In this Retirement Q&A episode, I answer four questions I recently received from retirees and people preparing for retirement.
We’ll cover:
• Is the 4% Rule still the best safe withdrawal rate? • What is the best investment allocation during retirement? • Are the new Trump Accounts actually worth using? • What do retirees regret most at the end of life?
If you’re within 10 years of retirement or already retired, this episode will help you make smarter financial decisions as you prepare for and execute your retirement plan.
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.
If you’ve spent any time researching Social Security, you’ve probably heard the same advice over and over: delay until 70 to get the largest lifetime benefit. And honestly? As a retirement planning practitioner with nearly 18 years of experience, I’ll admit there are plenty of good reasons to delay until 70.
But here’s the problem with most Social Security claiming strategies: they’re built around one assumption in a silo. That assumption? Maximizing your Social Security benefit should be the primary goal.
But what if that’s the wrong goal?
What if delaying Social Security actually leaves less money to your kids? Will it create more stress in retirement than necessary? What if it forces you to spend down your portfolio more aggressively during a market downturn? And what if you never even live long enough to see the benefit of delaying in the first place?
Today, I want to talk about five scenarios where claiming Social Security earlier—as early as 62—may actually be the better move. Because the right Social Security claiming strategies aren’t about winning a break-even calculation. They’re about making the best decision for your own retirement plans.
For those of you who are new here, my name is Kevin Lao. I own Imagine Financial Security, where we help individuals plan for and execute a successful retirement. If you’re over 50, you’ve saved seven figures or more for retirement, and you’re looking to maximize your retirement income, minimize your lifetime tax bill, and worry less about money, this article is specifically for you.
Why the ‘Delay Until 70’ Social Security Claiming Strategy Is So Popular
Let me start by explaining why this delay-until-70 narrative is so common. If we look at the retirement and survivor benefits life expectancy calculator directly on the Social Security website, the numbers tell an interesting story.
Example
I plugged in a female who’s about to turn 62. According to Social Security, her life expectancy is actually 24 years—meaning they expect her to live until 86. That’s interesting because if you look at life expectancy calculators at birth in 2025 or 2026, it’s about age 79. The reason for this difference? If you make it past 60 or 62, you’re probably pretty healthy. You’re not the normal health profile, so your life expectancy is longer than someone’s life expectancy at birth.
Here’s where the math comes in. If you claim Social Security at 62 years old, you’ll start collecting right away. But if you live until 84, 86, or longer, you’re going to receive significantly lower lifetime benefits. When we look at Social Security in a vacuum, there’s no argument—you’ll receive lower lifetime benefits by claiming early.
You can take your own benefit as early as 62, which results in about a 30% reduction relative to your full retirement age benefit (let’s call it age 67 for most of you). Then, past age 67, you can actually compound your primary insurance amount by another 8% on an annual basis. Those are known as delayed retirement credits.
So you’re giving up a lot of future income to start that check earlier. Even though you didn’t receive those checks for five or eight years by delaying, that higher benefit will increase with inflation. Assuming you hit those life expectancy tables that the Social Security Administration projects, you’re going to receive a much higher lifetime benefit.
That’s the backdrop—the core argument in favor of delaying until 70 or at least until your full retirement age.
Social Security in the Context of Your Retirement Planning
But I don’t think that really illustrates the entire picture. I think we need to look at the Social Security decision in the context of a retirement plan—a full retirement plan.
Now, I may be biased because I do retirement planning for a living, but I really believe that the Social Security lever will be the biggest decision you make for your retirement plan. Some of you may have a pension, but for most of you, you’re going to need your portfolio throughout the duration of your retirement. We need to be smart in coordinating your investment strategy with this very important Social Security lever.
So let’s play contrarian. I’m going to talk about five scenarios where you might consider pausing that “delay until 70” advice and saying, “You know what, let me take a step back and understand what I’m giving up.” Because if you delay, there will be an impact.
My goal is to help you see the 360-degree view of your retirement planning and ultimately make the best Social Security decision for you. But here’s the reality: claiming the best Social Security decision involves getting out your crystal ball and saying, “This is exactly how long I’m going to live, this is exactly how the portfolio is going to perform, and this is exactly what inflation is going to look like.”
