Pod Insights The Personal Finance Podcast How to Shave Off 7+ Working Years and Retire Early! About this episode Most people try to retire early by saving more and spending less. The people who actually pull it off use these six strategies instead.
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What You'll Learn in This Episode
Why the wrong investments in the wrong accounts could cost you $700K without you even knowing it
How one zip code change shaved seven full years off a couple's retirement timeline
The spousal IRA most couples skip that quietly builds nearly a million dollars tax-free
How to sell hundreds of thousands in gains and legally owe zero in federal taxes
The secret 401k bucket that lets high earners add $47,500 extra into tax-free accounts every year
How to tap your 401k years before 59 and a half with zero penalty if you plan it right
The one healthcare move that turns a $26,000 annual bill into $3,000 in early retirement
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Episode/s Mentioned
How to Access Your Retirement Accounts EARLY (Roth IRA Conversion Ladder for the FIRE Movement) https://youtu.be/ut8rDIJ1kSI
Watch Next
Is the American Dream Dead? (With Freddie Smith) https://youtu.be/3Ivz8Ts9J2o
How Companies Are Quietly Robbing You! With Lindsay Owens https://youtu.be/WhfXVmC2DC0
12 Financial Rules of Thumb That Let You Spend More on What You Love https://youtu.be/36HG6VHnA08
How to RETIRE BY 30! (With Cody Berman) https://youtu.be/ffKv6M69SRI
How to Manage Your Money (and Still Enjoy Life) https://youtu.be/BWocw8B-xnY
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Question for you:
What is your current retirement timeline and how many years are you trying to cut? Drop your number in the comments and let the community help you figure out your next move.
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Transcript 12,098 words · 3 speakers
Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.
0:00 Andrew Giancola? When I started the Personal Finance Podcast, I had no idea how big it could become. I just knew I had something I wanted to share, so I started putting it online. And looking back, I definitely wish I would have started a decade earlier. One of the horror parts about building something online, though, is making it look professional. A website used to mean hiring a developer, figuring out design, and potentially spending thousands of dollars. In fact, on my website, I spent tens of thousands of dollars. That's what impressed me when playing around with Hostinger's AI Website Builder. I told it what kind of website I wanted, and I built the first version in minutes. No coding, no designer, or developer needed. And Hostinger doesn't stop at launch.
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1:29 Andrew Giancola? or piece of content that we record. And that's one of the things that I love about Wayfair. You can shop thousands of products across different styles and budgets, use customer photos and reviews to see how things actually look in real homes, and find something that fits your space. They also have Wayfair Verified Products that are hand-vetted by product specialists using a 10-point quality inspection. And with more than 20 million verified 5-star reviews, you can feel a lot more confident about what you're ordering. I've used Wayfair for this studio and our home, and I absolutely recommend them for your space. So transform your space with pieces that hold up to real life. Join Wayfair Rewards today and get 5% back on every single purchase.
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2:28 Andrew Giancola? On this episode of the Personal Finance Podcast, how to shave off seven plus working years and retire early.
2:43 Andrew Giancola? What's up everybody and welcome to the Personal Finance Podcast. I'm your host, Andrew, founder of MasterMoney.co. And in this episode of the Personal Finance Podcast, we're going to be talking through how to shave off seven plus working years and retire early. If you guys have any questions, make sure you join the Master Money Newsletter by going to mastermoney.co/newsletter and don't forget to follow us on Spotify, Apple Podcasts, YouTube, or whatever podcast player you love listening to this podcast on. And if you want to hop out the show, consider leaving a five star rating and review on Apple Podcasts, Spotify, or your favorite podcast player. Now, in today's episode, we're going to be diving into a number of different strategies
3:28 Andrew Giancola? that could help you shave off working years and give you the ability to retire early. Now, a couple of things in this episode that I want to note is we're not going to be talking about the basics in this episode. Sure, you can save more money, you could put dollars in your emergency fund, those types of things. But in this episode, I'm going to give you some advanced strategies and some less talked about strategies when we go through some of the ways that you could shave off time when you are working. Because if your goal is to retire early, sometimes you can make some tweaks to your financial plan that can make a big difference long term so that you can shave off three years, four years, five years, seven years, 10 years. And in some of these instances, we're going to be talking through the strategies that could shave off just a couple of years. And we're also going to be talking about those strategies that will shave off seven plus years.
4:13 Andrew Giancola? And between all of these, if you start adding some of these into your financial repertoire, you will be able to see a big difference long term in your overall financial health. And so this is something I'm really excited to dive deeper into. So I'm not going to waste any more time. Without further ado, let's get into it.
4:33 Andrew Giancola? So number one is going to be tax location. Now, what you're going to see is with each of these instances, I am going to also give you a case study to show you how many years you can actually shave off when you do some of these things. Now, when it comes to anything tax-related, obviously, you want to have a conversation with your CPA, if you have one in your corner, or even an advisor, if you have one in your corner, to make sure that this works for your specific tax situation. But putting the right asset in the right location can be very important. If you put the wrong assets in a Roth IRA or the wrong assets in a taxable brokerage account, you could be giving yourself a larger tax bill than you originally anticipated. And so each of these different locations is going to have
5:15 Andrew Giancola? some optimal investments that you could add into that location. So some of the things that are out there is I want to give you a couple of basic rules as we talk through this, and then we can figure out what works best for you, and I'll show you a case study. Then have a conversation with your CPA, take some of this information, go back to them and say, hey, do I have the right investments in the right accounts? So one of the things that you can think through is tax inefficient assets go into tax advantaged accounts. So what is a tax advantaged account? And what is a tax inefficient asset? So things that are like bonds or REITs or actively managed funds or high dividend paying stocks throw off your ordinary income, and they can increase your ordinary income if you are not careful.
