Imagine this: you’ve worked for decades, your retirement date is finally on the horizon, and you have a solid nest egg. But there’s a puzzle to solve. You plan to delay claiming Social Security to maximize your benefit, creating a “gap” of several years between your last paycheck and your first government check.

This is a classic and smart retirement planning challenge. Let’s walk through a case study of a client we’ll call “Robert” to see how we tackled his “gap years” with a combination of Roth conversions and strategic withdrawals.

Meet Robert: The Scenario

Robert is a 62-year-old single man living in Austin, Texas. He loves his job in the tech industry but is eagerly planning to retire at age 65. He’s done his homework and knows that by waiting until age 70 to claim Social Security, he can lock in a significantly higher monthly benefit. He also knows that Required Minimum Distributions (RMDs) from his retirement accounts will kick in at age 73.

This leaves him with a crucial period—from age 65 to 70—where he will have no earned income and no Social Security. This is his five-year “gap.”

Here’s a snapshot of Robert’s financial landscape as he approaches retirement:

• Goal: Retire at 65.
• Social Security Plan: Claim at 70 for maximum benefit.
• RMDs Begin: At 73.
• Annual Living Expenses: $85,000 (after-tax).
• Assets:
  • Traditional IRA (Rollover from old 401(k)s): $1,400,000
  • 401(k) with Current Employer: $300,000 (He’s still contributing)
  • Roth IRA: $75,000
  • Cash/Savings: $50,000
• Debt: Mortgage balance of $90,000 on his condo.

The Dilemma: Funding the Gap and Facing Future Taxes

Robert came to us with two main questions:

1. The Gap Years: “Where will the $85,000 per year come from between ages 65 and 70?”
2. The Roth Question: “I’ve heard about Roth conversions. I’m in the 24% tax bracket now. Should I be converting parts of my large Traditional IRA to a Roth?”

His Traditional IRA is a ticking “tax bomb.” Every dollar in that account will be taxed as ordinary income when withdrawn. With over $1.7 million combined in tax-deferred accounts, his future RMDs could be substantial, potentially pushing him into a high tax bracket in his 70s and 80s.

The Strategy: A Two-Part Plan for the Gap and Beyond

We developed a coordinated strategy that addresses both his short-term income needs and long-term tax efficiency.

Part 1: Creating a “Paycheck” for the Gap Years (Ages 65-70)

Robert’s $50,000 in cash is a good start, but it’s not enough to cover five years. We devised a systematic withdrawal plan to create his $85,000 annual “paycheck.”

• Years 1-2 (Ages 65 & 66): We will use his $50,000 cash reserve first, supplemented with withdrawals from his taxable 401(k). This allows his Roth IRA more time to grow tax-free.
• Years 3-5 (Ages 67-69): We will systematically withdraw from his Traditional IRA to cover his living expenses. We will carefully calculate these withdrawals to remain within a target tax bracket (e.g., the 22% bracket).

Crucially, this is not just about taking money out to spend it.

Part 2: The Simultaneous Roth Conversion Strategy

While Robert is taking distributions from his IRA for living expenses, he can still perform Roth conversions on the money he doesn’t need to spend. Here’s the powerful part of the plan:

1. Pre-Retirement (Ages 62-65): While he’s still earning a high salary, we are doing modest Roth conversions up to the top of the 24% bracket. He uses his earnings from his job to pay the taxes on these conversions. This moves a chunk of money into the tax-free column before he retires.
2. During the Gap Years (Ages 65-70): Even though he is taking $85,000 from his IRA for living expenses, his total income is low. This creates a perfect opportunity.
   • We calculate that after his $85,000 withdrawal, he still has headroom in the 22% and potentially even the 24% tax bracket.
   • We then convert an additional amount from his Traditional IRA to his Roth IRA, filling up that tax bracket.
   • For example, if the 22% bracket tops out at $100,000 of taxable income, and his $85,000 withdrawal puts him at $85,000, he could convert another $15,000 and pay only 22% tax on it.

Why is this so powerful? Robert is strategically “filling up” his lower tax brackets during years he would otherwise be in a very low bracket. He is paying a known, relatively low tax rate now to avoid being forced into a potentially higher tax rate later when RMDs and Social Security kick in.

The Bottom Line for Robert

By integrating his gap-year income needs with a proactive Roth conversion strategy, Robert can:

• Smooth his tax burden over his lifetime, paying taxes at a lower average rate.
• Reduce the size of his future RMDs, giving him more control over his income and Medicare premiums in his 70s.
• Build a significant tax-free Roth bucket that can be used for large, unexpected expenses or to leave a tax-free legacy to his heirs.

Robert’s story is a perfect example of why retirement planning isn’t just about accumulation. It’s about the sophisticated choreography of withdrawals and conversions, turning a potential tax problem into a long-term, tax-efficient income plan.

Disclaimer: This case study is for illustrative and educational purposes only. The names, details, and numbers are fictional. All financial situations are unique, and you should consult with a qualified financial advisor and tax professional before implementing any strategy.