In other words, it’s impossible. Whatever decision you make, you need to make it based on the facts and circumstances you find yourself in. Just know it’s probably wrong because we don’t have a crystal ball.
Scenario 1: When Longevity Isn’t on Your Side for Claiming Social Security
Let’s start with some low-hanging fruit, though I’m also going to add a different angle at the end of this one.
What if longevity is not on your side? The Social Security life expectancy calculator says 84, but what if both of your parents passed away in their 60s or 70s? Or maybe you’ve unfortunately received a diagnosis that doesn’t align with the longevity the Social Security Administration projects. These would be obvious reasons to strongly consider taking Social Security as early as possible.
But even if you’re healthy—even if you’re perfectly healthy and have good genes and the longevity gene pool in your family—I’ve personally worked with people who paid into Social Security for 30-plus years and passed away before even receiving their first check. It sounds depressing, and it’s difficult to think about, but the reality is that tomorrow isn’t guaranteed.
I think a lot of financial planning and a lot of advisors (myself included—I’m guilty of this) just assume longevity for everyone without looking at the other side of the coin. Sometimes, a bird in the hand really is worth two in the bush.
Scenario 2: Preserving Your Portfolio and Social Security Benefits for Your Heirs
Here’s another critical point that rarely shows up in break-even calculators: you can’t leave your Social Security check to your heirs, to your children. Social Security stops when you stop.
Many of you care deeply about leaving a legacy.
You didn’t come from much and worked hard to build up seven figures or multiple seven figures.
It’s important to you to set your kids and grandkids up for success in the future.
Delaying Social Security often means a much higher portfolio withdrawal rate in those early years while you’re waiting for that larger Social Security check. Larger withdrawals put pressure on your portfolio. Remember, your investment accounts can be passed on to the next generation.
Yes, your future Social Security benefits may be larger by delaying until 67 or 70, but it could absolutely impact your portfolio balance and ultimately the legacy you plan on leaving the next generation. We can’t just look at Social Security claiming in a silo and say, “the largest possible benefit is at age 70, done.” We need to look at the impact on your investment portfolio.
This is largely dependent on the size of your portfolio. If you have a large portfolio size relative to your cash flow needs, you may consider delaying your Social Security benefit because it won’t put much pressure on your portfolio. But if your starting withdrawal rate from delaying Social Security is 7%, 8%, or 9%, there’s a lot of risk.
Think about it this way: every dollar you pull from your portfolio while waiting for Social Security to start is a dollar that can’t compound for your heirs. Every dollar you pull during a market downturn is potentially selling investments at a loss.
When is the Best Time to Claim Social Security benefits if Legacy Planning Matters to You?
It might be earlier than you think, especially if it means preserving your investment accounts for the next generation.
Your Social Security benefits provide guaranteed income for your lifetime, but they don’t transfer to your children. Your IRA, your brokerage accounts, your real estate—those can create generational wealth. Sometimes the math that makes sense isn’t just about maximizing your personal lifetime Social Security benefit. It’s about maximizing what you leave behind.
Scenario 3: Social Security Optimization Through Spousal Planning
Some of you are single, so bear with me here. If you’re married, this will be important.
It’s often the case that two benefits are going to be very different. One spouse may have a much larger benefit than the other, or even a slightly larger one. Well, the spouse with the smaller benefit may find it valuable to claim Social Security at age 62.
Start that income stream right away, put less pressure on the portfolio withdrawal during that bridge period, and then delay the larger benefit—maybe until full retirement age, maybe until age 70. That way, you maximize that survivor benefit.
Remember, when one spouse passes, the surviving spouse does not keep both Social Security checks. They step up to the larger of the two benefits. By delaying the larger of the two benefits, you’re maximizing that survivor benefit while collecting some Social Security income from the lower-earning spouse during that bridge period.
Planning Tip
One of the most important tips for maximizing Social Security benefits is understanding that if you’re married, this needs to be a spousal planning decision. It shouldn’t be spouse A looking at their Social Security benefit and spouse B looking at theirs separately. You need to look at it in the context of a joint retirement plan.
It’s often about not only maximizing your income but also maximizing the joint life income for both individuals.