5:57 Andrew Giancola? And that income can get taxed at your full marginal rate every year if it sits in a brokerage account. See, the brokerage account is tax inefficient when it comes to some of these assets. So if you hide them inside of your 401K or even your IRA where the tax doesn't hit as hard, that could be something that could be very helpful. Now, things like tax efficient investments can go into your brokerage. So things like broad-based index funds, if you invest in something like VTI, which is Vanguard's Total Stock Market ETF or VOO, they can barely throw off any taxable income. And so they are much more tax efficient investments than maybe some of the other income-producing assets that are out there. And so they thrive in something like a taxable account if you are trying to decide where to place some of these things. And then some of the highest growth
6:42 Andrew Giancola? Assets can go into something like a Roth. Why would they go into a Roth? Well, a Roth IRA can grow tax-free. And so this is really powerful and why Roths are so incredibly amazing when it comes to some of these big growth assets. You may have heard of Peter Thiel. And Peter Thiel is the guy who is in Silicon Valley, who started PayPal and a bunch of other companies. He is a very wealthy individual. And one of the things that a lot of people talk about when it comes to Peter Thiel is he has this $5 billion Roth IRA. You can go look this up, look up the assets that he has in this Roth IRA. But what he basically did was he took some of the biggest income-producing assets that he had, and he put them into a Roth IRA. So they got this tax-free growth and you could pull the money out tax-free. In fact, it is stated that he probably has one of the largest,
7:27 Andrew Giancola? if not the largest Roth IRAs of all time. And so this is one of those things where if you can get some of those high-growth assets into a Roth, you can get that tax-free growth, which is going to save you so much money. Now, why does this all matter? And why does this matter especially when it comes to your working years? Well, a poorly-located portfolio, when this stuff is not thought through, can lose roughly a half a percentage, 2.75%, to tax drag alone. And so on a $1 million portfolio, I want you to think about this for a second. Over the course of 30 years, tax drag, when it's in that range, can cost you anywhere from $400,000 to $700,000. And so fixing this alone by having the right assets in the right location
8:10 Andrew Giancola? can shave off anywhere from three to five working years. And really, the place that you have to be careful about this is in your taxable brokerage account. Because what you are holding in that taxable brokerage account is what is going to give you some of that tax drag. So you just want to think through your asset allocation in your taxable brokerage account when it comes to this. And the weird thing about this is it's not like you're earning more. It's not like you're saving more. It's not like you're taking on more risk. You're just donating money to the IRS because you have those investments in the wrong location. And so this is one of those areas that I want you to at least think through, have the conversation with your CPA, and see if you have the right assets in the right locations. Now, I'm going to give you a case study on this. And I want you to follow along with this case study because I think these case study examples are really Really helpful when we dive deeper into some of these things.
8:55 Andrew Giancola? So I want you to meet Jake and Sarah, okay? So Jake and Sarah are 35. They're both engineers and their household income is $250,000 per year. They have $500,000 invested across three accounts. $300,000 in a 401k, $100,000 in their Roth IRA, and they have $100,000 in their taxable brokerage account. Now, I'm going to use this lesson to show you how they can make a shift and how much they'll save in tax drag. So like most people, they bought the same target date fund in all three accounts. And this feels balanced for some people. They feel as though they are doing the right thing and it feels like, hey, this is something I can do is I can have target date funds across all accounts. But inside that target date fund, 30% is bonds.
9:37 Andrew Giancola? So they have over $150,000 of bonds spread across these three different accounts. And so when you look at this, when you have bonds spread across those three accounts, some places are better for bonds and some places are worse off for bonds. So this includes $30,000 of bonds sitting in their taxable account, spitting off interest at 24% every single year. So meanwhile, their Roth IRA, the most precious tax-free space they own, is partially holding some of those bonds growing at 4%. And they're wasting their best account on the worst growing asset. So an asset that is growing at a very slow pace inside of the Roth IRA. So what would be the fix in this situation? How would you solve this problem? Well, you can move bonds into the 401k
10:21 Andrew Giancola? and put the most aggressive in high-growth holdings like small caps or emerging markets, or whatever else your most aggressive assets are, into something like the Roth IRA, so the biggest gains grow tax-free forever. Use the brokerage account for tax-efficient broad-market index funds like VTI, who throw off almost no taxable income. They are much more tax-efficient than a lot of these other investments. And so this single rebalance alone saves them roughly 0.6% every single year on tax drag. And so on this current portfolio, growing into retirement, that saves them an extra $520,000 by age 60.
10:58 Andrew Giancola? Same contributions, same risk, same funds, but they're just placing them in the correct location. This is why this is important for most people to understand, is thinking through which investments you have in which location can be very helpful. And when we think through this, we want to make sure, okay, if we do want a bond allocation, where are we going to put those bonds? And in which bucket are we going to put those bonds? Well, something like a tax efficient account that maybe doesn't grow tax-free somewhere like a 401k or traditional IRA could be one of your considerations. Then the other thing to think through is, okay, well, I have these other stocks. Maybe you own VUG or VIG. You own these big tech ETFs that you expect to grow really fast in the age of AI, or you expect them to move really quickly. Maybe a QQQM or QQQ, even a VOO or VTI.
11:43 Andrew Giancola? I consider growth stocks. You want those equities, the way that you're thinking about this. Those can be the types of things that you consider putting in a Roth IRA. And then the third thing to consider is what do you put in the taxable? Well, the taxable can also have index funds and ETFs. A huge chunk of that portfolio can go there. So you have those available for you when you need them. Now, you can make a shift at some point in time as you approach retirement age. And once you reach retirement age, to pull back a little bit and reassess your asset allocation so that it fits your retirement plan. But when you're in these growth years, you're in your working years and you're trying to figure out where to optimize putting these dollars, it can make a big difference where you decide to actually leave these dollars. And so we want to make sure that we have them in the right place and the right location. So if you've never thought about this, start thinking about this now
12:27 Andrew Giancola? and seeing exactly where you want to put these dollars. All right, let's jump into the next one.
12:33 Andrew Giancola? All right, number two is geographic arbitrage. So this is one where we are thinking through, okay, where do we want to live in retirement? Where do we want to spend a lot of our time in retirement? And are we okay with where we currently live? You need to look at your specific location that you live in. And if you don't have roots in those locations, then maybe you want to consider geographic arbitrage. Now, one thing I want you to note is I don't think you should ever move just for money. I don't think you should ever move to reduce your overall tax rate. You need to have other lifestyle reasons to actually consider moving to another state. Now, for those of you who are really obsessed with moving to new locations, Like for example, I've seen billionaires move from places like the US to Puerto Rico, where they don't have to pay tax, or places like the Middle East, where you don't have to pay tax. Well, that is sacrificing your lifestyle for money.
