Case Study: $6 Million Portfolio for Retired Couple

Tax Planning

Distributions were coming from brokerage account, which allowed for more tax efficient distributions.

Each year, we will perform Roth conversions to gradually move their pre-tax retirement account balances to Roth for long-term tax-free growth. While this does require the realization of ordinary income in the year of each Roth conversion, the long-term tax advantages outweigh the short-term tax cost. Furthermore, we are careful to convert only as much as necessary to keep our client within a reasonable tax bracket.

Charitable Giving

Our client happens to be charitable inclined, and we identified an opportunity to batch multiple years of planned charitable contributions into a single tax year to reduce their taxable income in their final year of work. We advised the client to move appreciated securities into their donor advised fund. The amounts transferred exceeded the standard deduction threshold, allowing them to itemize and claim a larger tax benefit.

We estimate that the donor advised fund would need to be replenished around the time the client turns 59 ½, the age when they’re allowed to distribute from their Traditional IRA without penalty but are still subject to taxes. When that time comes, we’ll have them make their planned gifts to their donor advised fund from their taxable account (brokerage account) and use that opportunity to distribute a larger amount from their IRA and set aside for their monthly spending.

Social Security Planning

Given the liquidity in their brokerage account and their need to manage taxable income proactively, we recommended not applying for benefits early and waiting until age 67, full retirement age. We certainly could pivot on that recommendation, if needed, but waiting until full retirement age allows them to receive 100% of their benefit. The benefits could be further maximized by delayed retirement credits from age 67-70. By drawing from brokerage and IRA accounts, we can meet their spending needs without triggering significant taxable events. This strategy complements ongoing Roth conversions and helps to maintain eligibility for premium tax credits under the Marketplace health plans.

Conversion of Excess 529 balances to Roth IRA

With the funds remaining in their son’s unused 529 account, we’ll implement a strategy made available by the SECURE 2.0 Act that allows unused 529 college savings plan balances to be rolled over into a Roth IRA for the plan’s beneficiary.

To qualify, the 529 plan must have been open for at least 15 years. Contributions made within the last five years (and any earnings on those contributions) are not eligible for rollover. Rollovers count toward the annual Roth IRA contribution limit (for example, $7,000 in 2025 for individuals under 50 years old). Additionally, the beneficiary must have earned income equal to or greater than the amount rolled over each year, and there is a lifetime rollover cap of $35,000 per beneficiary.

Once we’ve reached the lifetime cap for the current beneficiary, we plan to update the beneficiary designation to their grandchild. Based on current projections, the remaining funds should be sufficient to cover all in-state college costs. Since the funds won’t be needed for many years, we’ve shifted the allocation to a more aggressive investment strategy.