savings for minors.

The timing couldn’t be more relevant. Many families who have achieved financial independence are now looking beyond their own retirement security toward setting up the next generation for success. Trump Accounts offer something that hasn’t existed before. A way to start retirement savings for children without the traditional barriers that have limited options in the past.

What Are Trump Accounts and How Do They Work?

Trump Accounts are a result of the One Big Beautiful Bill Act signed into law on July 4th, 2025. While the full economic impact of this legislation is still unfolding amid ongoing global conflicts that are affecting oil prices and inflation, the tax benefits have already begun helping many families. Think of Trump Accounts as traditional IRAs specifically designed for minor children. But they come with some important differences that make them accessible in ways that traditional retirement accounts are not.

The fundamental concept is straightforward. Trump Accounts allow you to make tax-deferred investments on behalf of children under 18, regardless of whether they have earned income. This removes the biggest barrier that has historically prevented families from starting retirement savings for children early. Traditional and Roth IRAs require earned income, so most young children can’t participate. Trump Accounts change that equation entirely.

The money you contribute grows tax-deferred, similar to a traditional IRA, but with some unique features. Individual/family contributions are made with after-tax dollars, similar to non-deductible IRA contributions. The account remains under custodial management until the beneficiary reaches 18 years old. At that point it converts to a traditional IRA in their name.

Setting Up Child Retirement Accounts: Rules and Requirements

Understanding the rules for Trump Accounts is essential before you decide whether they fit into your family’s financial strategy. The beneficiary must be under 18 years old and have a valid Social Security number. Only parents or legal guardians can open and manage these accounts as custodians. Grandparents, family members, and friends can contribute to existing accounts.

One important limitation: there can only be one Trump account per beneficiary. Unlike 529 plans, which allow multiple accounts for the same child, Trump Accounts follow a one-per-person rule. This means coordination becomes important if multiple family members want to contribute.

The contribution structure offers some interesting opportunities. The total annual contribution limit for 2026 is $5,000 per beneficiary. However, there’s an additional opportunity through employer contributions. If you’re a business owner or your employer participates in the program, up to $2,500 can be contributed on behalf of an employee’s Trump Account. That contribution counts toward the $5,000 total limit. This means you could potentially contribute $2,500 that is tax-deductible for the business, plus another $2,500 from personal after-tax income.

Several major companies have already committed to offering Trump account contributions as employee benefits. There are roughly 60 companies that have pledged to make contributions on behalf of their employees or employees’ beneficiaries. These include:

  • Bank of America
  • BNY Mellon
  • Schwab
  • BlackRock
  • Chase
  • Wells Fargo
  • Broadcom
  • Coinbase
  • IBM
  • Dell
  • NVIDIA

There’s also a special “pilot contribution” opportunity. The U.S. Treasury Department will provide $1,000 in seed funding for Trump Accounts opened for children born between 2025 and 2028. This free money doesn’t count against your $5,000 annual contribution limit, making it an attractive starting point for eligible families.

Investment Options for Trump Investment Accounts

The investment choices for Trump investment accounts are deliberately simple and conservative. You won’t find cryptocurrency options, individual stocks, or complex investment vehicles. Instead, Trump investment accounts are restricted to broad-based index funds and ETFs that focus primarily or exclusively on U.S. equities. While this might seem limiting, it actually aligns well with long-term wealth-building strategies.  Think of time in the market as opposed to timing the market.

For most families just getting started with long-term investing, sophisticated investment options aren’t necessary. The power of Trump Accounts lies in time and compounding, not complex investment strategies. Having decades for money to grow in broad market index funds has historically been one of the most reliable wealth-building approaches available.

BNY Mellon will initially manage the accounts through its infrastructure, while Robinhood will handle account custody. While you won’t be able to open Trump Accounts directly through traditional brokerages like Schwab or Fidelity initially, these options will likely become available as the program matures and compliance requirements are established.

Understanding Liquidity and Long-Term Implications

One of the most important aspects of Trump Accounts is understanding when and how funds become accessible. There is no liquidity until the beneficiary reaches 18 years old (or 21 in some states, depending on the age of majority). This is a significant consideration that differentiates Trump Accounts from other savings options.

Once the beneficiary reaches the age of majority, the Trump account automatically converts to a traditional IRA in their name. At this point, traditional IRA rules apply. This includes the 10% early withdrawal penalty for distributions before age 59½, as well as ordinary income taxes on any growth. The original after-tax contributions can be withdrawn without additional taxes, but tracking this basis becomes crucial for tax purposes.

There are some exceptions to the early withdrawal penalties, similar to traditional IRAs. Qualified education expenses, first-time home purchases, and certain hardship situations, such as disability or unemployment, may allow penalty-free withdrawals. However, ordinary income taxes would still apply to the growth portion.

One unique feature is the option to roll Trump account funds into an ABLE account when the beneficiary turns 17, if the child has a qualifying disability. ABLE accounts allow individuals with disabilities to save money without affecting their eligibility for federal benefits like Supplemental Security Income. This option provides important protection for families dealing with special needs planning.

Trump Accounts vs Other Retirement Savings for Children Options

When you evaluate retirement savings strategies for children, you need to consider Trump Accounts alongside other established options. The most popular alternative is the 529 education savings plan, which offers some significant advantages that Trump Accounts cannot match.

529 plans provide state income tax deductions in many states, something Trump Accounts do not offer. The money grows tax-free, and when used for qualified education expenses, distributions are completely tax-free. Recent changes have expanded 529 flexibility, allowing up to $20,000 annually for K-12 private school expenses and enabling 529-to-Roth IRA rollovers under specific conditions.

The 529-to-Roth IRA rollover option is particularly powerful. After a 529 account has remained open for 15 years, you can roll up to $35,000 into a Roth IRA for the beneficiary over time, subject to annual IRA contribution limits. This provides a tax-free path to retirement savings that Trump Accounts cannot match, since conversions from Trump Accounts to Roth IRAs would be taxable events.

Custodial brokerage accounts (UTMA/UGMA accounts) offer another alternative with complete investment flexibility and no contribution limits beyond annual gift tax thresholds. These accounts don’t provide tax-deferred growth. They offer capital gains tax treatment rather than ordinary income tax treatment, and can be used for any purpose without penalties. The trade-off is that the child gains full control at 18 or 21, which may or may not align with your comfort level.

For families with children who have earned income, Roth IRAs remain an excellent option. A working teenager can contribute to a Roth IRA and potentially receive decades of tax-free growth. The combination of a Roth IRA for earned income plus a Trump account for additional savings could provide a powerful one-two punch for families with the resources to fund both.

Comparing Retirement Savings for Children Strategies: A Prioritization Framework

When deciding how to prioritize different retirement savings options for children, consider your family’s specific goals and circumstances. If education funding is a primary concern, 529 plans should typically be the first option. The tax advantages, flexibility for K-12 expenses, and the 529-to-Roth IRA rollover option make them superior for most families focused on education costs.  Additionally, you can transfer an unused 529 to that adult child, who can ultimately use it for a future child’s education expenses. 