13:18 Andrew Giancola? And in my belief, I don't really think you should sacrifice your lifestyle for money. Let's say you have kids or grandkids in a specific location. Well, the last thing you want to do is leave that location like California or New York, when you have your kids and grandkids there and go somewhere really far away, where you're hardly ever gonna see them. And this is one of those things that you really want to think through before making some of those financial decisions. But if you're A-OK with moving, you can drastically reduce the amount of time that you have to work if you live in one of those states that has really high taxes and really high costs of living. That combination is not good. And moving to a location that has much lower taxes and much lower costs of living. Why? Because you need much less overall in retirement
14:02 Andrew Giancola? if you actually reduce the amount that you're paying in taxes and reduce the cost of living, because you're just paying less every single year for expenses. So this really is a double whammy if you make this move, especially for those of you who live in these high cost of living areas. Maybe you live in New York, maybe you live in Los Angeles, Chicago area, maybe you're the Seattle area. These are really high cost of living locations that could make you have to work longer. Now, sometimes it's worth it to work longer. Again, you got your family roots there, you grew up there, you don't ever want to leave. Sometimes it's not worth being in that location if you have no family roots there or no reason to truly stay. And so geographic arbitrage is something that can help you stretch those retirement dollars further with the same lifestyle, but just being in a different zip code.
14:45 Andrew Giancola? So there are three layers that a lot of people miss. One is state income tax. So which locations don't have state income tax? Well, there's Florida, Tennessee, Texas, Nevada, Wyoming, South Dakota, Washington and Alaska. All of those locations have no state income tax. I live in Florida currently, so a lot of people move down here and retire here because there's beaches, because there's no state income tax, because the cost of living in some locations can be cheaper than some of the higher cost of living areas. And so we have folks, for example, that have been moving down from New York down to Florida, because a million dollar home in New York Is a little box and then they can move down to Florida to a million dollar home and get a 3,000 square foot home. And so you can see the difference by people thinking through this process, especially when they get to retirement. Now you can compare those locations to somewhere
15:30 Andrew Giancola? like California that has a 13.3% income tax. And so a retiree pulling $100,000 out of retirement account in California pays roughly $6,000 to $8,000 more per year than the same retiree in Florida. Because of that income tax is going to be something that really hits them. So over a 30 year retirement, that's $180,000 to $240,000 of pure drag that could be happening just because of where you live. Now, listen, you can walk around California right now and take a look around and California is absolutely beautiful. There's a lot of reasons to stay in California. If you like the landscape, if you like the lifestyle, nothing wrong with that whatsoever, but there are some financial implications to this, especially when it comes to taxes. The second thing is cost of living. So first, you want to figure out, am I going to stay in my house that I currently am in?
16:14 Andrew Giancola? If not, if I did decide to move somewhere else, what would the cost of living be for that new location? And what would the cost of buying a new home be there? And/or would it be something I could pay cash, not have a mortgage? Those types of things can be considered. Also, let's think through groceries and some of those fixed costs that we know we're always going to have to be paying. Is it cheaper to buy groceries in Florida than it is to buy it in New York City? Most likely, yes. And so this is something where you want to think through some of those costs of living. Maybe it's gas, maybe it's other fixed costs that you want to think through. So a retirement that requires $80,000 in San Diego, which would be a pretty tough retirement, I think in San Diego, only requires about $48,000 somewhere like Knoxville, Tennessee.
16:54 Andrew Giancola? And so that same exact cost differential is a huge difference. And that's not a trivial difference. That's a difference of saving about $2 million in retirement when you think about this. So you could save $2 million less and be able to retire in a different location than you would if you were trying to retire in San Diego in this example. So we want to make sure that we are thinking through some of these numbers as we start to assess some of this stuff. But it's not all just black and white, because the third thing you want to think through is property tax and insurance. Most people out there, if you do own a home, you're going to have to pay property taxes. Have to pay insurance. So places like where I live in Florida, for example, a lot of people move here for retirement, but they don't factor in things like property insurance.
17:35 Andrew Giancola? Well, property insurance in Florida has gone up drastically over the last couple of years. Why? We've had a lot of hurricanes. We've had a lot of weather issues. And so because of this, taxes have just gone up. It's been costly for insurance carriers to hold in some of these locations. For example, we had a hurricane a couple of years ago. My mother-in-law had water eight feet up in her house just because she lives close to the water. And so because of this, we want to make sure that we think through property tax and insurance. Now Florida is another great example of somewhere trying to pass a law where they are not going to have property tax anymore. But then those taxes are going to trickle down somewhere. So you gotta just keep monitoring some of that stuff. Now, I'm going to give you an example here, and I want you to think through this example, this case study of someone who did do geographic arbitrage. I'm going to introduce you to Mike and Lisa, okay?
18:19 Andrew Giancola? So Mike and Lisa are both 55 years old and they live in San Jose. For those of you who don't know, San Jose, California is one of the most expensive locations in the entire country. So their annual spend is around $120,000, which is very modest for San Jose, California, mostly driven by the brutal cost of living in that area. California's 9.3% state income tax is also part of that equation. So to retire at 65, using something like a balanced 4% rule, they would need about $3 million saved in order to be able to do that. So what that means is that if they are just getting started here, then they are staring down at potentially 10 more years of work because they need those $3 million saves. Now let's say they sell their house, and if they sell their house, they pocket $800,000
19:03 Andrew Giancola? from the equity that they already had in that location. And they move to Knoxville, Tennessee. For those of you who don't know, Knoxville is the next biggest city in Tennessee that is growing really, really fast. And it is a city that, you know, Nashville is obviously the main hub currently, but Knoxville is a city that is growing quickly. They find a house with the same exact square footage, maybe a bigger yard and no state income tax, and property taxes also drop. Their groceries, their gas, and all their services cost less. And so their annual spending falls to $72,000 just by moving to Knoxville, Tennessee. And so 72 times 25 We're using the 4% rule to just do easy math here. Means they only need about $1.8 million saved. That means they would need $1.2 million less than their California number.