Just be aware: if the lower-earning spouse does claim early, any future spousal benefits they may be entitled to will also be reduced. So if that’s something you want to consider, the lower-earning spouse could potentially delay up until full retirement age to collect that maximum spousal benefit while both spouses are alive. Then, when one spouse passes, the surviving spouse steps up to the larger of those two benefits.
Scenario 4: Maximizing Your Go-Go Years in Retirement Planning
I’m going to throw this one out there because I feel like this may be one of the most important scenarios. This is about truly enjoying your go-go years without stressing out about the markets.
In theory, retirement could last 30 or 40 years. But let’s be real. How many of those years are you truly able to do the things you retired for?
I often see retirement broken down into three distinct phases:
The go-go years
The slow-go years
The no-go years
The go-go years are what got you excited to retire and fire your boss in the first place. You want to travel the world, go on epic golf trips, and spend time with your grandkids while you’re healthy and physically and mentally there. Do new experiences, take up new hobbies.
After nearly 18 years doing this and working with retirees, I’ve watched transitions from the go-go to the slow-go to the no-go. Sometimes those transitions happen gradually—you can see them happening and talk about them. Sometimes they happen overnight.
This is the tough reality: retirement could be 30 to 40 years, but that first 10 to 15 years may be your best years.
Permission to Spend
Here’s what I’ve observed: sometimes when you go from saver to spender, it’s difficult to transition. Delaying Social Security may not just be a math problem but a behavioral finance problem.
I’ve seen this where someone’s retired and saved more than enough. But then every time there’s a market downturn, they’re afraid to spend. They’re afraid to take that epic trip or that golf trip. They want to protect their portfolio and wait until the market recovers. It’s stressful for them, and honestly, I’m stressed out for them.
I think flipping that switch is difficult. Some retirees just need some kind of guaranteed income in that early phase of retirement during their go-go years. It gives them permission to spend.
This is a big reason why clients have admitted to hiring me. They’ve been successful DIYers for years, even decades. They tell me, “Kevin, I need permission to spend. Tell me how much I can spend. What do I have the capacity to spend?”
How the Social Security Benefit Can Help
That Social Security benefit could provide that permission to spend, especially if there’s no pension coming in, especially if there’s no annuity income. It reduces anxiety and gives you permission to take that trip.
Ironically, it could actually help preserve that portfolio balance because you’re not constantly worrying about what the market’s doing and making bad decisions on your investment portfolio just because you’re living solely on that for your retirement income while waiting to claim Social Security until 67 or 70.
If you’re the type of individual who may constantly worry about every market headline or have difficulty taking income out of your investment portfolio, pulling the trigger on early Social Security could really alleviate some of that anxiety and give you permission to spend.
No one has a crystal ball to know how long health is going to be on your side. I have clients well into their 70s and 80s who are still going strong. I have clients in their late 60s who are slow-going right now.
Scenario 5: Using Social Security Claiming Age Strategies to Protect Against Market Downturns
Maybe you’ve read through the first four points, and you’re thinking, “Kevin, this all makes sense, but I’m still comfortable. I’m ready financially and behaviorally to delay my Social Security benefit for all the good reasons—protect against longevity, receive the maximum survivor benefit, protect against inflation.”
The question I want to propose is this:
What if you retire into a bear market?
What if you retire into a market like 2008 or the early 2000s, during the dot-com bubble? Portfolios can drop 30% or 50% very quickly, even if you’re well diversified. That may not be the ideal time to aggressively spend down your portfolio and withdraw from your investments.
We’ve all heard the saying: buy low and sell high. If you’re solely relying on your portfolio for income and you retire into one of those dreaded sequence of returns risk environments, spending heavily from your portfolio probably means selling investments in a downturn—selling low.
This is where learning how to optimize Social Security claiming becomes critical. Social Security can simply become a lever, a backup plan.
Maybe your original plan is to delay until 70, but you plan to retire at 60, so you’ve got a 10-year bridge until Social Security. You’ve saved diligently. You’re okay. But let’s say you get unlucky and retire into a downturn.
You could potentially pull the lever and claim Social Security earlier than you anticipated. No one says you have to put a stake in the ground and claim it exactly when you say it up front. You can claim at any time after 62.