For families who have already addressed education funding or have additional resources, custodial brokerage accounts often offer more flexibility than Trump Accounts. The ability to use funds for any purpose without penalties, combined with more favorable capital gains tax treatment, makes custodial accounts attractive for families comfortable with transferring control to their children at the age of majority. 

Trump Accounts might make the most sense as a third-tier option, particularly for families with children born between 2025 and 2028 who can take advantage of the $1,000 pilot funding. The accounts also become more attractive if your employer offers contribution matching or if you’re a business owner who can take advantage of the tax-deductible employer contribution option.

One alternative approach that deserves consideration is to overfund your own taxable brokerage account for the purpose of using it for lifetime gifting and legacy purposes. This strategy maintains your control over the assets while providing flexibility to make gifts when your children or grandchildren actually need financial support, whether for

  • Education
  • Home purchases
  • Business ventures
  • Other life goals 

When you pass away, those assets can receive a step-up in cost basis, making it one of the most powerful legacy buckets available. 

Tax Considerations and the Kiddie Tax Impact

Understanding the tax implications of Trump Accounts requires familiarity with “kiddie tax” rules, which can significantly impact the effectiveness of certain strategies. The kiddie tax applies to the unearned income of children under 18 (or to full-time students under 24 who don’t provide more than half of their own support).

For 2026, the first $1,350 of unearned income is tax-free. The next $1,350 is taxed at the child’s rate (likely very low). Any unearned income above $2,700 is taxed at the parents’ marginal tax rate. This becomes particularly relevant when considering Roth conversion strategies once Trump Accounts convert to traditional IRAs.

Many online discussions suggest that converting funds from a Trump account into Roth IRAs after age 18 represents a significant planning opportunity. However, the kiddie tax rules can make this strategy less attractive than it initially appears. If the beneficiary still qualifies as a dependent on their parents’ tax return, the parents’ higher marginal tax rates could apply to large Roth conversions instead of the child’s lower rates.

More effective conversion opportunities may arise after the child graduates from college and begins working independently. They will not be subject to kiddie tax rules and can take advantage of their own lower tax brackets. However, at that point, the decision belongs to the child, not the parents who originally funded the account. 

Are Trump Accounts Right for Your Family?

Trump Accounts represent a new tool in the family financial planning toolkit. Still, they’re not necessarily the best tool for every situation. They work best for families who have already addressed their primary financial goals:

  • Retirement security
  • Education funding for their children
  • Other immediate financial priorities

The accounts make the most sense when viewed as part of a comprehensive approach to lifetime legacy planning rather than as a standalone solution.

If you’re in a position where you’ve achieved financial independence and are looking for additional ways to benefit your children or grandchildren, Trump Accounts can play a role, particularly if you can take advantage of the pilot funding or employer contribution opportunities.

However, liquidity restrictions, ordinary-income tax treatment, and limited investment options make Trump Accounts less flexible than alternatives such as 529 plans or custodial brokerage accounts. The conversion to a traditional IRA at age 18 does provide some planning opportunities. These need to be weighed against the immediate benefits available through other savings vehicles.

For most families, a prioritized approach makes sense:

  • 529 plans for education funding
  • Roth IRAs for children with earned income
  • Consideration of Trump Accounts or
  • Custodial brokerage accounts for additional savings goals

The key is to understand how each option fits into your overall family financial strategy, rather than viewing any single account type as a complete solution.

The introduction of Trump Accounts adds another option to consider. Still, the fundamentals of long-term wealth building remain the same:

  1. Start early
  2. Invest consistently
  3. Give time and compounding the opportunity to work

Whether you choose Trump Accounts, 529 plans, custodial accounts, or a combination of strategies, the most important step is starting with a plan that matches your family’s goals and comfort level.

Need More Guidance?

At Imagine Financial Security, we help individuals over 50 who have at least $1 million saved navigate these complex retirement decisions. If you are looking to

  • Maximize your retirement spending
  • Minimize your lifetime tax bill
  • Worry less about money

You can start by taking our Retirement Readiness Questionnaire on our website at www.imaginefinancialsecurity.com, so we can learn more about how we can help you on your journey to and through retirement.

Not quite ready to take the questionnaire, but want helpful tips and resources? Sign up for our monthly newsletter and/or subscribe to our YouTube channel. This is for general education purposes only and should not be considered as tax, legal, or investment advice.

Ep. 123: Trump Accounts: Smart Move or Overhyped?

In this episode, I’ll break down the brand-new TrumpAccounts created under the One Big Beautiful Bill Act and explain whether retirees and near-retirees should consider using them as part of their legacy planning strategy.

If you’ve built substantial retirement savings and are thinking about:

  • Helping children or grandchildren financially
  • Reducing future estate taxes
  • Gifting while living
  • Creating generational wealth

This episode walks through the pros, cons, tax implications, and alternatives to Trump Accounts in plain English.

I’ll also compare Trump Accounts to:

  • 529 college savings plans
  • Custodial brokerage accounts(UGMA/UTMA)
  • Roth IRAs for kids
  • Taxable brokerage accounts
  • Lifetime gifting strategies

I’ll explain:

  • How the new $1,000 government seed contribution works
  • Contribution limits
  • Roth conversion opportunities
  • The “kiddie tax” rules
  • Liquidity restrictions
  • Why many retirees may still prefer flexible brokerage accounts over these new retirement-style accounts for minors.

Are you interested in working with me 1 on 1?⁠⁠⁠⁠⁠⁠⁠⁠ 

⁠⁠⁠⁠⁠⁠⁠⁠You can start with our Retirement Readiness Questionnaire linked on our website, so we can learn more about how we can help in your journey to and through retirement.

Connect with me here:

Or, ⁠⁠⁠⁠⁠⁠⁠⁠visit my website

This is for general education purposes only and should not be considered as tax, legal, or investment advice.

Ep. 122: 7 Tax-Free/Efficient Retirement Strategies Every Retiree Needs to Know

Are you approaching retirement with $1 million or more savedand wondering how to minimize taxes on your IRA withdrawals, Social Security income, Roth conversions, brokerage accounts, and retirement income strategy?

In this episode, I’ll break down 7 powerful retirement tax planning strategies that high-net-worth retirees can use to potentially reduce or even eliminate portions of their lifetime tax bill.

You’ll learn:
• How some retirees can take IRA withdrawals tax-free
• Why Roth conversions are often overused
• How the 0% long-term capital gains bracket works
• Strategies to reduce taxes on Social Security income
• Roth IRA withdrawal rules and common mistakes
• Qualified Charitable Distribution (QCD) strategies
• HSA planning opportunities in retirement
• How Net Unrealized Appreciation (NUA) works for company stock

If you are over 50, nearing retirement, or already retired with substantial IRA, 401(k), brokerage, or Roth assets, this episode will help you better understand how retirement tax planning impacts:
• Lifetime income
• Medicare premiums
• RMDs
• ACA subsidies
• Estate planning
• Legacy goals

Are you interested in working with me 1 on 1?⁠⁠⁠⁠⁠⁠⁠⁠ 

⁠⁠⁠⁠⁠⁠⁠⁠You can start with our Retirement Readiness Questionnaire linked on our website, so we can learn more about how we can help in your journey to and through retirement.

