Motley Fool Money - Tax-Smart Retirement Planning and the Long-Term Return of Gold

Episode Date: January 24, 2026

Before you start socking away money for retirement, you'll need to pick an account type. But choose wisely— because it'll shape your tax bill today and potentially decades from now. Robert Brokamp discusses how to choose the right account with financial planner and CPA Sean Mullaney, who writes the FITaxGuy blog and is the co-author, along with Cody Garrett, of “Tax Planning To and Through Early Retirement.” Also in this episode:-The stock market is broadening, with small caps, value stocks, and international stocks outperforming U.S. large-cap stocks since November-Last week was the anniversary of gold hitting a then-record $850 in 1980, which was followed by a slump that lasted more than two decades-A new study estimates how much of the cost of tariffs has been absorbed by consumers, importers, and retailers-Now is the time to protect the money you’ll need in the next three to five years Host: Robert BrokampGuest: Sean MullaneyEngineer: Bart Shannon Disclosure: Advertisements are sponsored content and provided for informational purposes only. The Motley Fool and its affiliates (collectively, “TMF”) do not endorse, recommend, or verify the accuracy or completeness of the statements made within advertisements. TMF is not involved in the offer, sale, or solicitation of any securities advertised herein and makes no representations regarding the suitability, or risks associated with any investment opportunity presented. Investors should conduct their own due diligence and consult with legal, tax, and financial advisors before making any investment decisions. TMF assumes no responsibility for any losses or damages arising from this advertisement. We’re committed to transparency: All personal opinions in advertisements from Fools are their own. The product advertised in this episode was loaned to TMF and was returned after a test period or the product advertised in this episode was purchased by TMF. Advertiser has paid for the sponsorship of this episode. Learn more about your ad choices. Visit ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠megaphone.fm/adchoices Learn more about your ad choices. Visit megaphone.fm/adchoices

Choosing the right retirement account and the long-term return of gold. That and more on this Saturday personal finance edition of Motley Full Money. I'm Robert Brokamp, and this week I speak with Financial Planner and CPA Sean Mullaney about why some investors should favor pre-taxed traditional retirement accounts despite all the benefits of Roth accounts. But first, hear a few items from the news last week. First up, we turn to the latest weekly asset allocation review from Uri and Timmer. director of Global Macro and Fidelity Investments, who writes that, quote,

at least for now, the U.S. stock market is rebalancing in one of the best ways possible. The bag of cap seemed to be taking a rest while the rest of the market breaks out. With the Bag 7 now stuck in a range since November, the broader market has gone from narrow to broad, from 32% of stocks trading above their 50-day moving average to now 73%. End of quote. Indeed, since Halloween, the S&P 500 has returned 0.5%. and the NASDAQ 100 has lost 2%. Meanwhile, small caps, value stocks, and international stocks are up 10%, 7% and 5% respectively,

as of this taping on the morning of January 22nd. Fidelity's timbre has labeled this, quote, a bullish broadening. But those returns are nothing compared to what we've seen from gold, which brings us to our second news item of the week. The Spider Goldshare's ETF, ticker GLD, was up 64% last year and is up 12% so far this year. This past week was the anniversary of gold hitting a then-record price of $850 in 1980, which was then followed by a slump that lasted more than two decades. If you had bought at the 1980 peak and held to today's price of $4,800,

your average annualized return would be less than 4%. Meanwhile, if you invested $850 in the S&B 500 back in 1980 and held to today, you would have earned a total average annualized return of 12% and your investment would have been worth more than $161,000, according to the S&P 500 calculator on the of dollars and data blog. And now the number of the week, which is 96%. That's how much of the cost of tariffs that has been absorbed by consumers and importers, according to a recent study from the Kiel Institute for the World Economy, and highlighted in a Wall Street Journal article from this past week,

foreign exporters absorbed only about 4%. by lowering their prices. That said, U.S. inflation has remained moderate so far, with Harvard research indicating that only about 20% of the tariffs have fed into higher consumer prices within six months of implementation, as U.S. importers and retailers have absorbed much of the costs. We shall see if that continues in 2026. Next up, choosing the right retirement account when Motleyful money continues. In a world full of noise, long-term thinking stands out. On the Capital Ideas podcast, Capital Group leaders explore the decisions that matter most in investing, leadership, and life. It's a rare look inside a firm that's been helping people pursue their financial

goals for more than 90 years. Listen to the Capital Ideas podcast from Capital Group, published by Capital Client Group, Inc. Before you start stocking away money for retirement, you'll need to pick an account type, but choose wisely because it'll shape your tax bill today and potentially decades from now. Here to discuss how to choose the right account is financial planner and CPA Sean Malaney, who writes the F-I-Tax Guy blog and is the co-author, along with Cody Garrett, of the book Tax Planning to and Through Early Retirement. Sean, welcome to Motley Full Money. Robert, thanks so much for having me.