Starting your Social Security benefit in a downturn could put less pressure on your investment portfolio and allow the market to recover—because markets always do. Bear markets, on average, last about a year, though they can last longer (as we saw in 2008, which lasted about five years).
One-Time Stop Option
Here’s another opportunity: there’s a one-time option to stop payments. If you do claim Social Security well before your full retirement age and the market recovers, you can stop your Social Security benefits at your full retirement age and then collect those delayed retirement credits up until age 70.
In other words, it doesn’t have to be a permanent decision. You could claim Social Security at 62. Then you stop your Social Security benefit at full retirement age and get those delayed retirement credits later on.
Understanding Social Security Benefits Timing: The Break-Even Myth
If there’s one overall takeaway I hope you got from this article, it’s that Social Security claiming is a lot more than a break-even calculation in a silo.
Longevity matters
Legacy goals matter
Your spousal planning scenario matters
Your personality traits matter
Your retirement lifestyle matters
Health matters
The reality is that two individuals with literally the same Social Security benefit could choose different Social Security claiming strategies, and they could both be right.
That’s exactly why these decisions need to be coordinated in the context of your overall retirement plan.
Remember, the best Social Security claiming strategies aren’t about blindly following conventional wisdom. They’re about understanding your unique situation and making the decision that’s right for your retirement, your family, and your goals.
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.
Most advice for retirees suggests delaying Social Security as long as possible. But is that always the right move?
In this episode, we’ll discuss five real-world situations where claiming Social Security earlier may actually be the better decision.
You’ll learn:
✔️ How longevity impacts your claiming strategy ✔️ Why Social Security break-even calculators may be incomplete ✔️ The hidden impact claiming decisions can have on your investment portfolio ✔️ How Social Security affects legacy planning and leaving money to your children ✔️ Spousal and survivor benefit considerations ✔️ Why many retirees struggle psychologically with spending their nest egg ✔️ How claiming benefits early can help manage sequence of returns risk during market downturns
The reality is that Social Security claiming decisions should never be made in isolation. They should be coordinated with your retirement income plan, tax strategy, investment portfolio, legacy and lifestyle goals.
If you’re approaching retirement and wondering whether to claim Social Security at 62, at Full Retirement Age, or at 70, this episode will help you understand the trade-offs and make a more informed decision. Hope it helps.
-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.
If you’ve been considering a Roth conversion as part of your retirement strategy, you’re likely aware of the potential benefits. However, what many people don’t realize is that there are numerous obstacles that can either completely eliminate your ability to convert to a Roth or significantly reduce your conversion capacity. These Roth conversion obstacles act like landmines in your retirement planning, potentially derailing even the most well-intentioned tax strategies.
After working with countless clients who have multiple seven-figure accounts primarily in tax-deferred vehicles like traditional IRAs and 401(k)s, I’ve identified 12 specific obstacles that can interfere with your Roth IRA conversion plans. Understanding these potential hurdles before you begin your conversion strategy can help you avoid costly mistakes and optimize your retirement tax planning.
Understanding the Roth Conversion Window
Before diving into the specific obstacles, it’s important to understand what we call the “Roth conversion window.” This is the optimal time period when Roth conversion makes the most sense in your retirement plan. Typically, this window opens when you retire and your earned income drops. It closes when required minimum distributions (RMDs) begin at age 73 or 75, depending on your birth year.
During this window, you have the opportunity to fill up lower tax brackets by converting traditional retirement account funds to Roth accounts. However, various income sources and life circumstances can narrow or eliminate this window entirely.
Obstacle #1: Social Security Timing and Your Conversion Strategy
One of the most common obstacles I see is the timing of Social Security benefits. When people retire, there’s often a natural tendency to start claiming Social Security as early as possible. The thinking is understandable. You don’t have a crystal ball to tell you how long you’ll live, and you want to get your money while the getting’s good.
However, Social Security benefits can significantly impact your Roth conversion capacity. While Social Security isn’t entirely taxable, up to 85% of your benefit could be subject to taxation, and this taxable portion gets added to your adjusted gross income. This additional income can push you into higher tax brackets, reducing the amount you can convert at lower tax rates.