Connect with me here:

Or, ⁠⁠⁠⁠⁠⁠⁠⁠visit my website

This is for general education purposes only and should not be considered as tax, legal, or investment advice.

5 Essential Retirement Tax Planning Strategies for High Net Worth Individuals: The “Poor on Paper” Advantage

If you have a net worth of $2 million or more but find yourself in the 12% tax bracket during retirement, congratulations—you’re officially “poor on paper.” This might sound like a contradiction. Actually, it’s one of the most powerful positions you can be in for tax planning. When you’re high net worth but have low taxable income, you unlock planning opportunities that can save you tens of thousands of dollars in taxes and healthcare costs.

The concept of being “poor on paper” came from one of my clients, who recently retired with a net worth of multiple seven figures. He went from a higher income bracket during his working years to the 12% bracket in retirement. His net worth continues to grow, but his tax bracket has dropped dramatically. “Wow, I’m poor on paper now,” he told me, and that phrase perfectly captures this unique planning window.

This situation typically occurs when you’re in early retirement. The time after your W-2 income stops but before you’re required to take Social Security or required minimum distributions from your retirement accounts.

Understanding the “Poor on Paper” Concept

Financial planning for high-net-worth individuals requires a completely different approach than traditional retirement advice. When you have substantial assets but low current income, you have unique levers to pull that most retirees don’t.

The key is having assets in what I call the “non-qualified bucket.”

  • Taxable brokerage accounts
  • Money market accounts
  • CDs
  • Savings accounts that you’ve built up outside of your 401(k) or IRA.

If all your money is locked in tax-deferred accounts, you’re somewhat stuck because every withdrawal creates ordinary income.

When you have diversified assets across different account types, you can strategically control your modified adjusted gross income (MAGI) and ultimately your taxable income. This control becomes the foundation for all the strategies we’ll discuss.

Strategy 1: Maximizing ACA Premium Tax Credits for Healthcare Savings

One of the biggest concerns I hear from early retirees is healthcare costs. If you’re retiring before 65 and not yet eligible for Medicare, you’ll need to figure out health insurance on your own. The Affordable Care Act (ACA) marketplace often becomes the solution, and here’s where being poor on paper creates massive opportunities.

ACA premium tax credits are based on your modified adjusted gross income, not your assets. Even with a $3 million portfolio, if you keep your MAGI between 100% and 400% of the federal poverty line, you can receive substantial tax credits. Sometimes $3,000 per month or more, depending on your state.

I recently worked with a client with $3 million in net worth who is receiving free healthcare through ACA premium tax credits. The key is managing your income sources strategically. Instead of taking large distributions from tax-deferred accounts, you might use cash savings for year one of retirement. Taking money from your savings account isn’t a taxable event—it’s just a return of your basis.

For your brokerage accounts, you can target assets with low to no capital gains, or even assets that are temporarily down in value. Selling at a loss allows you to offset other gains. This keeps your taxable income low while still generating the cash flow you need.

The strategy works best when you have multiple income sources to choose from. Maybe you take $50,000 from cash savings and only need to withdraw $55,000 from your IRA to net $50,000 after taxes. A $55,000 adjusted gross income can still allow you to qualify for significant premium tax credits, potentially saving thousands monthly on healthcare premiums.

Strategy 2: The Roth Conversion Window and 401 (k) Withdrawals and Taxes

Understanding 401 (k) withdrawals and taxes becomes crucial during what I call the “Roth Conversion Window.” This is the period after retirement but before required minimum distributions kick in at age 73 or 75, depending on your birth year.

During your working years, Roth accounts might not make sense because you’re already in high tax brackets. You may prefer deferring taxes (Traditional 401(k)s and IRAs).  But in retirement, when you’re poor on paper, you have an opportunity to move money from tax-deferred accounts to Roth accounts at historically low tax rates.  This is known as a “Roth Conversion.” 

Here’s the Challenge

Every Roth conversion adds to your modified adjusted gross income, which can impact your ACA premium tax credits. You need to weigh the long-term benefits of the conversion against the immediate cost of reduced healthcare subsidies.  However, if you completely ignore this Roth Conversion Window, those Required Minimum Distributions (RMDs) can really hurt later in retirement. 

I have clients right now who are in what I call the “RMD tax trap” because they didn’t do conversions earlier. When required minimum distributions begin, you can’t reverse the process. Some of my clients are taking six-figure RMDs. They tell me they wish they had converted some of those assets to a Roth before reaching RMD age.

The key is coordination. You might decide to do modest conversions that fill up the 10% or 12% tax brackets, even if it reduces some ACA tax credits. The long-term tax savings from avoiding massive RMDs later often outweigh the short-term cost of higher healthcare premiums.

One client I’ve been working with for four years started this process at age 61. She’s been chipping away at her tax-deferred accounts through strategic conversions while supplementing her income with IRA withdrawals. When she turns 70 and starts Social Security, most of her tax-deferred money will have been converted to Roth. This will dramatically reduce her future RMD burden.

Strategy 3: Optimizing Social Security Taxation Through Income Management

Social Security taxation is one of the most misunderstood aspects of retirement planning. You paid into the system during your working years. However, up to 85% of your benefits can still be taxable under a concept called “provisional income.”

When you’re poor on paper, you have the opportunity to keep your provisional income low enough that much of your Social Security remains tax-free. There are three tiers: 0% taxable, 50% taxable, and 85% taxable.

The strategy involves coordinating the timing of your Social Security benefits with your other income sources. If you’re doing Roth conversions during your early retirement years and plan to delay Social Security until age 70, you might be able to structure things so that when Social Security begins, your other income sources are low enough to keep most of your benefits tax-efficient.

I’m working with a client whose husband is already taking Social Security. She hasn’t started hers yet because her benefit is higher. We’ve been doing conversions during her Roth conversion window. When she starts Social Security at 70, the combination of her and his Social Security and her small pension won’t require large IRA withdrawals. This could allow most, if not all, of your Social Security benefits to remain tax advantaged. 

The timing coordination is crucial. Taking Social Security early might make sense in some situations, but it can also add to your provisional income calculation, potentially making more of your benefits taxable and reducing the effectiveness of other strategies.

Strategy 4: Capital Gains Harvesting to Minimize Taxes in Retirement

Capital gains harvesting helps minimize taxes in retirement while providing another tool for managing your taxable income. Depending on your filing status, you’ll pay either 0%, 15%, or 20% on long-term capital gains. Most retirees won’t hit the 20% bracket, but the difference between 0% and 15% is significant.

