10/15/2026
Early retirement can bring a very low tax bill. For many executives, that same low-income window may also be worth a closer look.
When a senior executive retires, earned income often stops before Social Security and required minimum distributions begin. We often see these gap years with very low taxable income while large balances remain in traditional IRAs.
Here is why that matters. Once required distributions begin, they count as taxable income whether or not the client needs the money.
Higher income can also raise Medicare premiums through income-related surcharges¹. For heirs, non-spouse beneficiaries generally must empty an inherited traditional IRA within ten years under current law², which may fall during their own peak earning years.
Here is how we approach the gap years:
1. Looking across decades
We look at the low-income years in the context of the whole retirement, not just one year's tax return.
2. Where investments live
We consider which assets and investments belong in which type of account, tax sheltered or otherwise . For money a client doesn't plan to use, or to keep pace with inflation, we use growth stocks. Over the long term, a business compounding earnings faster than cash can gives more room to grow, even though the short term is nearly impossible to predict. Valuation matters too, and buying at attractive prices is part of the process.
3. What heirs receive
We think about the tax character of what the next generation inherits, working alongside the client's legacy planning attorney.
Every choice has tradeoffs. Recognizing income earlier means paying taxes sooner, and tax law can change. Waiting keeps flexibility but may mean higher income later. Decisions are custom to the individual, their portfolio, and current world and market conditions. We see executives benefit from walking through these decisions with a trusted person, which can change the narrative and the reasons behind why it may or may not make sense to act.
Paying less this April and paying less over a family's lifetime can be two different goals.
Follow along for more on wealth management and retirement planning.
¹ Social Security Act § 1839(i), codified at 42 U.S.C. § 1395r(i), "Income-related reduction in premium subsidy," U.S. Congress and Centers for Medicare & Medicaid Services.
² Setting Every Community Up for Retirement Enhancement (SECURE) Act, Pub. L. 116-94, Division O, Title I, § 401, enacted December 20, 2019, codified at 26 U.S.C. § 401(a)(9)(H), U.S. Congress.
