Wealth Matters: Your Golden Window
You’ve got the golden rule, the golden ratio, the golden hour, golden handcuffs, golden parachutes, and your golden years… and now, I’m adding another one to the list: Your Golden Window.
Your Golden Window is the unique period of opportunity between the day you collect your last paycheck and the day your Required Minimum Distributions (RMDs) begin at age 73 or 75.
Why is this window of time so golden? Because of taxes.
While you are working, you have very little control over your tax bill. You earn money, and it gets taxed at ordinary income rates. You can defer some cash into retirement plans, give it to charity, or lose money on investments. Those are your primary levers, and all of them mean having less spendable money today.
But once you retire, everything changes. Your earned income goes away, RMDs haven't started yet, and you might even choose to delay Social Security for a few years. During this window you are in much greater control of what you pay in taxes than at any other time in your life.
The driving idea here is to minimize your lifetime tax bill by smoothing out your taxes year over year—never letting a single year go by without efficiently utilizing your lowest tax brackets.
To show you what I mean, look at a real-life example. While doing some year-end planning for a client couple, I noticed their income had dipped from prior years. They had habitually been contributing to a SEP-IRA to lower their current tax bill, and their accountant initially agreed.
But by taking the long view and building out their financial plan, I saw that their large IRAs were eventually going to mandate an RMD income of around $450,000 a year to start—and only go up from there. They were saving on taxes today in the 24% bracket, only to force that same money into the 32% and 35% brackets a few years down the road.
My recommendation? Skip the SEP contribution that year. In fact, we did the exact opposite—a Roth Conversion. We intentionally brought more income into a low-tax year to permanently reduce their future RMD burden.
That is the concept in a nutshell: pull forward or push out your taxes to smooth out the ride and pay no more tax than necessary.
Depending on your goals, the markets, and current tax laws, maximizing your Golden Window each year might look completely different:
Year A: Take all your income from cash on hand, and complete large Roth Conversions up to the top of the 24% tax bracket.
Year B: Take income from your IRAs up to the 12% bracket, and tax-gain harvest on concentrated stock positions at a 15% capital gains rate.
Year C: Leave your IRAs untouched, offset stock gains with losses, and turn on Social Security.
Once you hit 73 or 75, the IRS effectively joins your planning team. They mandate your RMDs because they want their tax dollars, plain and simple. You can still plan around taxes at that point, but the easiest and most powerful moves are best done before that door shuts.
Don’t let these years just drift by. If you're nearing retirement or recently retired, let’s talk and map out what your Golden Window looks like because this is when we can have the greatest impact on your wealth matters.