When you’re poor on paper and in the 0% capital gains threshold, you can sell appreciated investments and pay 0% federal tax on the gains. This strategy essentially resets your cost basis to current market values, reducing future tax obligations when you eventually need to sell for income.

The key is coordination with your other strategies. Every time you harvest gains, you’re adding to your adjusted gross income, which affects:

  • Social Security taxation
  • ACA premium tax credits
  • Your Roth conversion capacity.

If you’re planning to leave investments to your heirs, you might not want to harvest gains. Why? Because they’ll receive a stepped-up basis at your death. But if you’re concerned about concentration risk—like one of my clients who has over 13% of her net worth in Microsoft stock from her late husband’s employment—strategic harvesting combined with charitable giving can address both the tax and risk management issues.

For charitable giving, you can donate appreciated stock directly to a charity. The charity can sell it at their 0% tax rate. You get the deduction, and you reduce the concentration risk in your portfolio.

Strategy 5: How to Reduce Taxes in Retirement Through Coordinated Planning

The fifth strategy is really about coordination—understanding that all these approaches work together and not in silos. You can reduce taxes in retirement most effectively when you coordinate the timing of:

  • Social Security
  • The pace of Roth conversions
  • Your healthcare subsidy optimization
  • Your capital gains management

The early retirement phase, before required minimum distributions and potentially before Social Security, is when all these strategies overlap. This is your window to play the tax game on your terms rather than having the government dictate your tax burden through RMDs and taxation on your Social Security Income.

The biggest mistake I see is people coasting through these early retirement years without taking advantage of these planning opportunities. They’re either not working with an advisor who understands retirement taxes or not consuming educational content about these strategies. By the time RMD Tax Trap kicks in, it’s too late to reverse course.

The goal isn’t to avoid taxes forever—it’s about timing those taxes strategically. You want to pay taxes when you’re in low brackets and have control over the timing, rather than being forced into high brackets later when you have no choice.

Coordination Is Everything: Why These Retirement Tax Planning Strategies Must Work Together

These retirement tax planning strategies are most effective when implemented as a coordinated system. Each decision affects the others, which is why piecemeal planning often fails to deliver optimal results.

For example, if you focus solely on maximizing ACA premium tax credits, you might miss valuable years in your Roth conversion window. Conversely, if you’re aggressive with Roth conversions without considering the impact on healthcare subsidies, you might pay more in premiums than you save in future taxes.

The coordination becomes even more complex when you consider factors such as the senior bonus deduction available to those aged 65 or older. This additional $6,000 deduction per person phases out at relatively low income levels—$75,000 for singles and $150,000 for married filing jointly. Roth conversions can easily push you above these thresholds, eliminating the deduction.

I’ve had to convince many people not to do Roth conversions over the past few years, which is the opposite of what I was doing a decade ago. The popularity of Roth conversions has made them seem like a universal solution. But, they’re not right for everyone in every situation.

The key is working with someone who can:

  1. Review your entire financial picture
  2. Understand your goals
  3. Coordinate these strategies appropriately.

Whether that’s working with my firm or finding another advisor who specializes in retirement tax planning, the important thing is getting professional guidance that considers all these moving pieces together.

Taking Action on Your Retirement Tax Planning Strategies

If you’re approaching retirement or have recently retired with 7 figures or more in assets but low current income, you’re in a unique position to implement these strategies. The window won’t last forever—once RMDs begin or if your income increases significantly, many of these opportunities disappear.

The most important step is understanding what you’re planning for and who you’re planning for. Are you focused on maximizing your own retirement security, leaving a legacy to children, or supporting charitable causes? Your goals should drive which strategies make the most sense and how aggressively to implement them.

Don’t assume that all of these strategies are right for your situation. Content like this is educational, but it can also be dangerous if you implement strategies without understanding how they fit into your overall plan. Every conversion triggers taxes. Gain harvests can affect your income. And each decision creates ripple effects across the rest of your financial plan.

If you’re interested in working with an advisor who specializes in these retirement tax planning strategies, make sure they’re a fiduciary who won’t try to sell you unnecessary products. Look for someone who can actually review your tax returns and coordinate with your tax preparer. Retirement tax planning isn’t just about investments—it’s about understanding the tax code and how to work within it strategically.

The early retirement years, when you’re poor on paper, represent one of the best opportunities for tax optimization you’ll ever have. Don’t let them pass by without taking advantage of the strategies that could save you thousands of dollars in taxes and healthcare costs over the course of your retirement.

How We Can Help

At Imagine Financial Security, we help individuals over 50 with at least a million dollars saved navigate these complex retirement decisions. If you are looking to

  • Maximize your retirement spending
  • Minimize your lifetime tax bill
  • Worry less about money

You can start by taking our Retirement Readiness Questionnaire on our website at www.imaginefinancialsecurity.com, so we can learn more about how we can help you on your journey to and through retirement.

Not quite ready to take the questionnaire, but want helpful tips and resources? Sign up for our monthly newsletter and/or subscribe to our YouTube channel.

This is for general education purposes only and should not be considered as tax, legal, or investment advice.

TIAA Traditional Withdrawal Options: Your Complete Guide to Four Payout Choices

If you have money in TIAA Traditional, you’ve probably wondered what your options are when it’s time to take your money out for retirement. Understanding your TIAA Traditional withdrawal options is one of the most important decisions you’ll make in your retirement planning journey. Yet, it’s also one of the most confusing aspects of TIAA retirement accounts.

What is TIAA Traditional?

It’s a fixed annuity that’s part of your 403(b) retirement account, specifically designed for employees of:

  • Non-profit organizations
  • Hospitals
  • Universities
  • Schools

Unlike variable investments that fluctuate with market performance, your TIAA traditional annuity provides stability through guaranteed minimum interest rates and participation in TIAA’s carefully managed general account.

Retirement planning decisions involving TIAA Traditional are particularly complex because it’s a unique product with specific rules and options. While this guide covers the four main payout choices available, it’s important to consider how these options align with your overall financial picture, including:

  • Other income sources
  • Other investments
  • Retirement timing
  • Risk tolerance
  • Legacy goals.

Understanding Your TIAA Traditional Options

TIAA Traditional is different from the variable annuity options in your 403(b) account, such as CREF stock, CREF growth, or CREF bond. While those investments tie your returns to market performance, TIAA Traditional provides returns based on TIAA’s general account performance. This massive, conservatively managed portfolio includes traditional bonds, commercial real estate, agriculture, timber, and other stable investments that TIAA has been managing for over 150 years.

There are several types of TIAA traditional contracts, and each has different rules and interest rates. You might have older contracts from contributions made decades ago, or newer contracts from recent contributions. Some contracts are fully liquid (marked with an “S” for supplemental), while others have liquidity restrictions. Furthermore, there are even certain “Plan Rules” within your organization that might create additional complexity around the availability and liquidity of funds.  Understanding which type of contract you have and your plan’s rules is crucial for determining your available options.