19:47 Andrew Giancola? And at their current savings rate of $50,000 per year, geographic arbitrage just shaved seven years off of the timeline of when they could retire. But again, this decision, if you do make this decision, is one that is semi-permanent, or you're gonna have to at least live in a location that costs less than the one that's in California. So if Mike and Lisa had family in California, they decide, let's try out Knoxville, Tennessee, and they base their entire retirement plan on this. But then they decide they want to go back to California. Well, that's not really as much of an option anymore without having to go back to work. So when do you start to think through this stuff? You want to make sure you are very careful about how you think about this, because you can shave a ton of years off retirement. And if you're in a job that you hate, or one that you don't want to spend a lot of time on,
20:31 Andrew Giancola? this could be a great option to shave some of those years off. Now, some other people do an international version of this. They look at Portugal, they look at places like Costa Rica, or Panama, or Spain, because the cost of living is much lower there, then they move over there. I know someone who built a dividend portfolio. They were a mechanic, and they decided to just move over to Thailand. And they moved to Thailand because the cost of living was so low, and they were able to retire in their 30s because of that. And they've been there for well over a decade, got married over there, they live there with kids now. And it's one of those things that they're happy in that specific life. So there is geographic arbitrage that you could do in other countries as well, and it gives you that optionality. What I want you to know about this is, I'm not telling you to do this. I'm not telling you you need to go live somewhere else if you live in a high cost of living area.
21:15 Andrew Giancola? What I am trying to present to you here is that you have options. You have flexibility, and there are things that you can do to reduce the amount of time that you're working. And so if you are really gung ho on working less and spending more time doing what you love, geographic arbitrage could be something you consider.
21:34 Andrew Giancola? Number three is a spousal IRA. Now, a spousal IRA is an account that a lot of people don't actually know exists. We had this conversation in Master Money Academy recently on one of the coaching calls, talking through spousal IRAs and why they are so powerful. But if one spouse doesn't work and/or earns very little, the working spouse's income can actually fund a full IRA in the non-working spouse's name. So let's say, for example, we have a husband and wife, and we'll do a case study on this in a second. But let's say, for example, we have a husband and wife, and the wife is the breadwinner in the relationship. The husband stays home and watches the kids, spends time with the kids, takes them to school, does all the stuff at home that needs to be done for their kids. Well, in that case, just because the husband does not have a current job
22:19 Andrew Giancola? does not mean they cannot fund an IRA as long as their spouse works. No, they can open up a spousal IRA or a spousal Roth IRA and have the ability to start to build up a retirement account. This is one of those things that can be helpful for a lot of people. Now, you have to be married filing jointly if you're going to do one of these things. But if the spouse earns enough to cover both contributions, they can absolutely do that. And so, right now, obviously, the IRA is $7,500 per year. So you would need to make $15,000 per year or more to be able to fully fund a spousal IRA. So $7,500 per year for anyone under the age of 50, and then $8,600 if you are older than the age of 50 in 2026 when I'm recording this.
23:02 Andrew Giancola? So that means a couple can put $15,000 into those IRAs every single year, even if only one of them works, or $17,200 per year if someone is over the age of 50. Now, this is a strategy where people leave money on the table years before they discover it. Just because you are a stay-at-home parent does not mean you can't contribute to one of these different accounts. So let's say, for example, someone missed out on this, and they skipped out on this for 15 years. Well, that means they would have lost out on $112,500 in contributions, plus all the growth. So at an 8% rate of return over the course of 25 years, that missed money would have grown to $640,000. Well, $640,000, depending on how much money you need every single year.
23:43 Andrew Giancola? Can shave off three, five, seven years in retirement that you do not have to work just by knowing that you can contribute to another account. And so the spousal IRA is wonderful for this kind of stuff. Now, which type should you pick? Should you do a traditional spousal IRA? Should you do a Roth spousal IRA? Well, you want to look at your income limits. You want to look at your overall financial plan. Do you want that tax-free growth? Are you phased out of the $242,000 in the phase out currently? At the time of recording this, it changes every year. So make sure you check the IRS website to see where that is. Well, if so, then you can either do a backdoor Roth IRA, or you can do a traditional IRA if you want that tax deduction in that given year. So this is something to just consider as you start to think through this. But I'm going to give you a case study and show you the difference here
24:26 Andrew Giancola? on what would happen if someone actually decided to start contributing to a spousal IRA. So let's say we have Tom and Rachel, okay? So Tom is 35 and earns $150,000 per year as a software engineer. Rachel is 33 and she stays home with their two kids. And they've been maxing out Tom's Roth IRA for years, but assume Rachel couldn't contribute because she has no income. Well, we now know that this is completely wrong and something that you absolutely can do. So they start funding a spousal Roth IRA for Rachel at the 2026 limit of $7,500 per year. Over 30 years, that's over $225,000 they contributed to that Roth IRA. That would have been left on the table if they did not contribute those dollars. But here's the crazy part, because compound interest is the real key
25:11 Andrew Giancola? when it comes to some of this stuff. Once you put money in a Roth IRA, you want to make sure you're investing those dollars. That's a big mistake that people make when they're beginners. You want to make sure you're investing those dollars inside of the Roth IRA, inside of that account. But at an 8% rate of return over the course of 30 years, Rachel's account would have grown to $918,000, and a big chunk of this would be completely tax-free. That's nearly a million dollars in retirement money that the family would not have had if they didn't know this account existed. And so $918,000 means they would hit their FIE number five years earlier just by doing this and making sure you stay disciplined in investing this account. And so, once they contribute to that IRA, this can be a huge... Huge, huge difference long term for them and their family.
25:55 Andrew Giancola? And so really thinking through spousal IRAs can be very, very important in a very powerful way to grow your wealth over time. And if you didn't know these existed, it is one of those things that you want to make sure you were doing. Because if you can fund two Roth IRAs instead of one, wow, you get that tax free growth that is really cranking over time. So really think through this, a spousal Roth IRA, if one of your spouse, if a spouse does not work or they make minimal income under what you think you should be contributing, you want to make sure that you are looking deeper into that spousal IRA.