The timing of when you claim Social Security matters tremendously. If you claim early or even at full retirement age, you’re adding income that reduces your conversion window. If you delay until age 70 to maximize your benefit, you’ll have a larger conversion window from retirement until 70, but then a much smaller window from 70 until RMDs begin.
This doesn’t mean you should automatically delay Social Security just to do conversions. Your decision should consider your overall financial picture, including withdrawal rates, risk tolerance, sequence-of-returns risk, and life expectancy. The key is understanding how the timing of Social Security directly affects your ability to execute a Roth conversion strategy.
Obstacle #2: Pension Income Reducing Your Conversion Window
Pension income presents another significant obstacle to Roth conversions. Pensions provide excellent guaranteed income to layer on top of Social Security. However, they can dramatically reduce or eliminate your conversion window. Most pensions begin at retirement, whether that’s at 60, 62, or 65, and this income stream immediately fills up your lower tax brackets.
If you’re fortunate enough to have a pension with a lump-sum option, you face an important decision. Taking the lump sum allows you to roll the funds into your own IRA, where they become available for future Roth conversions. However, choosing the lifetime income stream means accepting that income throughout retirement, which reduces your conversion capacity.
Some pensions also offer flexibility in timing. Just like Social Security, you might be able to delay your pension start date, earning delayed retirement credits while creating more room for conversions in the early years of retirement. The key is coordinating the timing of your pension with your overall Roth conversion strategy and Social Security decisions.
Obstacle #3: Spousal Income Affecting Your Roth IRA Conversion Plans
Even if you’re ready to retire, your spouse might still be in their peak earning years and want to continue working. This creates a situation where, despite your retirement, your household may still be in a high tax bracket due to your spouse’s earned income.
Whether your spouse is working full-time or doing part-time consulting, any earned income fills up those lower tax brackets, leaving less room for conversions. This means your Roth conversion window doesn’t necessarily begin when you retire—it begins when both spouses are fully retired.
This obstacle requires careful coordination between spouses. You might need to wait until both of you have stopped earning significant income before implementing an aggressive conversion strategy. Alternatively, you might do smaller conversions while one spouse is still working, then ramp up conversions once both are retired.
Obstacle #4: Business Sale Income and Conversion Timing
For entrepreneurs, selling a business can create a significant obstacle to Roth conversions. While the ideal scenario might be to take a lump-sum payment and walk away, the reality is often more complex. Many business sales involve installment sales, consulting agreements, earnout provisions, or seller financing arrangements.
When business sale income is spread over five or ten years, it can completely eliminate your conversion window during that period. Each year, you’re receiving substantial income from the business sale, filling up your tax brackets and leaving no room for conversions.
The structure of your business sale has long-term implications for your tax strategy. While taking a lump sum might result in a higher tax rate in the year of sale, it clears the way for conversions in subsequent years. Spreading the income over time might seem more tax-efficient initially, but it can prevent you from taking advantage of lower tax brackets for conversion purposes.
Highly compensated employees, executives, and physicians often have access to non-qualified deferred compensation plans. Unlike qualified plans such as 401(k)s, these plans have no limits on compensation amounts, allowing you to defer substantial amounts of income.
The challenge comes with the distribution elections you must make when contributing to these plans. You typically need to elect how you want the funds distributed in retirement when you make the contribution. For example, you might elect to receive distributions over five years beginning one year after separation from service.
I recently worked with a client who had elected five-year distributions from their deferred comp plan. This meant they would receive approximately $250,000 per year for five years after retirement. During this period, aggressive Roth conversions were virtually impossible due to the high income from the deferred comp distributions.
The irrevocable nature of many of these elections makes planning crucial. You need to think through how these future distributions will impact your conversion window and coordinate them with other retirement income sources. Some plans allow one-time election changes, but the rules vary significantly between plans.
Obstacle #6: Having All Assets in Tax-Deferred Accounts
When all your assets are in tax-deferred accounts, Roth conversions become less attractive from a cash flow perspective. Ideally, when you convert $100,000 from a traditional IRA to a Roth IRA, you want that full $100,000 to remain invested and growing tax-free. To achieve this, you need to pay the taxes on the conversion from other sources, such as a brokerage account or a high-yield savings account.
