Getting To Age 59 1/2 for High-Net-Worth Retirees: Why Brokerage Accounts Typically Win and Roth IRAs Often Deferred
Episode 28
Getting To Age 59 1/2 for High-Net-Worth Retirees: Why Brokerage Accounts Typically Win and Roth IRAs Often Deferred
Published on March 25th, 2026
EPISODE SUMMARY
Episode 28 of Retirement Tax Matters evaluates the different types of investment accounts high-net-worth retirees can use to bridge the income gap when retiring in their 50s and navigating the path to age 59 1/2 without triggering the 10% early withdrawal penalty. While the previous episode analyzed technical workarounds like Utilizing SEPP (72t) and The Rule of 55, this week Garrett and Adam address the access and wisdom of using Roth IRAs and taxable brokerage accounts to fund an early lifestyle. The conversation clarifies the order of operations for Roth IRA withdrawals, highlighting that while original contributions can be accessed penalty-free at any time, earnings remain restricted until retirement. Garrett explains why the taxable brokerage account is often the favored vehicle for early retirees due to its ultimate liquidity and the ability to realize income at preferred long-term capital gains rates. For those in the $2M–$8M range, prioritizing these taxable assets first protects the high-value growth of pre-tax IRAs and the permanent tax-free status of Roth IRAs for future legacy goals. The episode underscores that making these tactical funding decisions requires annual intra-year tax projections to monitor for Medicare & IRMAA thresholds. By adopting a tax-return-driven planning mindset, early retirees can maintain financial flexibility while ensuring their most efficient growth engines remain fully intact for the long term.
THE EARLY RETIREMENT SERIES:
Episode 27: Getting To Age 59 1/2 Utilizing SEPP (72t) and The Rule of 55
Key Tax Planning Questions
Question 1: Can I withdraw Roth IRA contributions before age 59 1/2 without penalty?
When I work with younger clients who are just starting their careers, we often discuss how difficult it is to know where to allocate savings when so many milestones, like marriage or a new mortgage, are happening at once. One of the highlights of that conversation is an often missed feature of the Roth IRA. In 2026, individuals can contribute up to $7,500 into their Roth accounts.
While I encourage them to view their Roth IRA deposits as retirement funds, I also let them in on a detail that provides significant peace of mind: Unlike a traditional IRA or a 401(k), the Roth IRA allows you to access your original contributions at any time for any reason. If you find yourself in a financial pinch, you can withdraw that $7,500 contribution without incurring taxes or the 10% early withdrawal penalty . However, the earnings generated by those contributions are treated differently. If your $7,500 contribution grew by $750 and you withdrew that gain before age 59 1/2, you would generally owe ordinary income taxes and a 10% penalty on that $750 earnings portion.
For a high-net-worth retiree, this same flexibility applies to your early retirement bridge. If you have been making contributions for decades, you have a sizable bucket of Roth IRA contributions (basis) that can be accessed penalty-free before you reach age 59 1/2. While this is technically possible, it is rarely the ideal way to fund your lifestyle. The Roth IRA is arguably your most valuable investment asset because of its permanent tax-free status. For many retirees in the $2M–$8M range, the goal is often to preserve these funds to maximize long-term tax-free growth and simplicity for beneficiaries. Allowing those funds to compound for another few decades is usually worth more than the short-term liquidity they provide.
Question 2: When to use Roth IRA money before age 59 1/2?
I generally advise against tapping Roth IRA funds early because they are often your most efficient long-term assets. However, tax-return driven financial planning is not about adhering to rigid rules of thumb. It’s about making annual tactical decisions based on your specific annual income projection. There are unique scenarios where accessing your Roth contributions can be a sensible component of an early retirement strategy.
One scenario involves managing health insurance costs for those retiring in their 50s. If you are utilizing health insurance plan in early retirment through the ACA marketplace, your monthly premiums and eligibility for subsidies are often tied to your Modified Adjusted Gross Income. In 2026, having income over certain income thresholds can lead to a significant increase in your healthcare costs. If you require additional cash for a family need or a one-time gift making a certain withdrawal need mandatory, withdrawing tax-free Roth contributions allows you to meet that need without increasing your reported income, thereby protecting your health insurance subsidies.
Another situation occurs when planning for a large lifestyle purchase like an RV for early retirement travel. If funding that purchase from a traditional IRA would push your household income from the 24% tax bracket into the 32% bracket, the tax cost could be noticeable . In this case, you must evaluate if the benefit of staying in a lower bracket outweighs the cost of permanently reducing the future tax-free growth potential of your Roth IRA. These types of nuanced decisions are exactly why performing a detailed tax projection in the fall is necessary when leverage a high-net-worth retiree’s different account types.
Question 3: My spouse and I are planning to retire at 56 and we have about $3M in pre-tax 401(k) along with $2M in a joint brokerage account and $750k in a Roth IRA. We really want to save that Roth money for our kids and we want to avoid the fixed payments of a SEPP 72t plan for our pre-tax money, so does it make the most sense for us to fund all of our expenses from our brokerage account for the next few years until we reach age 59 1/2?