26:27 Andrew Giancola? All right, the next one, now this is a really, really fun one. I want to make sure that we get through this one because I think this is going to be interesting for a lot of folks. Is the 0% long-term capital gains harvesting. Now, I know that's a mouthful. I'm going to explain in the most simple terms what this is so that you have an understanding of how this can work. It's actually a pretty simple concept, but we need to make sure we understand some of the numbers behind this, especially the 2026 limits. And if you are listening to this in the future, make sure you look at the current year IRS limits so that you know where they land. The federal government taxes long-term capital gains at 0% if your taxable income is low enough. You've heard me talk about this before. You know, there's a range where you can look at this and we'll talk about the exact numbers here in a second. Where if you make less than about $50,000 per year, it's actually $49,450.
27:12 Andrew Giancola? Then you're going to pay 0% capital gains tax if you're single. And if you're married, it is going to be $98,900. If you make less than that as a household income, then you could also be paying 0% capital gains tax. Okay. When it's long-term capital gains. So what is long-term capital gains for just a refresher? Long-term capital gains is when you hold an investment in that account for longer than one year. It has to be one year or longer. If it's less than one year, then you're going to pay income tax on that money, which you really don't want to be doing. Okay. So you can intentionally sell appreciated investments, pay zero tax and immediately rebuy the same investment to reset your cost basis higher for some tax-free growth. Okay. So I want to show you how this works. So let's look at the exact numbers again.
27:54 Andrew Giancola? Single filers can earn up to $49,450 in taxable income and still pay 0% long-
28:03 Andrew Giancola? Long-term capital gains tax. Married couples filing jointly can earn up to $98,900 in taxable income and still pay 0% for long-term capital gains taxes. And here's the cool part, though, is we're going to add in one more layer because the 2026 standard deduction is $32,200 for married couples filing jointly and $24,150 for heads of households and $16,100 for single filers. Now, you need to know those standard deductions because I want you to understand how this works. So what does this mean in plain English? Well, a married couple in 2026 can have a gross income of $131,100,
28:45 Andrew Giancola? which is broken down like this, $98,900 in taxable and $32,200 in the standard deduction and pay zero on long-term capital gains. And a single filer can have a gross income of up to $65,550 and pay zero long-term capital gains. So let's say you have a brokerage account and you have $50,000 of capital gains in it and $150,000 total in your position. In a year, when your taxable income is below that threshold, you sell that investment and you pay zero federal tax on the gains and then you immediately buy it back. So now your cost basis is $150,000 instead of $100,000 and the $50,000 gain is actually permanently tax-free. Now, one thing you got to watch out for is the wash sale rule. You got to make sure that you are looking into that and understanding how that works
29:30 Andrew Giancola? for your specific situation. But this is something that you could do if you have some of these things in a taxable account that has these huge gains, but you decide to have a year where you have lower income. So let's say you take a sabbatical or you do something where you are making less in a given year. Maybe you cut back the amount of days that you're working for a given year. This could be something that helps you big time when it comes to thinking through long-term capital gains. So let's do a case study on this and let's see how impactful this can actually be to your long-term retirement, okay? So I want you to meet David and I want you to meet Karen. Sure, Karen is actually a Karen in this situation. So David and Karen retire early at 55. They have $1.5 million in a taxable brokerage account with $400,000 in unrealized
30:13 Andrew Giancola? Long-term gains. This means they have $400,000 in gains in that account that they have not paid taxes on yet because a state invested inside of that account. Okay. Their only income now is about $60,000 that they pulled from their brokerage to live on, plus a small amount of dividends they get paid through all of their investments. So their taxable income lands around $70,000, well under the 2026 0% capital gains tax range of $98,900 for married couples filing jointly. Remember, that's why we went over those numbers. $98,900 or less is where you can pay 0% capital gains. So every year, they intentionally sell some appreciated shares to $28,900 of gains, tax-free, then immediately rebuy some of those shares.
30:55 Andrew Giancola? Their cost basis resets higher and zero federal tax is owed on those dollars. So over a 10-year period before social security and RMDs kick in, they have roughly $289,000 worth of gains at 0%. And if they had sold these same shares at the 15% rate, that's $43,000 of pure tax savings that they are actually having by following this strategy. So this is tens of thousands of dollars worth of savings if you actually go through this process. But you got to watch out for some of the wash sale rules and make sure that you figure out exactly how this works within your own specific situation. Okay. Now, here's the cool thing about this is having $43,000 that you save in taxes. Let's just say you had the habit of saving that $43,000 or reinvesting those dollars.
31:41 Andrew Giancola? That can give you a couple of years cushion in your retirement plan that allows you to, hey, reduce the sequence of returns risk or reduces the overall risk of your portfolio so that you have a little bit of extra cash on hand. So instead of paying the IRS some of those taxes, you can actually save those into your cash bucket or you can reinvest those into a separate bucket that allows you to grow that money long-term. So this is just a great way to think through, how can I optimize my portfolio? Which is why, going back to number one, we want to make sure we have the right investments in the right locations so that we can follow some of these strategies and allow them to help us stay within some of these ranges so we're not paying so much in taxes. Next, we're going to dive into the mega backdoor Roth right after this.
32:26 Andrew Giancola? All right, so next we're going to talk about a high earner strategy called the mega backdoor Roth. Now, this is something that is a way to shove tens of thousands of extra dollars into Roth accounts if you have the income to support this. Now, not every single person can do this, but if you are a high earner, you have extra dollars on hand and you have the right plan in place, this could entangle you into the perfect storm that allows you to do a mega backdoor Roth. So let's talk about how this works and how nobody really uses this, but it is a very powerful way to accelerate your timeline to financial independence. So to use this strategy, your 401k has to have a couple of different features. And you can ask your HR department if some of these exist in your plan or you can pull out your plan documents and look a little deeper.