Option 1: Required Minimum Distribution (RMD) or Minimum Distribution Option (MDO)

The first way to access your TIAA traditional funds is through the required minimum distribution option, also called the minimum distribution option by TIAA. This option becomes available when you reach the age when the IRS requires you to start taking distributions from your tax-deferred retirement accounts.  If you miss an RMD, you could be subject to a 25% penalty! 

The RMD age has changed over the years due to legislation. Previously set at 70.5, it was raised to 72 by the SECURE Act. RMD now stands at 73 or 75, depending on your birth year. If you were born in 1960 or later, your required minimum distribution age is 75.

How the Math Works

The IRS provides a life expectancy table that determines your distribution factor based on your age. For example, if you turn 75 in 2025, your life expectancy factor is 24.6. You divide your account balance by this factor to determine your required distribution amount.

Example

Let’s say you have $1 million in a TIAA traditional account. At age 75, you would divide $1 million by 24.6, resulting in a required distribution of approximately $40,650, or about 4% of your account balance. As you age, your life expectancy decreases, which means your required distributions increase. By age 90, with a life expectancy factor of 12.2, that same $1 million would require a distribution of nearly $82,000.

This creates what I like to call the “Tax Trap of 401ks and IRAs.” If you have substantial Social Security payments and perhaps a pension, and you don’t need these tax-deferred assets for current income, those increasing RMDs can push you into higher tax brackets and trigger additional costs like Medicare surcharges or IRMAA.

The advantage of this option is continued tax deferral while pulling out the minimum required by the IRS. Before reaching RMD age, you can let your account continue growing tax-deferred without being forced into any payout structure. You can also change to other options later if your needs evolve.

Option 2: Interest-Only Withdrawals

The second option allows you to withdraw only the interest your TIAA traditional account earns while leaving your principal intact. Each of your TIAA traditional accounts has an associated interest rate that depends on when you made the contributions and what type of contract you have.

Contributions made in the 1970s, 1980s, and 1990s typically carry much higher interest rates than contributions made after 2009, when interest rates dropped to near zero following the Great Recession. However, even recent TIAA traditional contributions often provide interest rates of 4% to 4.5% or higher, which compare favorably to traditional bond investments that have averaged less than 2% annually over the past 10-15 years.

The interest rates also vary by contract type. Contracts without an “S” designation (such as RA and GRA contracts) typically offer higher interest rates but come with liquidity restrictions. These are usually funded by employer contributions. Contracts with an “S” designation (SRA and GSRA contracts) are supplemental contracts funded primarily by your own contributions. They offer slightly lower interest rates but provide full liquidity.

Example

Using our $1 million example with a combined interest rate of 4.5%, your account would generate approximately $45,000 in annual interest. With the interest-only option, you could receive this $45,000 as income while preserving your $1 million principal balance. You can typically choose to receive these payments monthly, quarterly, semi-annually, or annually, depending on your cash flow needs.

This option works well if you need supplemental income but want to preserve your principal for future needs or to leave as a legacy. The interest payments from pre-tax 403b accounts are treated as taxable income in the year you receive them, just like any other distribution from a tax-deferred account. However, there are usually restrictions on how frequently you can start and stop these payments. You’ll want to confirm the specific rules for your contracts.

Option 3: Annuitization – Creating a Lifetime Income Stream

The third option, and what many experts consider the most underutilized, is annuitization. This means exchanging your account balance for a guaranteed income payment that will continue for as long as you live, or for as long as you and your spouse live if you choose a joint option.

When you annuitize your TIAA traditional account, you’re essentially trading your account balance for an income stream you can never outlive. The amount of income depends on several factors:

  • Your age
  • Your account balance
  • The interest rates of your various contracts
  • The payout option you select

Real Example

A 67-year-old client with various TIAA traditional contracts dating back decades received an illustration showing a single life payout rate of 8.81% with a 10-year guarantee period. This means that for every $100,000 annuitized, this client would receive $8,810 annually for life.

The 10-year guarantee provides protection if you die early in retirement. If you pass away within 10 years of starting the annuity, payments continue to your beneficiary for the remainder of the guarantee period. So, if you die after five years, your beneficiary receives payments for five more years.  But if you outlive the 10-year guarantee period, there is no death benefit.

You can also choose joint life options that continue payments as long as either you or your spouse is alive. These typically offer lower payout rates because they’re expected to pay out longer, but they provide valuable protection for surviving spouses.

Payout rates vary significantly depending on when you made your contributions. Older contracts often have much higher payout rates. I’ve seen TIAA Traditional payout rates as high as 10% per year on older contracts from the 80s and 90s. 

TIAA’s long history and conservative management approach allows them to offer competitive rates to existing participants.

It’s important to understand that annuitization is an irrevocable decision. Once you exchange your account balance for the income stream, you cannot change your mind or access the principal. Additionally, these annuities are generally designed to be fixed with no guarantee of increased payments over time. 

This brings inflation risk into play more so than other investments.  However, the high baseline guaranteed income can stack on top of Social Security and allow for your more aggressive investments to compound longer.  Many are surprised that this can result in a higher legacy amount despite the lack of a death benefit.

Option 4: Transfer, Rollover, or Liquidation

The fourth option is to move your money out of TIAA Traditional entirely. Your ability to do this depends on what type of contracts you have.

If your TIAA traditional is in supplemental contracts (SRA, GSRA, and RCP), you have full liquidity. You can

  • Take the money out as a lump sum
  • Roll it into your own IRA
  • Transfer it to other investments within your 403(b) plan without restrictions.

However, if your money is in non-supplemental contracts (RA, GRA, or RC), you face liquidity restrictions because these contracts were funded primarily by employer contributions. For these illiquid contracts, you can use what’s called a Transfer Payout Annuity (TPA). A TPA provides your money in equal installments for a term determined by the type of contract.

  • RA Contracts: 10 payments over nine years
  • RC Contracts: 7 payments over 6 years
  • GRA Contracts: 5 payments over 4 years

If you elect to receive these payments as cash, each payment is taxable income. If you roll the TPA payments to an IRA or other qualified account, there are no immediate tax consequences.  You’ll need to check with TIAA to understand the specific rules for your contracts.

Many people choose this option because they’re frustrated with TIAA Traditional’s complexity or because they want to consolidate and simplify their retirement accounts. However, this decision deserves careful consideration because you’re giving up some unique benefits that are difficult to replicate elsewhere.

The Most Overlooked Option: Why Annuitization Deserves Serious Consideration

After working with hundreds of TIAA participants over the years, one pattern became clear.

Most people immediately gravitate toward option four (getting their money out) without seriously considering annuitization. This happens for several understandable reasons.

First, annuities have developed a negative reputation in the financial industry. Much of this stems from how annuities are often sold in the marketplace. Some salespeople are taking advantage of seniors and retirees, focusing on their own commissions rather than clients’ needs. This has created widespread distrust of anything labeled as an “annuity.”