So the title of your book highlights early retirement. So in your mind, what makes someone an early retiree and what, if anything, should they be doing differently? To my mind, an early retiree is simply anyone who retires prior to being eligible to enroll in Medicare. That is generally speaking, the first of the month you turn age 65. And indications are a majority of Americans do early retire. And there's plenty of reasons for that. Sometimes it's choice.

Sometimes it's we've got enough money saved up. So why are we still working? And sometimes it's a layoff. or my job got obsoleted or whatever it might be. Early retirement tends to have advantages when it comes to tax planning. I say that because early retirement offers an opportunity to spread out income over a longer window of time. And in today's tax planning environment, the tax rules are telling you, they're yelling at

you spread out income, spread out income, spread out income. So what I mean by that is we live in an era of a very high standard deduction. We live in an era of the 10% tax bracket and the 12% tax bracket. A married couple, especially in their 60s or 70s, could have well, well over $100,000 of income subject to only a 0% tax bracket, which is essentially what the standard deduction is, the 10% bracket and the 12% bracket. So that's sort of yelling and screaming, please spread out income over time. and that's part of the reason the early retiree has a tax advantage. He or she's going to have to live off their income over a longer window of time, which generally speaking helps from a tax planning perspective.

These days we read a lot about the benefits of Roth accounts, which result in higher taxes today, but qualified withdrawals are tax-free in retirement. However, in your book, you make the case that many workers really should first turn to that pre-tax traditional work-based retirement account. Why is that? Well, for the simple reason that we ought to pay tax when we pay less tax. And it turns out that for the vast, vast, vast majority of Americans, I would contend even for

the vast majority of affluent Americans, it turns out you pay more tax when you're working and you're getting up in the morning to generate taxable income than when you're retired. And so let's think about that for a second. You've got that Roth 401K or traditional deductible 401K at work. you get to deduct into that thing at your highest marginal rate. Maybe it's 22%, maybe it's 24%, maybe it's 32%. So that's an immediate tax benefit of 22 cents on the dollar, 24 cents on the dollar, 32 cents on the dollar.

Okay, well, what's that going to look like when it comes back into income later on in your retirement? Well, you have that run back up the progressive tax brackets. Now, particularly for the early retiree, the 60s could be a great time to maybe get some of that money and either Roth convert it in your 60s or just live off of it in your 60s and some of it will be sheltered by the standard deduction. I refer to that as the hidden Roth IRA. We took money from a retirement account and we didn't pay federal income tax. Isn't that a Roth IRA? Well, not in this case. That's what I refer to as a hidden Roth IRA. It's a Roth IRA that lurks that hides inside your 401K. And I think a lot of Americans have to think long and hard before sacrificing the

upfront tax deduction. Now, I will say it's usually beneficial to invest that tax savings in a Roth IRA or a taxable brokerage. But boy, that is a upfront benefit. And it turns out that the progressive nature of taxation going back up through the brackets means that it's very likely that on the way out, the marginal rate on that is going to be less than the rate that you enjoyed on the way into the traditional 401k. Now, Robert, I will say one thing, though, I'm not anti-Roth. particularly for those in the audience that have access to either the so-called backdoor Roth IRA or the mega backdoor Roth IRA. So these are transactions that allow higher income earners to get money into a Roth account. I tend to really like those once we've maxed out our traditional 401K say at work.

For many workers, why do I say that? Tradeoffs. traditional 401k that 24,500 in the year 2026. Well, the trade-off there is I either deduct at my highest marginal rate today or I put it into the Roth 401K. The problem with that trade-off is I'm giving up a tax deduction at my highest marginal rate today. But the backdoor, whether it's the so-called backdoor Roth IRA

or the mega-backdoor Roth IRA, if you have that through your 401K or other plan at work, the trade-off profile is so much better. because there's no sacrifice tax deduction. The money that goes into these backdoor Roths is money that would have otherwise gone into a taxable brokerage account. Now, that's not a terrible outcome to invest in a taxable brokerage account, particularly in a low-yield world with qualified dividend income rates, but there's still tax on the dividends, interest, future capital gains on that.

Versus if we can take advantage of one or both of these backdoor techniques, Well, guess what? We've moved money that would have gone into a taxable brokerage account, would have spit out a 1099 DIV every year, and instead it's parked inside a Roth account, growing tax-free for the rest of our lives, potentially the rest of our spouse's lives, potentially 10 more years, assuming it goes to our adult child beneficiaries. So I'm certainly not anti-Roth, but I think you have to step back when you're in your accumulation years and think about the trade-off. And are you really going to pay high taxes on most of that money in retirement if it's in a traditional retirement account? You have some great illustrations in the book of how folks who are retired, particularly over age 65, because they get the higher standard deduction, they got the new senior deduction from the one big, beautiful bill, how you could have a surprisingly high amount of income and pay a surprisingly low tax rate. Like, you have particular illustrations of couples who are making, say, $250,000, right? And that puts them in while they're working, say, the 24% tax bracket. You contribute to that pre-tax account.