33:07 Andrew Giancola? One is you have to be able to have the ability for after-tax contributions. So this is one of those things that you need to make sure that you have first before you can even do this. Also, you need to either have in-service distributions or in-plan Roth conversions. Now, there are three buckets inside of your 401k. You have your pre-tax or your Roth employee contributions. This is where you contribute your pre-tax or your Roth into those accounts. This is standard, like you're putting your money into your 401k, okay? Then you also have your employer match, which we talk about a ton on this podcast. It's layer two. And then there's layer three, which is the secret bucket that most people don't really know about, which is your after-tax contributions. So those are after-tax contributions that you can also add into your 401k. Now, here's the math on this, okay?
33:51 Andrew Giancola? Because the total 401k contribution limit in 2026 for something like a mega backdoor Roth is $72,000. If you're over the age of 50, it is actually $80,000. And so the 2026 401k elective deferral limit is also $24,500 or $32,500 with catch-up contributions. So using a mega backdoor Roth strategy, you may be able to contribute an additional $47,500 in after-tax dollars. Now, this number is going to drop by every single dollar that your employer contributes. So if you get a match and your employer starts to contribute dollars there, this number will drop by the amount that your employer contributes. So that's one thing you need to know. So I'm going to show you the flow or the steps on how this would work so you can see.
34:35 Andrew Giancola? If this will work for your situation. All right. So step one is you would max your regular $24,500 employee contribution. Number two is if your employer does do a match, they would kick in their match at the same time as you're making those contribution. Now, whatever space is left between those two and the $72,000 ceiling is your after tax bucket. And so you contribute after tax dollars into that bucket. Now, here's the cool thing. So once you get those dollars into your 401k, you immediately convert those after tax dollars to Roth, either in plan or to a Roth 401k or out to a Roth IRA. If you don't have an in plan Roth 401k, you can move it to a Roth IRA. And that money grows tax free for the rest of your life. So this is a way where you're going to get dollars that have already been taxed,
35:20 Andrew Giancola? and you're going to move them into your Roth so that you can get more dollars into your Roth. Now, a higher earner using the mega backdoor Roth for 10 years could make $400,000 plus of additional contributions into their Roth. Now, this is a really powerful thing because as we know, Roth IRAs grow tax free and you can pull the money out tax free. So if you want a really big Roth account, these mega backdoor Roths can truthfully help you do this. But you gotta have those 401k plan features. If your 401k plan doesn't have those features, then you're not going to be able to do this. And not every single 401k has these features. Now, that's five to eight working years that you could shave off if you actually save these dollars. Again, you're going to have to have an high income to be able to do this because we're talking about tens of thousands of dollars per year
36:04 Andrew Giancola? that you're going to be putting into these accounts. So let me give you a case study here. I want you to meet Priya. So Priya is 32. She works at a tech company that allows her to have after tax contributions and also have in plan Roth conversions. What does that mean? That just means you put after tax contributions into your 401k and your 401k allows you to convert that money to your Roth 401k inside of your plan. She earns $220,000 and already maxes her regular 401k at $24,500 per year. Her employer adds an $11,000 worth of match every single year if she maxes out her account. Wonderful match. This is the beautiful thing about the match is you can get big dollars into some of these accounts. So she's got $11,000 in match, which leaves 36.
36:45 Andrew Giancola? $6,500 left of unused space inside of her $72,000 total 401k limit. Again, remember, you can put 72,000 total inside the 401k minus the amount that you contribute, minus the amount that your employer contributes. So that leaves her with $36,500 left. She fills it with those after-tax contributions and immediately converts each one of those contributions to the Roth. And she does this for 10 years. So this gives her an additional $365,000 inside of her Roth. And at an 8% growth over more than 25 years, the money balloons to roughly $2.1 million of completely tax-free growth. This is the amazing thing. She contributed $365,000, but because she has so much time for this money to compound,
37:29 Andrew Giancola? it balloons to over $2.1 million. And this is on top of everything else that she is already currently saving. So without the mega backdoor Roth, those extra investment dollars would have gone into something like a taxable brokerage account, and they could have lost about 0.5% per year to tax drag, plus capital gains on the sale, depending on where her income landed. And so the Roth wrapper alone shaves off six to eight years of her financial independence journey because she is not paying taxes on those dollars and she can utilize those dollars for her retirement because it has that tax-free growth. You can pull the money out tax-free. This means she is not paying taxes on millions of dollars. So you want to check your 401k plan. See if this is a feature. See if this is available, especially if you make a good amount of money. Even if you can't max it out, you can obviously put however much you can actually get in
38:14 Andrew Giancola? there is completely fine as well. If you want to fill up your Roth account with even more dollars, this could be a consideration. But again, have a conversation with your CPA. See if this works for your plan. See if this is something that you are trying to do or have a conversation with your advisor. And they can walk you through step by step some of the implications of this and how this will work. Also, whenever you're doing conversions and whenever you're thinking about doing that kind of stuff, you want to make sure that you have someone in your corner because you don't want to end up with some big tax bill that you're not thinking about. So making sure you're talking to the professionals is really important. All right, we're going to take a break and we're going to come back for the Roth conversion ladder.
38:45 Andrew Giancola? It's kind of amazing how much can change in just a single year. Every summer, the kids are a little bigger, a little more independent, and life looks a little different than it did the year before. And it reminds me that while we can't predict the future, we can prepare for it. That's one of the reasons I like PolicyGenius. See, PolicyGenius isn't an insurance company. They're an online marketplace that lets you compare life insurance quotes from some of America's top insurers, side by side, for free. And their licensed team helps you compare coverage, prices, and terms, answers your questions, and even handles the paperwork so you can get the right policy without the hassle. For me, having life insurance isn't about expecting something to happen. It's about knowing my family is protected
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43:53 Andrew Giancola? Now, one big caveat to the Roth conversion ladder, just like some of these other strategies, is you want to make sure that if you are going to do a Roth conversion ladder or you're considering it, you either need to know what you're doing or you need to talk to someone who understands your tax situation. Cause you could give yourself a massive tax bill if you're not thinking through this properly. And so you want to make sure you were doing this the right way. Now, what is a Roth conversion ladder? We've covered it a few times in this podcast and one of my early episodes of this podcast actually talked through this exact strategy. But I want to kind of walk you through this again, so you understand how these work and why these could be a cool way to shave off some working years. So the Roth conversion ladder is actually a multi-year strategy that lets you access your 401k and IRA money before the age of 59 and a half.