However, many people don’t have substantial after-tax funds available. If you have to pay the conversion taxes directly from the IRA being converted, the strategy becomes less compelling. You’re essentially reducing the amount that gets converted and continues growing tax-free.
This doesn’t necessarily eliminate conversions as a strategy, especially if legacy planning is important to you. Even paying taxes from the IRA itself can make sense in certain situations. However, it does create a hurdle that makes conversions less optimal than they could be with better tax diversification.
Obstacle #7: Retiring Too Late and the “One More Year” Syndrome
Many successful professionals fall into what I call the “one more year” syndrome. They’re at the peak of their earning power, they’ve mastered their craft, and the work feels relatively effortless because of their expertise. It becomes tempting to work just one more year for one more bonus, one more year of deferrals, one more year of high income.
However, each year you delay retirement, your conversion window becomes smaller. If you were born between 1951 and 1959, your RMDs begin at age 73. If you retire at 70, you only have a three-year window for conversions. For those born in 1960 or later, RMDs begin at 75, providing a slightly larger window.
Early retirement isn’t just a lifestyle advantage—it’s also a significant tax planning opportunity. The earlier you retire, the longer your conversion window and the more you can spread conversions over multiple years at lower tax rates, rather than trying to do large conversions in a compressed timeframe.
Obstacle #8: The IRMAA Surcharge Impact
IRMAA (Income-Related Monthly Adjustment Amount) represents a hidden tax on Roth conversions for Medicare beneficiaries. This surcharge increases your Medicare Part B and Part D premiums based on your modified adjusted gross income from two years prior.
When you’re trying to maximize conversions within a specific tax bracket, IRMAA can significantly increase the effective tax rate on those conversions. For example, if you’re filling up the 22% tax bracket but trigger the first IRMAA tier, your effective tax rate on those conversion dollars becomes much higher than 22%.
While you shouldn’t let IRMAA completely derail your conversion strategy, you need to factor these additional costs into your calculations. Sometimes triggering IRMAA for a few years during your conversion window still makes sense for long-term tax optimization, but you should understand the full cost of your conversion strategy.
The way you position your investments across different account types can significantly impact your conversion capacity. Asset location—where you hold specific investments—is just as important as asset allocation for tax planning purposes.
For example, if you hold tax-inefficient investments in taxable accounts, they generate additional taxable income that reduces your conversion room. I’ve worked with clients whose legacy mutual funds generated substantial phantom capital gains each year, even without selling anything. These capital gains get added to adjusted gross income, filling up tax brackets that could otherwise be used for conversions.
Similarly, holding large cash positions in high-yield savings accounts generates interest income that impacts conversion capacity. If you have $1 million earning 4% in cash, that’s $40,000 of additional income that impacts your overall tax situation.
The solution involves strategic asset location: holding tax-inefficient investments in tax-deferred or tax-free accounts while keeping tax-efficient investments in taxable accounts. This positioning can free up significant room for conversions.
Obstacle #10: Inheritance Timing and the 10-Year Rule
Inheriting retirement accounts can completely disrupt your conversion plans due to the 10-year rule that eliminated stretch IRAs for most beneficiaries. If you inherit a traditional IRA, you must fully liquidate the account by the end of the 10th year after the original owner’s death.
For example, if you inherit a $1 million traditional IRA and the original owner was already taking required distributions, you must continue taking at least those minimum distributions each year, then fully liquidate the account by year 10. This creates substantial additional income during what might otherwise be your optimal conversion window.
The timing of inheritances is obviously beyond your control, but understanding the potential impact helps with planning. You might need to adjust your conversion strategy based on inherited account distributions, or time withdrawals from inherited accounts strategically to preserve some conversion capacity in later years.
Obstacle #11: ACA Premium Tax Credits and Early Retirement
If you retire before age 65 and rely on Affordable Care Act marketplace insurance, premium tax credits can significantly impact your conversion strategy. For 2026, the income cliff returns, meaning if your income exceeds 400% of the federal poverty line (about $86k/year for married couples) you lose all premium tax credits.
