Podcast Summary: ChooseFI Ep. 565

Tax Planning To and Through Early Retirement | Cody Garrett & Sean Mullaney

Release Date: September 22, 2025
Host: Brad (ChooseFI)
Guests: Cody Garrett & Sean Mullaney
Topic: How the FI community can optimize tax planning strategies before and throughout early retirement, focused on actionable steps and dispelling fears with math and lived experience.

Episode Overview

This episode celebrates the release of "Tax Planning To and Through Early Retirement" by Cody Garrett & Sean Mullaney—a guide designed to empower those on the path to Financial Independence (FI) with clear, actionable strategies to minimize taxes in early and traditional retirement. The conversation centers on debunking retirement tax fears, using real-world math, and understanding the unique benefits (and timing) available to FI seekers. The episode is practical, demystifying, and rich with examples and framework.

Key Discussion Points & Insights

1. Why the Book Exists & Filling a Void

[02:49-06:03]

• Many in the FI community face confusion and fear around “drawdown”—the process of taking money out in retirement.
• The existing content focuses more on accumulation, while drawdown is less discussed due to complexity.
• Cody & Sean aim to move beyond rules of thumb and subjective opinion, offering rational, example-rich tax planning—even featuring 120+ step-by-step calculations.
• Cody: “We decided to eliminate fear from this book and say taxes in retirement are not something to fear emotionally, but they're something to understand and plan for rationally.” [05:50]

2. Dispelling Tax Fears: How Favorable Is the Tax Code for Retirees?

[07:22-09:07]

• The tax code offers significant advantages for early retirees: low effective tax rates, standard deductions, 0% long-term capital gains brackets, lack of payroll (FICA) taxes, and basis recovery in taxable accounts.
• Sean: “The dirty little secret is it's so much better to be living off taxable assets than it is to live off W2 income... we get to early retirement, there's no more FICA tax.” [10:16]

3. How the Tax System Really Works: Understanding Marginal vs. Effective Rates

[12:39-17:53]

• In retirement, income starts at $0, so retirees first use the standard deduction (now $31,500 for married couples in 2025)—income up to that amount is tax-free.
• Most retirement withdrawals will be taxed at low marginal brackets, making high effective tax rates in retirement nearly impossible for many.
• Sean (re: traditional 401k): “Even for someone like [Patrick Mahomes], it might make sense to take a tax deduction in his working years because... some of the distributions in retirement will get taxed below 37%.” [15:23]

4. Replacing Expenses, Not Income: A Fundamental Mindset Shift

[25:44-27:55]

• Many miscalculate their retirement “number” by assuming they must replace their entire working income, instead of just their spending—a crucial difference that drastically lowers the needed portfolio.
• Brad: “It's not relevant what your income was. It's what does my life cost? That's what I need to replace in early retirement.” [25:44]

5. Roth vs. Traditional Accounts: Control What You Can Control

[27:55-35:08]

• The book challenges “Roth at all costs” thinking, arguing most should defer taxation (traditional 401k/IRA) in high-earning years and consider Roth conversions later, when income (and thus bracket) is lower.
• Sean: “What we have just demonstrated... is workers tend to pay a lot of tax. Retirees tend to pay relatively modest taxes on average. So, when do you want to pay your tax?... Pay tax when you pay less tax.” [27:55]

6. The Five Phases of Retirement: Opportunities & Tactics Change Over Time

[40:14-58:24]

• Tax planning isn’t static; the book details distinct “phases”:
  • Phase 1: Early retirement/pre-Medicare (before age 65): maximize ACA premium tax credits, harvest taxable gains, minimize withdrawals from tax-deferred accounts.
  • Phase 2: “Golden Years” (66-69): significant Roth conversion opportunities, extra deductions for those 65+.
  • Later phases deal with Social Security, Required Minimum Distributions (RMDs), widowhood, etc.
• Stat: “...about 70% of retirees retire before age 65, which kind of mind blowing.” [40:41]

Key Tactic:

• In early retirement, focus on (1) using up taxable accounts for spending, (2) keeping ordinary income low to maximize Affordable Care Act (ACA) premium tax credits, (3) using tailored Roth conversions in the “golden years” to shift assets tax-free.