44:34 Andrew Giancola? So if you're planning on retiring early, this is a way to access those dollars early if you have the plan in place. But you're going to have to plan this at least five years ahead of time before you can even do this. So a lot of times, if you try to access your dollars in some of these retirement accounts before the age of 59 and a half, you're going to have to pay a 10% penalty, but not if you do the Roth conversion ladder correctly. Because you're going to convert chunks of money that are in your traditional IRA to your Roth in low-income years. The key statement here is in low-income years. Then what you're going to do is you're going to wait five years and withdraw the converted principal tax-free and penalty-free. Why does this work? Well, the money that you put into a Roth IRA, you can withdraw at any given time completely tax-free and penalty-free.
45:19 Andrew Giancola? But there is a rule that states you have to have the money in that account for five years before you can start to withdraw on those dollars. So how does this work? And let's talk through the mechanics really quick. So let's say you retire early at age 50 with most of your money in a traditional 401k or an IRA. And in year one, you convert, say, $50,000 from a traditional to a Roth, and you pay ordinary income tax on that $50,000. But at a very low rate because you have no W-2 income. Let's say you retired early and you're living off your taxable brokerage account for the time being. This is why taxable brokerage accounts are important, because they help you bridge some of these really cool strategies that you could utilize. Now, the clock starts ticking. And after five years, that converted $50,000 can be withdrawn from the Roth IRA completely tax-free. Now, you repeat this every single year.
46:03 Andrew Giancola? So then in year two, you do another $50,000. And year three, you do another $50,000. And this allows you to start to convert this $50,000 and turn it into income five years down the line each time. By year six, you have a steady stream of converted dollars coming out of the back end, tax-free and penalty-free, because you started this process every single year. Now, this strategy makes early retirement actually possible for a lot of people. If you're thinking through, well, how am I going to retire early if I have all this money tied up into these retirement accounts? A Roth conversion ladder allows you to go through this process. But you've got to make sure you understand where your taxable income is and what you are thinking about here. Let's say you want to retire at 50. Well, you'd have to wait nine more years.
46:45 Andrew Giancola? It's got a nine-year penalty box before you can start to access these funds without having to pay that 10% penalty. And so if you use a Roth conversion ladder instead, you would need to save 30% less just by doing this if you thought through this process correctly. And so there's cons to doing this wrong. And this is one of those things that I want most people to understand, because if you don't know the cons or you don't know how to do this, then it could really hurt you, okay? So the first one is converting too much in one year. You can blow yourself into a much higher tax bracket. The whole point of this is to convert the money during your lower tax years. If you convert $200,000 in one year and pay 24% on it, then you've sabotaged the entire strategy. You've screwed up the strategy. So you need to keep conversions filling up in that 12% bracket and stop there.
47:29 Andrew Giancola? That's the key for most people is thinking through how they keep it in that 12% bracket. Or if you don't have a bridge, so if you don't have a way to bridge the next five years or so, because you didn't fund a taxable brokerage account, or you have no cash in an HSA with receipts, or you just don't have a way to access capital early, this may not work as well for you if you don't have the cash on hand. Now, if you're going to take a five years off because you put money in a taxable brokerage account, and that's going to bridge you until you can start to take these conversions, that's a great strategy, but if you don't have the ability to do that, you may have to find a different way to make an income. Or maybe you just do a part-time job during a certain period of time, where you still keep your income low enough that where this strategy would work. Now, another way people fail at this is they forget the five-year clock is per conversion, not per account. So each conversion starts a new five-year clock.
48:12 Andrew Giancola? This is why they call it the ladder, because every year you're doing another wrong on the ladder to convert that money over. And if you convert money in a higher income year, let's say you do a consulting work, or you sell a business, or something else happens, then you don't really want to convert in that given year. You want to wait for a clean, low-income year. The last thing you want to do is pay higher taxes on this money, or increase the amount that you're paying because your income went up. Instead, we want to make sure that we are thinking through this. And the last thing you want to consider is the prorata rule. Make sure you look deeper into that, because if you have a traditional IRA with both pre-tax and after-tax basis, the prorata rule treats every dollar converted as a mix. And so we want to make sure that this is going to trip people up big time, and a lot of people fall to that prorata rule. This is why you want to have a conversation with the folks in your corner,
48:56 Andrew Giancola? like your CPA and your advisor, so that you know when to do this and when not to do this. And probably every single year, if you are going to do this, you need to have somebody who you can bounce that question off of and say, hey, can I convert this year? Can I not convert? And how do I think through the strategy to make sure my income stays low enough? So I don't fall into some of these other tax brackets. So making sure you understand that is really, really important. And I think we will do an entire episode on this, diving deep into the 2026 numbers, because we did it a couple of years ago when we were diving in, I think in 2024 or 23, was the last time we talked through this, and the numbers have changed. The numbers have gone up, the income limits have changed. And so we want to make sure that we have an updated episode on that. So we will have that coming, so make sure. Subscribe to this podcast so you can check that out. Now, let's do a case study on this. I want you to meet Brian and I want you to meet Amy.
49:41 Andrew Giancola? So Brian and Amy retire at 50 with $1.5 million inside of a traditional 401k and $400,000 into a bridge brokerage account. Okay, they can't touch the 401k money penalty free until age 59 and a half. Now that's a 9.5 year gap that would normally kill their early retirement plan. Some people who wouldn't know about the strategy wouldn't be able to retire early if they didn't know that this is how this works. So, starting in year one, they convert $50,000 per year from a traditional to a Roth. And their taxable income is low. They just pay dividends and brokerage gains. So the conversion sits at that 12% bracket and they pay roughly $5,000 in federal tax on each conversion. Now, five years later, the first $50,000 is available to withdraw tax free and penalty free.
50:26 Andrew Giancola? And now the ladder is built. Now it gets started five years later where they can start to access these dollars and not have to just rely on that bridge account for all of their income. And so they live off the bridge for the first five years while the conversions cook. You let them cook inside of that account. You let them cook on those conversions. And then by year six, they have a steady stream of converted money that they can start to pull from as long as everything else within their financial situation was done correctly. So if you do this, you're saving off six to eight years, depending on when you retire. I mean, removing six to eight years from your working timeline is absolutely fantastic. It's a single strategy that makes early retirement structurally possible. It's one of those strategies that really helps people. Obviously, we have the rule of 55. We have other things that we can talk through that help us through this if you do retire at 50, but they are things that we want to make sure that we are considering.