These premium tax credits can be worth $2,000-$3,000 or more per month, making them extremely valuable. In many cases, the value of maximizing these credits exceeds the long-term tax savings from aggressive conversions. This creates a situation where you might want to keep income low to maximize credits before age 65, then increase Roth conversions once you’re eligible for Medicare.
Obstacle #12: The Senior Bonus Deduction
The Senior Bonus Deduction, introduced through recent legislation, provides up to $6,000 in additional deductions for individuals turning 65 between 2025 and 2028 ($12,000 for married couples where both spouses qualify). This deduction phases out based on income levels, with a complete phase-out at $175,000 for singles and $250,000 for married couples.
While this is a deduction rather than a credit, it still represents a tax benefit that you might lose by doing aggressive conversions during the eligible years. The cost of losing this deduction should be factored into your conversion calculations, though it shouldn’t necessarily prevent conversions altogether.
Planning Around These Roth Conversion Obstacles
Understanding these obstacles is the first step in developing an effective conversion strategy. The key is comprehensive planning that considers all potential income sources and their timing. This includes Social Security optimization, pension timing decisions, spousal income coordination, and strategic asset location.
Building tax diversification early in your career creates more flexibility for conversions later. Having after-tax funds available to pay conversion taxes makes the strategy more attractive. Understanding your specific conversion window based on your birth year and retirement timing helps you plan the optimal conversion schedule.
Most importantly, remember that Roth conversions should be evaluated as part of your overall retirement strategy, not in isolation. The obstacles we’ve discussed don’t necessarily eliminate conversions as a strategy. Still, they do require careful planning and coordination to navigate successfully.
If you’re approaching retirement with substantial tax-deferred accounts, working with a qualified financial advisor who specializes in retirement tax planning can help you identify and navigate these potential obstacles while optimizing your overall retirement income strategy.
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
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.
Many retirees spend decades worrying about whether they’ll have enough money.
But what happens when you’ve already solved the income problem?
In this case study, we examine a 65-year-old retiree with a $1.9 million portfolio, an $85,000 pension, and Social Security benefits that cover nearly all of her retirement spending needs.
We discuss:
Why retirement planning changes when income is already covered
How pensions affect investment strategy
Roth conversion opportunities before required minimum distributions begin
Lifetime gifting strategies for adult children
Charitable planning using Qualified Charitable Distributions (QCDs)
Creating a tax-efficient legacy
If you’ve accumulated significant retirement assets and want to optimize retirement, this episode is for you.
The big question isn’t whether you can retire.
It’s what to do next after you’ve already won the retirement income game. ~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.
One of the biggest mistakes I see pre-retirees make isn’t poor investing, claiming Social Security incorrectly, or even tax planning mistakes. It’s failing to accurately estimate what retirement will actually cost.
After 18 years helping people plan for and execute retirement, I’ve noticed the same retirement expenses catch people by surprise over and over again.
In this episode, I break down the 7 retirement expenses most retirees underestimate, including:
✅ Travel and the “Go-Go Years” of retirement
✅ Home repairs, renovations, and aging-in-place upgrades
✅ Retirement tax planning opportunities and tax surprises
✅ Financial support for adult children and grandchildren
✅ Hiring help for tasks you used to do yourself
✅ Vehicle replacement costs
✅ Healthcare, Medicare, and long-term care expenses
If you’re within 5-10 years of retirement, already retired, or trying to determine how much money you need to retire comfortably, this episode will help you build a more realistic retirement budget and avoid costly planning mistakes.
Why most retirees underestimate expenses
My own experience underestimating costs
The expensive “Go-Go Years” of retirement
Home repairs and renovations
Tax surprises in retirement
Adult children still on the payroll
Paying others to do things you used to do yourself
Vehicle replacement costs
Healthcare and long-term care expenses
Why retirement spending isn’t linear
I hope you enjoy this episode! ~ 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.
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:
Seven compelling reasons you might consider Roth conversions
When these conversions make the most sense
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.
Reducing RMDs
Creating tax diversification
Hedging against tax increases
Protecting a surviving spouse
Taking advantage of market downturns
Limited charitable plans
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
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.
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.
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.
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:
Start early
Invest consistently
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
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.
