As we enter the fourth quarter of the year, we review a list of specific decisions with each client. Ideally, none of these are waiting until December 26th. We hope this overview serves as a road map for the timely decisions we want every client in retirement (or approaching it) to be considering.
Q4 Is When We Consider Roth Conversions
The goal of good tax planning isn’t necessarily to pay the least amount in taxes this year; it’s to pay the least amount of tax required over your lifetime. We don’t want to save $10 this year only to owe $20 next year.
A Roth conversion isn't automatically a good idea or a bad idea. It's a bet: pay some tax now because today's rate looks more attractive than the rate you expect to pay later. That bet only pays off for certain people, and by October we can evaluate where your income is likely to land for the year.
The clearest candidates are the ones sitting in what we'd call an income valley. It’s often a scenario like:
Someone recently retired but not yet drawing Social Security or facing RMDs.
Someone who partially retired or took a job with better quality of life but less pay.
A business owner or commission-based professional having a slower year.
We also have this conversation with clients who care less about their own tax bill and more about what their kids inherit. Under current laws, your kids will have to withdraw 100% of inherited pre-tax IRAs within 10 years, often during peak earning years. If we think that your tax bracket this year is potentially lower than theirs will be when they inherit it, we consider Roth conversions. They will pay no tax on any Roth dollars inherited.
September matters here specifically. By now, we usually have enough of the year in hand to estimate it with real accuracy, and capital gain distribution estimates start arriving from mutual funds around this time too, which matters for anyone converting inside a taxable account. Earlier in the year, you’re guessing. Right now, we're not.
Pension or Lump Sum? It Usually Comes Down to Control
We recently worked with a client nearing retirement after more than three decades with one employer, facing a pension decision: keep the monthly benefit as it stood, or roll a lump sum into an IRA.
Using planning software to compare both paths side by side, the numbers favored the rollover. Their expenses were modest, their debts were gone, and their bigger priority was making sure the money could pass efficiently to their children rather than disappearing into a pension structure that stops with the client and a spouse.
The result in this case: the lump sum moved into a traditional IRA, and we built a ten-year plan to convert portions of it into a Roth IRA before required distributions begin. That keeps the eventual distribution amount far smaller than it would be if the full balance sat untouched, and it keeps the door open for the assets to pass on more efficiently if something happens to the client or their spouse.
Most of the time, this decision comes down to control. A pension guarantees a set monthly amount for as long as it lasts, often less once a spouse is involved. A lump sum gives up that guarantee in exchange for flexibility and the ability to leave something behind. In our experience, most clients gravitate toward the lump sum once they see the tradeoff laid out, since few want to risk leaving money behind with a former employer.
Year End Tax Loss Harvesting
Tax loss harvesting sounds like jargon until you break it down: we're looking for ways to put you in a better position when taxes are due, without changing your investment strategy. Most of the time, that means moving from one holding to a similar one, realizing a loss for tax purposes while keeping the portfolio's overall allocation intact.
A bond fund showing a loss doesn't mean it's a bad investment. It might still be generating solid income; it's just down in value for the moment. A well-diversified portfolio is built to work that way, with some parts nearly always down while others are up, and tax loss harvesting is how we put every piece to use.
This time of year carries extra weight because capital gain distribution estimates from mutual funds start coming into view, giving us a clearer target for how much loss harvesting could offset before the year closes.
Getting Q4 Right For Your Plan
Every year carries a specific set of decisions with real deadlines, and those decisions don't get remade once the year closes. If you know someone weighing one of these three right now, this is a good month to make the introduction.
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