How I’m Using Boldin to Tweak Our Retirement Finances

If you don’t think that headline is sexy, I’m afraid I can’t help you. But if you’re like me and “the numbers” are loads of fun to play with, you might appreciate Boldin. Having a simulator tool at the ready is like having a good co-pilot to remind you to check the fuel gauge and lower the landing gear. Nothing comes easy with personal finance, and there is no such thing as “autopilot” after early retirement.

Consider the variables: A new tax and spend bill from DC (“OBBBA“) threw a lot of new changes at us, changes that are good for a few, not so good for many. When it comes to taxes, Boldin stays up-to-date with these changes and adjusts your plan forecast accordingly.

OBBBA Provisions Now Built Into the Boldin Engine: 

• Permanent Increase to the Standard Deduction
• Additional Senior Deduction of $6,000 through 2028
• Increased SALT limit on itemized deductions of $40,000 through 2029

There are plenty of variables beyond the whims of Washington to triage. In my case, a part-time handyman gig provides a little cash flow while also providing interesting work and great clients to work for. (That’s right, no more cubicle hijinks for THIS guy!)

I’ll occasionally pop onto Boldin to update my monthly take-home pay (as the work is highly seasonal). Knowing how much liquid cash you have to work with is key when considering Roth conversions or money flows in general. Boldin helps you decide which savings buckets to pull from.

How to Mitigate 401K Taxes

I’m one of those worker bees who didn’t stop to consider the eventual tax hit of a 401K after years of plowing money into one. Don’t get me wrong, a 401K is amazing when you get an employer match and invest in an S&P 500 growth index with minimal administrative fees. You don’t get taxed while it grows and grows…

It’s only after you retire early and start digging in that you realize that the larger the 401K stash, the more your required minimum distribution (RMD) will be at age 73. If you’re a 401K millionaire today at age 50, brace yourself for annual RMDs of $200K plus in 23 years. This then triples to nearly $600K by age 83. Not only will you pay taxes on these forced withdrawals, you’ll do so in a much higher tax bracket. 

This is why Boldin is so important to me. I don’t mind paying taxes, but I prefer to do it in a lower bracket (22% or 24% tops). The Boldin Roth Explorer allows me to select a tax bracket goal. I can also set a limit on how much cash is set aside for Roth conversion taxes each year.

Pay Roth Conversion Taxes: Pain Now for Gain Later

Setting aside cash to pay quarterly taxes to the IRS and your state of residence can be complicated, so it’s smart to consult an accountant to plan these payments out. It’s all done online, so no need to freak out just yet…

Example: If I convert $100K of my pre-tax IRA (rolled over from the 401K after I quit working) next year to my Roth IRA, I’ll pull the trigger in January 2026 on the full conversion of the $100K. All of this happens within our online Vanguard account. Vanguard offers a straightforward user experience for conversions. Quick and easy.

Then, I’ll make quarterly tax payments starting in April. Because I’m expecting to land within the 22% bracket, I’ll set aside about 20% of the conversion amount for the IRS each quarter. Likewise, about 6% for the State of Minnesota. The sticky part for early retirees tends to be cash flow.

Side Note: If you don’t want to tap into your 401K before age 59.5, you better plan to have other sources of funds to see you through your “gap years”. Some options include income from rental properties, dividends in a brokerage account, and owning a business doing gigs you ENJOY.

Cash Is King When You Choose to Roth Convert

You’ve got to set aside some serious coin for tax payments to put a dent in your pre-tax IRA. If you have to pay close to $25K in taxes to convert a little over $100K into a Roth, you better have a plan for cash flow BEFORE converting. And then, you need to consider that those are dollars you could have used to take a few big vacations, renovate the house, or throw away on cryptocurrency ETFs.

Boldin’s Roth Explorer provides several options to tailor conversions for your specific needs. For instance, you can set a limit on how much (if any) of your post-tax brokerage account can be tapped to pay conversion taxes. Why pay capital gains if you have funds elsewhere?

You can also set an annual conversion amount threshold. Maybe you should convert just $80K (or $50K) instead? Threading the needle in early retirement isn’t something we learned from our gurus, but it’s part of the game. I know I don’t want to be forced to take an RMD of $600K when I’m 83.

Should You Use IRA Savings to Cover Roth Conversion Taxes?

Why is this such a big deal when you technically could use IRA funds to cover Roth conversion taxes? It comes down to the math.

The reason not to use IRA dollars to pay the taxes is that you want to avoid dipping into funds that are meant to GROW. Secondly, the IRS will penalize you for making an early withdrawal (if the conversion happens before age 59.5). Boldin can reveal how much is lost by using IRA dollars to pay taxes, and you can save this scenario to compare with the “out-of-pocket” preferred approach.

All that said, it’s wise to work with an accountant and use Boldin to formulate an approach that makes sense for you. Some scenarios come out better (i.e., lower overall taxes and ending net worth) when paying conversion taxes with IRA dollars. 

Charitable Giving and Tax Avoidance

If there is one good thing about a 401K that grew too much, it’s the option to give qualified charitable contributions (QCDs) to non-profit causes of your choosing. I might whine about having to take a $600K RMD when I’m 83.

I don’t know how the heck I’d spend the money. But I can give away a huge chunk of it TAX-FREE via QCD. That would lower my effective tax rate and help those in need. Win-win.

This is likely where we’ll wind up down the road: Using a combination of pre-tax IRA dollars to start up a donor-advised fund. There will be plenty of causes to support and disasters to respond to, as our leaders continue to kick the can down the road and bury their heads in the sand.