Greg retired at 57 with $1 million in his IRA and another $300,000 in a taxable brokerage account. Conventional wisdom told him it was time to make aggressive Roth conversions — after all, this was his golden window, and with $1 million sitting in a tax-deferred account, there was a compelling reason to start moving some of that money into a Roth.

But Greg and his wife Susan (names changed for client privacy) needed to buy health insurance on the ACA marketplace until they reached Medicare age, and their income directly determined how much they’d qualify for in subsidies.

A Roth conversion would have added income that could have pushed them past the subsidy cliff and made their health insurance dramatically more expensive.

For Greg and Susan, it wasn’t worth the trade-off. Even with a strong case for Roth conversions, what looked like the optimal long-term tax strategy didn’t fit their immediate circumstances.

That’s often the case for pre- and early retirees. Maybe you know what you’re “supposed” to do, but it just doesn’t work for your unique blend of considerations and goals. The mathematically optimal answer isn’t always the right one.

For Greg and Susan, the answer to their dilemma was already in their portfolio: a $300,000 taxable brokerage account built up alongside Greg’s retirement savings, with none of the rules a Roth conversion or a 72(t) plan would have required.

Using a Taxable Brokerage Account in Early Retirement

After walking many people through these decisions and helping clients navigate IRS penalties and exceptions, I’ve found that taxable brokerage accounts can be an excellent avenue for penalty-free funds in early retirement.

A taxable brokerage account has no age restrictions, payment commitments, or former-employer requirements. You can sell what you need (with any gains subject to applicable taxes) and access your original investment without the IRS weighing in.

For most of the people I’ve helped retire before 60, like Greg, a taxable account can do much of the heavy lifting when complex, nuanced factors are at play.

Selling down their bond holdings and realizing some gains generated the income Greg and Susan needed while keeping their taxable income low enough to stay within the subsidy threshold.

While it did cost them some tax efficiency over a ten-year horizon, it kept their health insurance affordable in those crucial lower-income years.

Greg and Susan’s numbers show how this strategy played out for one household, but the mechanics apply more broadly.

1. Shrinking Long-Term Capital Gains Within Your Golden Window

For 2026, a married couple filing jointly can have up to $98,900 in total taxable income and pay nothing in federal tax on long-term capital gains ($49,450 for single filers).

Even with deductions in mind, that room likely fills up with dividends, bond interest, or pension income before realizing a gain. New York also doesn’t adhere to the federal rates, so you could still owe up to 10.9% on a capital gain here, and more within New York City itself.

Managing income in a low year can still shrink a capital gains bill, though, even if that full 0% rate is rare for high-earners with layered income.

2. Investments Within Your Account Get Different Tax Treatments

Selling appreciated investments can result in capital gains, company payouts generate dividends, and cash and bonds create interest income. Each is taxed differently.

Because corporate bonds pay interest annually (taxed as ordinary income whether you sell or not), it made the most sense for Greg and Susan to sell down bonds rather than stock. It prevented them from having to cash in deferred growth or add a larger gain to a year when they were trying to stay under a specific income threshold.

A taxable account is often a bridge; once it’s drawn down, other levers may come back into play: Roth contributions, the Rule of 55, and 72(t) distributions.

Roth Contributions: Your Second Lever

Roth IRA contributions (the money you put in, not what the IRA has earned) can be withdrawn at any time without tax or penalty. If you’ve been contributing to a Roth for years, that basis alone can become a meaningful bridge. If you did a Roth conversion earlier, you can withdraw the amount converted over 5 years ago. But you cannot withdraw the gains penalty-free if you are under age 59.5.

This only works, though, if the basis is already there when you need it. This is part of why I bring up Roth contributions (and conversions where they make sense) well before a client’s target retirement date. The flexibility you have at 57 depends on the decisions you made years ago.

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Situational Tools: Rule of 55 and 72(t)

The Rule of 55 allows you to pull penalty-free from your current employer’s 401(k) if you leave that job in or after the calendar year you turn 55. It applies only to the plan tied to the job you just left, not every retirement account you have. It also does not matter whether you were laid off, fired, quit, or retired.

A 72(t) distribution, sometimes called a SEPP or SoSEPP (Series of Substantially Equal Periodic Payments), lets you take penalty-free withdrawals from an IRA before 59 ½.

You calculate a fixed annual withdrawal amount using an IRS-approved formula (similar to how RMDs are calculated), and you’re required to follow the prescribed distribution schedule. The catch is commitment. Once you start, you generally can’t stop or change the amount for at least five years or until you turn 59 ½, whichever is longer.

You can also elect 72(t) distributions on employer plans after leaving your job, regardless of timing or reason.

_{*A 403(b) plan may also qualify for the Rule of 55. The Summary Plan Description for your workplace retirement plan can verify whether or not you can use this exception.}

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When the Textbook Answer Isn’t the Right One

These comparisons make it look like a clean decision: compare the accounts, pick the option with the best terms, and call it a day. Real decisions, however, come with more nuance. Your situation isn’t Greg and Susan’s, or anyone else’s.

No single “best” choice exists for tapping funds in early retirement.

As for Greg and Susan, we’ll revisit Roth conversions once their health insurance situation changes or subsidy rules change. Their lack of debt, paid-off home, and generally modest lifestyle gave us room to be patient rather than forcing any one strategy.

For anyone else, a different set of factors could have changed our approach to early retirement.

Your Decision Checklist

Before choosing a strategy based on these comparisons, examine your circumstances honestly:

       ➥ Where is your health insurance coming from before Medicare, and does your income affect             the cost?

       ➥ What portion of your wealth is in taxable accounts versus tax-advantaged retirement accounts?

       ➥ Do you have debts that need to be eliminated before you stop earning a paycheck?

       ➥ Do you truly need to touch a retirement account in year one, or can a taxable bridge buy you             time to decide?

The math might say to pick the option that preserves the most money over your lifetime, but you still have to live with your choice and its trade-offs.

_{Content in this material is for general information only and is not intended to provide specific advice or recommendations for any individual.}

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