You're getting that deduction on 24%. But then in retirement, their effective tax rate is like 12 to 15%. So, of course, in that situation, it makes total sense to take the deduction sooner and then pay taxes at that lower rate in retirement. That's exactly right, Robert. And we live in sort of a golden age right now where you have the high standard deduction plus the senior deduction. Now, that is temporary, to be fair, although I think the politics are likely to play out that some form of that thing is likely, but certainly not guaranteed to be extended in the future. But you see, you know, we have examples of what we call tactical taxable Roth conversions, where we have a married couple in their mid to late 60s. They have $101,000 of income before any Roth conversion, and that's mostly capital gains income.

It's spending them a taxable account first. And then we add a $40,700 Roth conversion. And I've done this at a conference, you know, so I say, oh, no, this couple's got 141,700 of adjusted gross income. They're going to be taxed, right? And, you know, I ask the audience, just mentally in your mind picture what's their tax rate going to be. How much federal income tax are they going to pay? And of course, the surprise is they pay zero federal income tax. Well, how can that be?

Well, the Roth conversion is essentially wiped out by the standard deduction and the senior deduction. You structure your affairs so that you have low yield equities in the taxable account, maybe a small bank account generating some interest income, but essentially the ordinary income, the Roth conversion, the non-qualified dividends, the interest income, can be kept at the senior deduction plus the standard deduction. So that wipes away the tax on that. And then you can have significant capital gains that you're essentially in your brokerage account. You sell those brokerage account mutual funds or ETFs and trigger capital gains.

But recall we have the 0% long term capital gains tax bracket. I believe for a married couple in the year, 26, that thing goes up to 98,900 of taxable income. So that's after we put in the senior deduction. If we're 65 or older, we're married, that's $12,000. if we're both 65 or older this year, that's fantastic, plus the high standard deduction. So that goes back to my point that retirement is a time that if we structure our drawdown and our Roth conversion strategy, in the first part of our retirement, we might be paying very low taxes. And then, yes, maybe later on in retirement as we spend down those brokerage accounts,

we then get into our traditional IRA, we eventually get to RMDs, although by the way, if you're born in 1960 or later, that RMD doesn't start until 8, 7,000. later in life anyway. So yeah, Robert, there are so many good little planning opportunities out there. And I think we have to step back and say fear of taxation and retirement is not justified in today's environment based on the rules, based on the incentives of the politicians, based on what the recent history. In the book, we have a little table. And it goes through a decade's worth of tax cut after tax cut after tax cut after tax cut for retirees, even though many commentators, are saying, you know, they're going to be increasing taxes on retirees. The problem with those

predictions is the future keeps happening and those tax increases don't materialize. And what has materialized are tax cuts after tax cuts for retirees. Now, I'm not here to say that that's going to continue, meaning I do think there's some risk that may to be small, incremental, minor tax increases. And I'm certainly not going to bet on continued tax cuts on retirees. But I think the history, the politicians' motivations, today's rates sort of come out with this message of taxation in the future for retirees is likely to be relatively modest. That's certainly not guaranteed. And look, I'm not here to say you shouldn't think about some tactics like some smaller Roth conversions, maybe doing the backdoor Roth while you're working. There are different things you can do to help

mitigate that risk. But I just don't think that fear of taxation and retirement is that justified in today's environment and looking into the future. You highlight a couple of things that people often will bring up as a reason to have more Roth assets. One is RMD's requirement of distributions. The other is Irma, income-related monthly adjustment amount for Medicare. But as you point out at the book, when you actually calculate those amounts as a percentage of the overall portfolio and the withdrawal, they're probably more of a nuisance than anything

else. Yes. So Irma, let's talk about that one. that is an increase in Medicare, Part B, and Part D premiums, and it's based on your income from the two years previous. Now, when you run the numbers, two things sort of emerge. One is Irma tends to be a tax on affluent singles and widows. So if you look at when Irma kicks in, it's over $200,000 of income for a married couple. Even very affluent married couples, when they're no longer working, often have a difficult