Second, TIAA Traditional is genuinely complex, and many people simply want to move their money to something they understand better. The various contract types, liquidity restrictions, and payout options can feel overwhelming.

However, this rush to liquidate often overlooks the significant value that TIAA Traditional can provide in a well-designed retirement plan. Consider these advantages:

Bond Alternative

Over the past 10-15 years, traditional bonds have provided returns of less than 2% annually while experiencing significant volatility. TIAA traditional accounts typically earn 4% to 4.5% or more annually and never decrease in value. They can serve as an excellent bond alternative, allowing you to be more aggressive with your other investments.

Guaranteed Income Foundation

The annuitization option provides a guaranteed income foundation that reduces pressure on your other investments. With a baseline income from Social Security and a TIAA traditional annuity, you can afford to take more risk with your remaining investments to capture potential upside.

Superior Payout Rates

The payout rates available through TIAA traditional annuitization often exceed what you can obtain by purchasing commercial annuities in today’s market. The 8.81% payout rate in our example would be very difficult to replicate elsewhere.

Longevity Insurance

If you expect longevity for you or your spouse, the annuity continues paying regardless of how long you live. TIAA reportedly has clients in their hundreds who are still receiving payments.

The key is not to annuitize everything, but to consider using TIAA Traditional as one component of a diversified retirement income strategy. You might annuitize a portion of your TIAA Traditional to create a guaranteed income floor, while keeping other assets liquid for emergencies and growth potential.

Making the Right Choice for Your Situation

Choosing among these four options requires careful consideration of your complete financial picture. Here are some key factors to evaluate:

Income Needs

How much income will you need from your retirement accounts? If you have substantial Social Security and pension income, you might prefer to let the TIAA traditional continue growing tax-deferred. If you need current income, the interest-only or annuitization options might be more appropriate.

Other Assets

What other liquid assets do you have available for emergencies? If most of your wealth is in retirement accounts, maintaining some liquidity is important. But if you have substantial taxable investments or other liquid assets, you might be more comfortable annuitizing a portion of your TIAA Traditional.

Risk Tolerance

How comfortable are you with market volatility in your other investments? If TIAA Traditional serves as your bond allocation, you might be able to invest more aggressively elsewhere.

Legacy Goals

Do you want to leave assets to heirs? Annuitization reduces the assets available for inheritance, whereas the other options preserve more of the principal.  With that said, if you do live a long time, the benefits of annuitization could allow for your growth assets to compound without selling at the wrong time.

Tax Considerations

How will each option affect your overall tax situation? Large RMDs might push you into higher tax brackets, while annuity payments provide predictable taxable income.

Health and Longevity

Your health status and family history of longevity should influence your decision. If you expect a long retirement, annuitization becomes more attractive.

Conclusion

Your TIAA traditional account represents a valuable and unique retirement asset that deserves careful consideration. While the complexity can be frustrating, understanding your four main options – RMD/MDO, interest-only, annuitization, and rollover/liquidation – helps you make an informed decision that aligns with your retirement goals.

The most important takeaway is not to rush into liquidating your TIAA traditional simply because it’s complex. The guaranteed annuity rate and lifetime income options available through TIAA Traditional are increasingly rare in today’s financial marketplace. These benefits, combined with TIAA’s 150+ years of experience and conservative management approach, make TIAA Traditional a potentially valuable component of your retirement income strategy.

Before making any decisions, consider how each option fits within your overall financial plan. Think about your income needs, risk tolerance, legacy goals, and tax situation. If you’re unsure, consider working with a fee-only financial planner who can provide objective guidance without trying to sell you additional products.

Remember, you don’t have to choose just one option or make all decisions at once. You might use different options for different portions of your TIAA Traditional balance, or adjust your approach as your needs evolve in retirement. The key is understanding your choices so you can make decisions that support your long-term financial security and retirement goals.

At Imagine Financial Security, we help individuals over 50 with at least a million dollars saved navigate these complex retirement decisions. If you are looking to

  • Maximize your retirement spending
  • Minimize your lifetime tax bill
  • Worry less about money

You can start by taking our Retirement Readiness Questionnaire on our website at www.imaginefinancialsecurity.com, so we can learn more about how we can help you on your journey to and through retirement.

Not quite ready to take the questionnaire, but want helpful tips and resources? Sign up for our monthly newsletter and/or subscribe to our YouTube channel.

This is for general education purposes only and should not be considered as tax, legal, or investment advice.

5 Retirement Strategies for Navigating Market Volatility in 2026

The current geopolitical tensions involving Iran have sent ripples through global markets. If you’re approaching retirement or have recently retired, you’re probably feeling some anxiety about your financial future. As someone who works with retirees daily, I’m seeing a familiar pattern emerge—the same concerns that surfaced during the 2020 COVID crisis and the 2008 financial meltdown.

Right now, we’re witnessing significant market volatility due to the Iran conflict. This conflict has effectively shut down the Strait of Hormuz—a critical waterway that accounts for about 20% of global oil consumption. This disruption is driving up energy costs, squeezing business margins, and creating uncertainty about future economic conditions.

For those planning to retire within the next year or two, or those who’ve recently entered retirement, this volatility raises serious questions about timing and financial security.  In this blog post, we’ll touch on five retirement strategies to help you navigate this current market volatility. 

The One-More-Year Syndrome: Why Market Volatility Affects Retirement Decisions

During my recent client reviews, I noticed something troubling. Many clients who were planning to retire this year are now considering pushing back their retirement. This phenomenon, which I call the “One-more-year syndrome,” isn’t new. I witnessed the same pattern during the 2020 pandemic when global markets crashed and again during the 2008 financial crisis.

The concern is understandable. Sequence of returns risk—the danger of experiencing poor market performance early in retirement—can significantly impact your long-term financial security. Historical data shows that retiring during major market downturns, such as the early 2000s tech crash or the 2008 financial crisis, can be particularly challenging for retirees who don’t have proper strategies in place.

However, here’s what many people don’t realize:

Even those who retired during the difficult 2022 triple bear market—stocks down 20%, bonds down 13–15%, and cash losing value—have seen a strong recovery from 2023 to 2025. The key is having the right retirement strategies to weather these storms.

Understanding the Current Market Impact

The Iran conflict is creating specific challenges that retirees need to understand. Oil prices have jumped over 40%, and this impacts everything from shipping costs to business profitability.

What makes this situation particularly concerning for retirement planning is the potential impact on inflation. Coming into 2026, markets expected the Federal Reserve to cut interest rates two to three times. However, if oil prices remain elevated and inflation becomes stickier, those rate cuts may not materialize. This uncertainty affects both stock and bond markets, creating the kind of volatility that can disrupt traditional investment strategies for retirement.

The situation is further complicated by the broader implications for artificial intelligence infrastructure, which requires enormous amounts of energy. The current administration’s focus on energy independence and the potential impact on China’s energy supply adds another layer of complexity to global markets.