51:14 Andrew Giancola? All right, the last one we're going to talk about today is ACA subsidy engineering. So the Affordable Care Act gives subsidies to lower income households who make health insurance affordable. So your income for ACA purposes is your modified adjusted gross income, or we're going to call that MAGI here, M A G I. And in early retirement, you control your MAGI by choosing where you pull your money from. So you can engineer a low MAGI on paper while having millions of dollars in assets. As we know, healthcare is one of those areas that we have seen in the past where people do not plan this out properly, especially when they retire early. And this can be one of those things that can hold you back from being able to retire early if you don't think through healthcare.
51:58 Andrew Giancola? Because the road is long if you retire at age 50 until you can reach Medicare age at age 65. That is 15 years. Or if you retire at age 55, that is 10 years before you reach that Medicare age. That is a long time to have to figure out your health insurance. And so this is one of those strategies that helps you find a way to reduce the cost of health insurance. Because most people think through this and they don't realize, okay, well, my employer's been paying for my health insurance or subsidizing my health insurance for a long period of time. But once you become an individual, it can cost you anywhere from $1,500 to $2,500 every single month just for your healthcare. My family, because I own businesses and I don't have a healthcare plan, my family costs around $2,500 every single month for healthcare in the state of Florida. And we are young.
52:43 Andrew Giancola? So imagine as you age and you have to get a healthcare plan, what is going to happen in your situation? So you gotta make sure that you know, you know, what is going on and how you can think through healthcare. This is a very important part of retiring early that most people don't think about enough. Now, why is this important? Well, Medicare doesn't kick in until age 65. And so because of that, if you run the math on this, over the course of 15 years, you'd be paying $300,000 to $450,000 just for health insurance if you did not factor that in. So this can drop the bill from 25K a year to $3,000 to $5,000 a year. That's roughly $300,000 to $400,000 saved over that 15-year gap. Now, healthcare is the single biggest fear that keeps people from pulling the trigger in early retirement.
53:24 Andrew Giancola? I have seen people sit at a desk for 10 years longer because they just can't figure out this healthcare puzzle. So how do you engineer this? Or how do you think through this? And you gotta see if this works for your situation by talking to the pros. Obviously, each person's individual situation is different. But I want to talk through how you can engineer this. So one is pull living expenses from your bridge or brokerage account. Only the gain portion counts as income, not the basis. So your current basis that you contributed does not count here. It's just the gain that counts as income. contributions already taxed doesn't count as income. Use your HSA reimbursements from old medical bills. This also doesn't count as income. And you can limit your Roth conversions to the amount that keeps you under the subsidy cliff. Now, when you're thinking about long-term capital gains and you start to realize those,
54:09 Andrew Giancola? you got to be very careful with those because those count towards your MAGI. So you want to make sure that you are thinking through those as well. Now, why does this shave off working years? Because this shaves off that $20,000 to $25,000 per year of phantom income that you could have in place that you would be paying towards health insurance if you're not thinking through this process. So this is one, I think, for most people, they can make a big difference if they plan this properly. This is why, even if you're in your twenties or thirties or forties, this is why I want you thinking about this stuff. Because once you start to have a plan in place, you have decades to build this out so that it works in your favor. Now, will the Affordable Care Act be in place over the course of 30 years? I don't know. Politics are going to have to fall into play on that one. But this is one of those things that right now, this plan is something that you can figure out.
54:53 Andrew Giancola? Once you start to think through some of this stuff, it might get your mind churning on some future laws, some future things that come into play that could work for your specific situation. Now, what is the danger to this? Well, the subsidy structure has been changing on this. And the enhanced subsidies passed during COVID expanded who qualifies for this. I think for a lot of folks, they're going to crack down even more on this. So this strategy may be a shorter-term strategy that you can use, but we got to focus on the things that we can control. Now, let me give you the case study on this because I think the case studies help you understand some of these concepts even more. So let's talk about Carlos and Maria. So Carlos and Maria retire at 52 with $2 million saved. Now, they have 13 years until Medicare unsubsidized family health insurance on the open market cost them $26,000 a year plus deductibles.
55:37 Andrew Giancola? Now, over 13 years, that's $338,000 of healthcare costs eating into their nest egg. So Carlos and Maria are trying to figure out a solution to this so they can save $338,000 or at least reduce that overall cost. So they restructure their withdrawal plan. They live mostly off of their bridge account, only the gain portion counts as income, and they keep their Roth conversions modest during this timeframe. And they target an MAGI of around $50,000. So this drops their healthcare bill and they save about $21,800 per year. Times 13 years. So if you multiply that by 13 years, it's about $283,000 of healthcare costs that are avoided. Now that's money that they don't have to pull from their portfolio, which allows them to retire even earlier, five to seven years earlier, because they
56:18 Andrew Giancola? have this extra cushion in place and it shaves off years of their FII timeline. So for most folks out there, if you interview retirees or folks who did not retire early, a lot of times healthcare is one of those big scares that they don't know what to do. Again, as you age, healthcare becomes a bigger and bigger need. And so you need to make sure that you have a plan in place when it comes to this. Listen, thank you so much for listening to this episode of the Personal Finance Podcast. I hope you got tremendous value out of this episode. Our goal is to bring you as much value as we possibly can and serve you when it comes to these episodes. So cannot thank you guys enough for being here. If you want to dive deeper with me and my team and learn how to build wealth step by step, I invite you to join Master Money Academy. We will leave a seven day free trial down below for
56:59 Andrew Giancola? podcast listeners. Check out a coaching call. Check out some of our courses in there. And if it's not for you, no worries. You can cancel at any given time within that seven days and not pay a single dime. But go check it out. See behind the curtain. See if it's best for you because we want you to learn how to build wealth and give you as much value as we possibly can. Again, thank you so much for being here and listening to the Personal Finance Podcast and we will see you on the next episode.
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