At first glance, this plan appears strong given the significant liquidity this couple has built in their non-retirement brokerage account. With $2M dollars available, they likely have more than enough to bridge the gap from age 56 to 59 1/2 before they gain penalty-free access to their pre-tax 401(k) funds. However, from a tax-return-driven perspective, relying exclusively on those funds might represent a significant missed opportunity in minimizing their total aggregate lifetime tax bill.
A deeper look typically starts with a thorough review of their prior year tax return to understand their income sources, charitable habits, and other business interests. For a couple in this position, the main risk of using only brokerage funds is the potential waste of their lower ordinary income tax brackets during these bridge years. If their brokerage assets consist of highly appreciated securities, those withdrawals often qualify for long-term capital gains rates, which are separate from ordinary income. If they let three or four years pass with minimal ordinary income, they are essentially ignoring the lower 12%-24% ordinary tax brackets that will likely be filled with much large RMDs from their sizable IRA account balances once they reach their mid-70s.
Instead of a simple brokerage withdrawal strategy only, this couple should evaluate a more integrated approach using these tactical levers:
Verify if the 401(k) allows for partial distributions under the Rule of 55, which provides penalty-free access to pre-tax wealth without the rigid commitment of a five-year SEPP contract. This couple mentions 72t distributions, but that’s for IRAs not 401(k)s.
Consider a partial rollover of the 401(k) into a traditional IRA while leaving enough in the original plan to fund their immediate income needs, allowing them to initiate strategic Roth conversions with the rolled-over funds.
Coordinate spending between brokerage withdrawals and 401(k) distributions to fill their current tax bracket now, rather than waiting for the large RMDs to dictate their income later.
It probably does make sense to let their Roth IRA funds grow untouched, unless they find themselves very close to a health insurance subsidy cliff, or higher tax bracket that could be avoided on a necessary expense.
By performing an annual tax projection each fall, this couple can ensure they are prudently withdrawing funds from their retirement accounts. For retirees with portfolios between $2,000,000 and $8,000,000, this proactive integration is the key to sustaining and protecting the wealth they have worked hard to build.
Full Episode Transcript
Adam: Good morning and welcome to Retirement Tax Matters. I'm Adam Reed. This is Garrett Crawford, our resident CFP® professional. How are we doing this morning, Garrett?
Garrett: March Madness, baby. March Madness. Yeah, I was just thinking about that when I rolled in at lunch today. All the games start, all the financial planning March Madness, it all mixes together today.
Adam: Yeah, it honestly kind of works out well for us with tax return-driven financial planning, really. The rubber meets the road April 15th.
Garrett: Yeah. A lot of our clients start sending their tax returns over and we start reviewing. Maybe not all of our client-facing work, but a lot of our behind-the-scenes work starts here in a couple of weeks. And so it's kind of nice we get this, and then the Masters comes along in the middle of April.
Adam: Wow.
Garrett: And so we get to kind of have that peacefully going on in the background as we're combing through tax returns. That lull between NFL football ending and college football ending starts to pick back up for the sports aficionados. But March Madness, I think probably the first two rounds, or at least the first round today and tomorrow, are the best days in sports all year.
Adam: Oh yeah. Good to see some exciting stuff. So, picking up from last week's episode: last week we kicked off part one of this series on early retirement and how that affects you. Last week we looked at some different accounts, how you can access them, and some niche underground rules that maybe not a lot of people are aware of. And so I wanted to pick up part two this week and talk specifically about Roth and brokerage accounts. I think to kick off this week, we had a commenter, I think it was Chase, that said, you actually can access your Roth before 59 and a half. And we agree with that. That's a possibility that's on the table. But maybe give us some thoughts or guidance as to why you might steer somebody away from that. If they're trying to bridge this gap, they're retiring at 55 and they're trying to find, how am I going to live off the money that I've saved? I've got plenty, sure, but I don't want to be paying more than I need to be. What are some thoughts you have on the Roth conversation as those people are trying to bridge that gap?
Garrett: Yeah, and I would probably set a precursor to this conversation. Last week's was a heavy lift. Just prepping for that one, it's not something that I come across too often. And so just wanting to be able to speak intelligibly on it and making sure—even as financial planners, we have our biases, right? If it's something you don't use a lot, you can kind of think it's not a great tool. But last week's episode was about how we use our pre-tax money, 401(k)s, and traditional IRAs. If we're going to retire before 60, a lot of you worked in the age where you had to contribute to a pre-tax account. Getting that money before age 60—go back and listen to the episode before this, but it was on Substantially Equal Periodic Payments, which is how you get money out of an IRA before age 60 without the 10% penalty, and then also the Rule of 55, which is how you could get to your 401(k) money. It was a very technical episode, and I bring that up because I feel like today's episode is the heart of early retirement. You've got—and I know we're going to talk about brokerage accounts here in a second—but you also have a Roth IRA account. And the good news is, according to Chase who