Essential Retirement Strategies for Market Volatility

The Guardrails Framework

One of the most effective retirement strategies for managing market volatility is implementing a guardrails system. The Guyton-Klinger framework provides a structured approach to adjusting your spending during market downturns.

Here’s how it works:

If your withdrawal rate increases by 20% due to portfolio losses (not increased spending), you implement a 10% reduction in your expenses.

For many retirees, this strategy is quite manageable because they often have significant discretionary spending. Instead of taking three major trips per year, you might reduce it to two. While this requires some lifestyle adjustment, it’s far better than running out of money entirely.

The beauty of this approach is that it’s not arbitrary. It’s based on historical analysis of what works during extended market downturns. This systematic approach to managing market volatility helps remove emotion from financial decisions during stressful periods.

Building Your Cash and Fixed Income Buffer

Another crucial element of sound investment strategies for retirement is maintaining adequate liquidity. Building up a substantial cash and fixed income buffer allows you to avoid selling stocks during market downturns. This strategy proved invaluable during the 2008-2009 crisis, which took about 5 years for the market to fully recover.

The question isn’t whether to build this buffer, but how large it should be. Some retirees feel comfortable with two years of expenses in cash and fixed income. Others prefer four or five years for maximum peace of mind. This decision depends on your risk tolerance and how much market volatility you can psychologically handle.

Your buffer can include money market accounts, high-yield savings, CDs, short-term treasuries, or a combination of these vehicles. The key is having enough liquid assets to cover your expenses without forcing you to sell stocks at the worst possible time. This approach allows your equity investments time to recover while you live off your safer assets.

Reconsidering Annuities in Your Portfolio

Many people have negative associations with annuities, often for good reasons, given how they’ve been oversold in the past. However, when used appropriately, annuities can serve as an effective tool for managing market volatility in retirement portfolios.

The advantage of fixed annuities over traditional bonds is the elimination of interest rate risk. While bond prices can decline when interest rates rise, a fixed annuity locks in your value each year. More importantly, annuities can be converted into guaranteed lifetime income streams, which reduces the pressure to sell stocks during market downturns.

This is particularly relevant for managing market volatility. Why? Because it provides a foundation of guaranteed income that doesn’t fluctuate with market conditions. Whether you’re considering a private annuity from companies like Lincoln or Principal, or you have access to institutional options like TIAA, these tools can provide valuable stability during uncertain times.

Alternative Income Strategies

Sometimes the best retirement strategies involve thinking outside traditional investment approaches. Part-time work, for instance, can significantly reduce pressure on your investment portfolio during volatile periods. This doesn’t mean returning to a stressful full-time career, but rather finding enjoyable, flexible work that provides additional income.

Many retirees find fulfillment in consulting work, retail positions, or service jobs that keep them active and social while providing financial benefits. The additional income reduces the amount you need to withdraw from your portfolio, giving your investments more time to recover from market downturns.

Strategic Social Security Timing

Your Social Security claiming strategy can also serve as a tool for managing market volatility. If you had planned to delay benefits until age 70 but find yourself in a prolonged market downturn, claiming earlier can reduce pressure on your investment portfolio.

There’s even a little-known provision that allows you to start Social Security benefits before full retirement age, but then stop them at full retirement age.  This allows you to capture delayed retirement credits up until age 70. This flexibility can be valuable if market conditions improve and you want to return to your original strategy of maximizing lifetime benefits.

The DURP Framework: Staying Disciplined During Uncertainty

The foundation of all effective retirement strategies is what I call the DURP framework: Disciplined, Unemotional, Repeatable Process. This approach is based on having a clear investment policy statement that guides your decisions regardless of market conditions.

Think of how major university endowments operate. They have clear goals, defined risk tolerance based on those goals, and specific asset allocation targets. When they need to generate cash flow, they sell from whatever asset class has performed best recently and is overweight in their portfolio.

During strong market years like 2025, when stocks returned about 16%, and bonds returned 7%, you would trim your equity allocation to generate additional cash flow. Conversely, during down markets like 2008, when stocks fell 37%, but bonds gained 6%, you could sell bonds to meet your cash flow needs while allowing stocks time to recover.

This systematic approach to managing market volatility removes emotion from the equation. It ensures that you’re buying low and selling high rather than the other way around.

What is Retirement Planning in Today’s Environment?

What is retirement planning in an era of increased market volatility and geopolitical uncertainty? It’s about creating flexible, robust strategies that can adapt to changing conditions while protecting your financial security.

Modern retirement planning must account for longer lifespans, lower expected returns, higher healthcare costs, and increased market volatility. It’s no longer sufficient to simply accumulate assets and hope for the best. Today’s retirees need sophisticated strategies that address sequence-of-returns risk, inflation protection, and income sustainability.

The key is to work with professionals who understand these complexities and can help you implement appropriate strategies before you need them. This can include:

  • Setting up guardrails
  • Building proper cash buffers
  • Optimizing your Social Security strategy

The time to plan is before the crisis hits.

Moving Forward with Confidence

While the current market volatility related to the Iran conflict is concerning, it’s important to remember that markets have weathered similar storms before. The key is having proper retirement strategies in place and the discipline to stick with them during challenging periods.

If you’re approaching retirement with over a million dollars in savings and feeling uncertain about how to navigate these turbulent times, you’re not alone. The strategies outlined here—from guardrails frameworks to cash buffers to strategic Social Security timing—have helped countless retirees successfully navigate market volatility.

The most important thing is to avoid making emotional decisions based on short-term market movements. Instead, focus on building a robust plan that can adapt to changing conditions while protecting your long-term financial security. Remember, you can’t time the markets perfectly. However, you can prepare for volatility and position yourself to weather whatever storms may come.

Managing market volatility in retirement isn’t about predicting the future. It’s about being prepared for multiple scenarios and having the flexibility to adapt as conditions change. With proper planning and professional guidance, you can maintain confidence in your financial future regardless of what global events may unfold.

At Imagine Financial Security, we help individuals over 50 with at least a million dollars saved navigate these complex retirement decisions. If you are looking to

  • Maximize your retirement spending
  • Minimize your lifetime tax bill
  • Worry less about money

You can start by taking our Retirement Readiness Questionnaire on our website at www.imaginefinancialsecurity.com, so we can learn more about how we can help you on your journey to and through retirement.

Not quite ready to take the questionnaire, but want helpful tips and resources? Sign up for our monthly newsletter and/or subscribe to our YouTube channel. This is for general education purposes only and should not be considered as tax, legal, or investment advice.

One More Year Syndrome: The Hidden Trap Keeping You from Retirement

If you’ve been researching retirement lately, you’ve probably encountered content about something called “one more year syndrome.” This concept has been gaining traction across YouTube channels, podcasts, and financial forums, but what exactly is it, and why should you care?

