For professionals entering the "pre-retiree window", the critical five to ten years leading up to retirement, the focus of financial planning must undergo a fundamental transition.
Throughout early and mid-career, wealth management centers almost entirely on asset accumulation: maximizing savings rates, capturing employer matches, and growing total investment capital. However, as retirement approaches, planning must shift toward distribution architecture: designing how those accumulated assets will be systematically converted into reliable, tax-efficient household cash flow.
Executing a successful transition requires understanding how different account tax structures interact, mapping distribution phases, and adapting to major legislative changes under SECURE 2.0.
The Three-Bucket Tax Strategy
The foundation of tax-efficient retirement income design is holding assets across three distinct tax environments:
Taxable Accounts: Individual and joint brokerage accounts funded with post-tax dollars. Dividends and realized capital gains are taxed annually, but principal withdrawals are not taxed as income.
Tax-Deferred Accounts: Traditional 401(k)s, 403(b)s, and traditional IRAs funded with pre-tax contributions. Assets grow tax-deferred, but 100% of future withdrawals are taxed as ordinary income.
Tax-Free Accounts: Roth 401(k)s, Roth IRAs, and Health Savings Accounts (HSAs). Contributions are made with post-tax dollars, but qualified growth and future distributions are completely tax-free.
Having assets distributed across all three buckets provides "tax flexibility" in retirement. Rather than drawing entirely from a pre-tax 401(k), which can push household income into higher tax brackets and trigger Medicare Part B/D premium surcharges (IRMAA), retirees can blend withdrawals across buckets to meet spending needs while keeping reported income within target brackets.
Capitalizing on the "Roth Conversion Window"
One of the most powerful tax planning opportunities for pre-retirees occurs during the transitional gap between the day they leave corporate employment and the day they begin taking mandatory distributions or Social Security.
Under current tax law, Required Minimum Distributions (RMDs) from pre-tax retirement accounts begin at age 73 (and shift to age 75 for individuals turning 74 after December 31, 2032).
For executives who retire at age 62 or 65, this creates an ideal multi-year low-income planning window:
During working years, high corporate salaries place executives in top federal tax brackets (32% to 37%).
Upon retiring, employment income drops to zero, temporarily dropping the household into significantly lower tax brackets (12% or 22%).
By age 73/75, large pre-tax IRA/401(k) balances trigger substantial mandatory RMD distributions, pushing income back into top brackets.
Executing Tactical Roth Conversions
During this low-income gap window, retirees can systematically transfer funds from traditional pre-tax IRAs into tax-free Roth IRAs, a strategy known as a tactical Roth conversion.
The converted amount is treated as taxable ordinary income in the year of transfer. However, by intentionally converting assets up to the top limit of lower tax brackets (e.g., filling up the 12% or 22% bracket), investors pay a relatively low tax rate today. Qualified Roth distributions may be tax-free, subject to the five-year and age 59½ requirements. Most non-spouse beneficiaries must withdraw inherited Roth balances within 10 years, and tax laws may change.
Navigating SECURE 2.0 Catch-Up Contribution Rules
Pre-retirees must also adapt to major retirement rules enacted under the SECURE 2.0 Act, specifically regarding age-50+ catch-up contributions in corporate 401(k) plans.
Mandatory Roth Catch-Ups for High Earners
Beginning in 2026, participants aged 50 and older whose prior-year FICA wages from the plan sponsor exceeded $150,000 (indexed) must make catch-up contributions on a Roth basis. Participants aged 60-63 may be eligible for a higher catch-up limit ($11,250 in 2026) if their plan permits.
Consolidating Legacy Accounts for Operational Control
As professionals near the end of their careers, they often leave behind a trail of multiple 401(k) plans from past employers, along with several separate IRA accounts.
Consolidating legacy pre-tax accounts into a single rollover IRA during the pre-retiree window simplifies portfolio management:
Streamlined RMD Calculations: Having accounts consolidated in one location prevents calculation errors when Required Minimum Distributions begin.
Optimized Asset Location: Allows precise placement of fixed income in tax-deferred accounts and high-growth equities in taxable or Roth accounts.
Clear Beneficiary Alignment: Ensures estate distribution instructions and primary/contingent beneficiary designations match current estate planning goals across all assets.
Before rolling over an employer plan, consider your alternatives: leaving assets in your former employer's plan, moving them to a new employer's plan, or cashing out. Each option has different fees, investment choices, services, creditor protections and tax consequences. Savvy Advisors earns an advisory fee on assets rolled over to accounts it manages, which gives us an incentive to recommend a rollover.
Designing Your Retirement Distribution Blueprint
Transitioning from decades of asset accumulation to an active income distribution phase requires a deliberate financial blueprint. The years immediately preceding and following your exit from corporate life represent a unique window of tax control. By structuring a three-bucket asset architecture, taking advantage of lower-bracket Roth conversion years before RMDs take effect, adapting to SECURE 2.0 Roth catch-up requirements, and consolidating scattered accounts, pre-retirees can minimize lifetime tax friction and step into retirement with complete clarity over their lifelong cash flow.
If you are within 5 to 10 years of retirement and ready to build a customized cash flow and tax distribution plan, we are here to guide you. Read more about our pre-retirement planning strategies or reach out to start a conversation with our advisory team today.
Frequently Asked Questions
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The optimal window usually occurs between retirement (when W-2 wage income stops) and age 73/75 (when Required Minimum Distributions begin). During these gap years, household taxable income is often at its lowest lifetime point, allowing conversions at lower tax rates.
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Beginning in 2026, participants aged 50 and older whose prior-year FICA wages from the plan sponsor exceeded $150,000 (indexed) must make catch-up contributions on a Roth basis. Participants aged 60-63 may be eligible for a higher catch-up limit ($11,250 in 2026) if their plan permits.
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The three-bucket strategy organizes wealth into Taxable, Tax-Deferred (Traditional 401k/IRA), and Tax-Free (Roth/HSA) accounts. Holding balances in all three environments allows retirees to strategically draw income from different sources to control annual tax bracket thresholds.
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Consolidating old workplace accounts into a centralized IRA simplifies mandatory RMD tracking, improves asset location strategies, and ensures beneficiary designations align with your estate plan.
All advisory services are offered through Savvy Advisors, Inc. (“Savvy Advisors”), an investment advisor registered with the Securities and Exchange Commission (“SEC”). Savvy Wealth Inc. (“Savvy Wealth”) is a technology company and the parent company of Savvy Advisors. Savvy Wealth and Savvy Advisors are often collectively referred to as “Savvy”. The Retirement Studio is used for marketing purposes only. The Retirement Studio is not a separately registered investment advisor. This content is provided for informational purposes only and should not be considered investment advice or a recommendation. Individual results will vary. Registration with the SEC does not imply a certain level of skill or training.
Investing involves risk, including possible loss of principal. Diversification and asset allocation do not ensure a profit or protect against loss. Tax-advantaged strategies are subject to eligibility requirements and holding-period and other rules, and may not achieve the intended results. Tax laws, contribution limits and thresholds change; figures are as of November 2026. Past results are not indicative of future results.
This material is provided for general educational purposes only. It is not individualized investment, tax or legal advice, and is not an offer or solicitation to buy or sell any security. Savvy Advisors does not provide tax or legal advice; consult your own tax professional or attorney.