time reporting 200,000 or more of income on a tax return in retirement. That's partly because of basis recovery with capital gains transactions. By the way, in retirement, our spending tends to form a natural ceiling on our taxable income in a way it did not during our accumulation years. That's an important insight. So when we're married, Irma tends to barely bite. Now, I will say Irma starts biting when we become single. Either we're single going into retirement or become a widow. And that's when Irma can bite. But like you were saying, Robert, it tends to be more of a nuisance. It tends to be a tax on affluent single retirees. Just the way it functions. That's just how it breaks down. But even then, Irma tends to be an indication that things generally speaking worked out well in

your financial life and perhaps you had some tax inefficiencies in the later part of your life when they don't impact you as much. This is one of the lessons of the book is that when we think about taxes, we should think about when are they the most impactful. I would argue that the most impactful when you're 40 years old, you got two kids at home, you got a spouse at home, and you haven't built up sufficient assets to be financially independent or whatever you want to call it. Boy, paying taxes then isn't that great because you've got two mouths to feed, you have a spouse, you haven't built up all this financial wealth. And even early retirement, the beginning of retirement, isn't the greatest time to pay taxes either because, look, you might.

have 30 or 40 years of retirement you have to fund paying some money to Uncle Sam at that point isn't that great because now, you know, that's money that could have been invested for your financial future. You know, to the extent people worry about sequence or returns risks, not something I worry a whole lot about, but it's not a nothing concern. Paying taxes up front in the early part of retirement is not a great thing to do. So if we're going to have, say, Irma in the later years of our retirement, because we did traditional retirement accounts a little too much, say, well, you've essentially picked a really good time to pay tax because at that point, it can't be as impactful to your financial future. At that point, these inefficiencies,

sometimes I refer to these inefficiencies as garbage time touchdowns, right? You use these traditional retirement accounts. You won against the IRS when you were working. You then spent down taxable brokerage accounts early in the first part of retirement. You won against the IRS. and then maybe later in life, you have these inefficiencies that come after decades of defeating the IRS. Maybe what you've done is you picked a pretty good time to pay taxes because at that point, one of two things is true. If you're paying Irma, you're financially affluent. You're well above most Americans in terms of financial success. So you're paying the surcharge or maybe a little incremental tax on the income tax side at a time where you're already,

wealthier than most of your cohorts in that age group and overall Americans. So you've done really well and you have a few tax inefficiencies. That's an outcome most Americans would gladly sign up for. And these inefficiencies come after decades of defeating the IRS. I am a lifelong, almost lifelong New York Jets fan and I've seen plenty of garbage time touchdowns. There's scores by the other side that ultimately are not determinative of the ultimate outcome. And that's what we're looking for is financial success. As much as we're trying to reduce taxes, that's an important priority, but the ultimate priority is financial success. And I've seen my Jets score too many touchdowns to not be pretty knowledgeable about this subject. And so I think what happens is if you use

these traditional retirement accounts to build up retirement savings, maybe build up some taxable brokerage accounts, you know, maybe build up backdoor Roth IRAs because you deducted, you saved money, you invested it during your working years, all right, maybe at the end of the game, you know, we have some RMDs that go out at the 32% when we're already affluent and we don't have the energy to be spending that money anyway, or maybe we're in long-term care, a whole other conversation. A lot of times a lot of these long-term care expenses can be subject to, it could be medical deductions and we can essentially deduct away most of our taxable income. So it's actually an efficient use for a traditional IRA, not a desired use, but an efficient use. So yeah, that's sort of my approach when I think about this. Not that Roth conversions can't play a good role, can't be beneficial, but rarely are the Roth conversions needed.

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everyone to do every January, and that is to think about what you'll need from your portfolio in the next three to five years and protect that money by moving it to cash or bonds. On average, the stock market drops 20% or more every four years, and in the first decade of the century, it dropped more than 50% twice. Since 1928, the stock market has been profitable over 83% of three-year holding periods, 88% of five-year holding periods, and 94% of 10-year periods. So we think protecting money you need the next three to five years is a reasonable goal, but you should always adjust for your own risk tolerance and circumstances. So if you plan to make a big purchase soon, or maybe send a high school or to college, or create or restuff your retirement income cushion, now is a good time to move that money

from stocks to higher yielding cash, CDs, treasury bills, or short-term bonds. To find higher yielding banking options, visit the other Motleyful money, not the podcast, but the Motleyful website that rates and reviews, credit cards, mortgages, brokers, and banks. And that, my friends, is the show. Thanks for listening, and thanks, as always, to Bart Shannon, who is a magician and the engineer for this episode. As always, people on the program may have interests in the stocks they talk about, and the Motley Fool may have formal recommendations for or against.

So don't buy or sell stocks based solely on what you hear. All personal finance content follows Motleyful editorial standards and is not approved by advertisers. Advertisements are sponsored content and provided for the informational purposes only. To see our full advertising disclosure, please check out our show notes. I'm Robert Brougham. Pull on, everybody.