One more year syndrome describes the tendency for pre-retirees to continuously postpone their retirement by convincing themselves they need to work “just one more year.” Sound familiar? You’re not alone. This pattern affects countless people who are financially ready to retire but keep finding reasons to delay.

What Is One More Year Syndrome?

One more year syndrome occurs when you give yourself excuses to work another year, even though you have the financial capacity to retire. These excuses might sound like:

  • “I need to add more money to my portfolio.”
  • “The market valuations look scary right now.”
  • “Inflation is making me nervous.”
  • “There are tariffs looming on the horizon.”
  • “Healthcare costs before Medicare eligibility worry me.”
  • “I don’t know what I’ll do with my time in retirement.”

The truth is, there’s always something uncertain on the horizon. Think about any time you’ve challenged yourself to try something new – that feeling of unease before stepping into uncharted territory is completely natural. Just like a child reciting a poem in front of their peers feels terrified for weeks beforehand, but once they’re doing it, they realize it wasn’t so scary after all.

For many pre-retirees, you’ve spent your career being the go-to person. You’re the problem solver, the one putting out fires, the person others turn to for advice and help. You have meaning, purpose, and respect in your field and community. The idea of leaving that behind for an uncertain next chapter can feel genuinely frightening.

Understanding the Content Creator’s Angle in Retirement Planning

Here’s something important you need to understand: many people creating content about one more year syndrome are retirement planners and financial advisors. They want people to retire, or at least seriously consider retiring soon, because that creates business opportunities for them.  This is coming from a fellow content creator and retirement planner!  (At least I’m upfront about it).

This doesn’t mean their advice is wrong, but you need to understand the incentive structure. When you see content saying, “don’t work another year, you’re wasting your time, stop slaving away for the man,” ask yourself who is packaging that message and what their angle might be.

Every content creator has an angle. The key is being aware of where the content is coming from so you can evaluate it appropriately. This awareness doesn’t invalidate the message – it might still be exactly what you need to hear – but it helps you consume it more thoughtfully.

Why Mortality Makes Us Rethink When to Retire

Sometimes life provides wake-up calls that force us to reconsider our retirement timing. Recently, a podcast listener reached out to see if he could retire earlier than he had planned.  The reason?  He lost 3 of his close friends over the last year. That kind of mortality reminder hits differently than abstract retirement planning discussions.

I remember back in my TIAA days, I worked with a sweet math professor looking for help with retirement planning.  She planned to work until 65 to become eligible for Medicare, and she was incredibly excited about traveling the world. For three years, her excitement built with each planning meeting. Then, unexpectedly, she passed away at 64 – just months before her planned retirement.

These stories aren’t meant to create fear, but they highlight an important reality: time isn’t guaranteed. When you see people around you pass away, get sick, or become frail, it naturally makes you reevaluate what you’re doing today. This response is completely normal and healthy.

Three Questions to Evaluate Your Retirement Readiness

To address one more year syndrome effectively, ask yourself these three critical questions:

Question 1: The Financial Standstill Test

Assuming nothing changed financially over the next year – even if the markets didn’t cooperate and your portfolio balance stayed exactly the same 12 months from now – would you still work that one more year?

What if you had a crystal ball showing your net worth wouldn’t change despite working another year, would you still choose to work? If the only reason you’re working is to add more money to your portfolio, even though you already have the capacity to retire today, you might be suffering from one more year syndrome.

Question 2: The Money-No-Object Test

If money weren’t an issue and you didn’t need to add more to your portfolio, would you still be doing what you’re doing today?

Remember, retirement doesn’t have to mean sitting in a rocking chair sipping drinks all day. Maybe you’d work occasionally as a consultant, volunteer, travel, or start a nonprofit. But the question is: if you didn’t need your job financially, would you still choose to spend most of your day and week doing that job?

If the answer is yes, and you can still pursue other important activities and relationships, then keep working. But remember – nothing is guaranteed.

Question 3: The Five-Year Horizon Test

If you were told today that you had five more good, healthy “go-go” years left, would you still work that one more year?

How would this knowledge change your decision about working another year?

Finding Purpose Beyond Traditional Retirement

The concern about losing purpose in retirement is valid and important. In 1 Peter 4:10, it says, “Each one should use whatever gift he has received to serve others, faithfully administering God’s grace in its various forms.”

This doesn’t suggest that retirement is bad; rather, it asks whether you’re using your gifts to serve others. If work is preventing you from doing that, maybe you should consider retiring sooner than planned. However, if you have no purpose planned for retirement, you’re likely to feel lost.

Retirees who feel lost don’t feel good, and people who don’t feel good aren’t enjoyable to be around. You need purpose, meaning, fulfillment, and energy in retirement. But there are many ways to make an impact and put your time, talents, and treasures to work beyond traditional employment.

Making Your Decision About One More Year Syndrome

Here’s what to take away from this discussion:

First, when you encounter content about one more year syndrome, understand where it’s coming from. Consider who is delivering the message, how they’re packaging it, and what their angle might be. Everyone has motivations, and being aware of them helps you evaluate advice more effectively.

Second, recognize that despite potential biases, this message might still be exactly what you need to hear today. Time isn’t guaranteed, and you can’t predict how many good years you have remaining. This reality has played out countless times throughout retirement planning careers.

Third, use those three questions to guide your thinking. They might lead you to conclude that you should continue working – maybe for five more years instead of one. Or you might realize you hate what you’re doing and need to figure out a plan to transition now, even if it’s not full retirement.

If money isn’t the issue and you dislike your job, it’s probably time to reevaluate what you’re doing. There are plenty of ways to make an impact and use your skills meaningfully.

Moving Forward with Your Retirement Decision

One more year syndrome is real, and it affects many people who are actually ready to retire but keep finding reasons to delay. The key is honest self-reflection about your true motivations.

Are you working another year because you genuinely need the money, or because you’re afraid of the unknown? Do you love what you do and find meaning in it, or are you staying because it feels safe and familiar?

Your retirement planning should go beyond financial calculations to include questions of purpose, meaning, and how you want to spend your remaining healthy years. Whether you decide to retire now, work one more year, or continue for several more years, make sure that decision is based on thoughtful consideration rather than fear or habit.

The goal isn’t to minimize your retirement years but to maximize the meaningful use of whatever time you have left. Sometimes that means working longer, and sometimes it means taking the leap into retirement sooner than you initially planned.

At Imagine Financial Security, we help individuals over 50 with at least a million dollars saved navigate these complex retirement decisions. If you are looking to

  • Maximize your retirement spending
  • Minimize your lifetime tax bill
  • Worry less about money

You can start by taking our Retirement Readiness Questionnaire on our website at www.imaginefinancialsecurity.com, so we can learn more about how we can help you on your journey to and through retirement.

Not quite ready to take the questionnaire, but want helpful tips and resources? Sign up for our monthly newsletter and/or subscribe to our YouTube channel. This is for general education purposes only and should not be considered as tax, legal, or investment advice.

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