7. ACA Premium Tax Credits: Walking the Income Tightrope

[43:19-52:50]

• To maximize ACA subsidies pre-Medicare, keep income between 138%-400% of the Federal Poverty Level—not too low (avoid Medicaid), not too high (avoid loss of subsidies).
• Use Roth conversions to generate the minimum income required for subsidies, but don’t jeopardize the credit with aggressive conversions or capital gain harvesting.
• Sean: “It could be a disaster to show very low income. Well, what's the easiest way to show at least this modicum of income? Generally Speaking... do a Roth conversion.” [43:19]
• Upcoming (2026): ALL Bronze ACA health plans will be HSA-eligible. HSA contributions don't require earned income and lower your MAGI further.

8. “Return On Hassle” and the Wisdom of Not Over-Optimizing

[57:34-58:24]

• The book counsels against chasing every single optimization if it doesn’t yield significant benefit versus the hassle.
• Cody: “Most times optimization is really a form of procrastination, which is really pushing an avoided fear into the future... you don't have to do every form of optimization to make it to and through early retirement successfully.” [57:34]

9. Reassessing Required Minimum Distributions (RMDs): Not a Boogeyman

[59:11-64:04]

• RMDs (starting now at age 75 for most) have become less threatening thanks to lowered tax rates, increased standard deduction, delayed start ages, and more favorable withdrawal tables.
• RMDs are just regular taxable income—typically not “tax bombs.”
• Sean: “In the eight years since Brad and Jonathan started Choose a FI, tax rates on RMDs have gone down... the world on RMDs has radically changed...” [59:58]
• Qualified Charitable Distributions (QCDs) allow those with charitable intent to offset RMDs even earlier (age 70½).

Notable Quotes & Memorable Moments

• Cody Garrett:
  “Taxes in retirement are not something to fear emotionally, but they're something to understand and plan for rationally.” [05:50]

• Sean Mullaney:
  “The tax rules really love retirees. They love early retirees. There's so many structural things... The odds are retirees are going to still show lower income than they had in their working careers.” [18:37]

• Brad:
  “It's not relevant what your income was. It's what does my life cost? That's what I need to replace in early retirement.” [25:44]

• Sean:
  “Pay tax when you pay less tax.” [27:55]

• Cody:
  “We found some crazy stat out there that said about 70% of retirees retire before age 65, which kind of mind blowing.” [40:41]

• Cody (on hassle):
  “Most times optimization is really a form of procrastination, which is really pushing an avoided fear into the future.” [57:34]

Timestamps for Important Segments

| Time | Segment Description | |------------|-------------------------------------------------------------------------------------------------| | 02:49 | Why the book was written – filling the drawdown content gap | | 09:07 | Dispelling misconceptions: extremely low effective tax rates in retirement | | 12:39 | How the progressive tax system benefits retirees—marginal vs. effective rates | | 22:26 | Example: Living on $200k in early retirement, paying $0 in taxes (basis recovery) | | 27:55 | “Pay tax when you pay less tax”: Roth vs. traditional logic | | 35:50 | “Golden years” Roth conversions and maximizing standard deductions for retirees | | 40:41 | The five phases of retirement explained; phase 1: Early/Pre-Medicare optimization | | 43:19 | How Roth conversions interplay with ACA premium tax credit qualification | | 51:17 | Deeper ACA planning – capital gains, Roth conversions, and credit cliffs | | 57:34 | "Return on Hassle": When optimization isn’t worth it | | 59:11 | RMDs reassessed: Why they're now more nuisance than threat |

Episode Takeaways

• Retirement Tax Planning Is Manageable, Not Scary:
  The U.S. tax system is stacked in favor of the FI retiree, with many ways to keep effective tax rates low or even zero via intentional drawdown strategies.
• Control Income, Control Taxes:
  Use the standard deduction, long-term capital gains, and account sequencing to your advantage.
• Optimize for Health Care Subsidies Pre-Medicare:
  The ACA premium tax credit is a major benefit, but requires careful income management.
• There’s a Season for Every Tactic:
  Strategic Roth conversions are best reserved for low-income years (“golden years”). You don't need to optimize everything every year.
• Don’t Fear RMDs or Over-Optimize:
  Most will find RMDs are a manageable nuisance, not a financial catastrophe.

Where to Find the Book

Available September 23, 2025

• Amazon (Kindle and Paperback)
• Barnes & Noble