Cashing in on a big investment windfall feels amazing—like winning a mini lottery for your hard work and patience. But then the reality check hits: Uncle Sam wants his cut, which can feel like a big one. The good news? With a little planning, you can keep more money while staying on the IRS's good side. Here’s how to make that happen.
1. Understanding Tax Implications: The First Step to Saving
Before diving into tax-saving strategies, you must understand what you’re up against. Taxes on investments come in two main flavors:
- Short-term capital gains: These apply when you sell investments held for less than a year. The IRS treats these gains like regular income, meaning they get taxed at your ordinary income tax rate. If you’re a high earner, this rate could be as high as 37%.
- Long-term capital gains: Investments held for over a year are taxed at a lower rate, typically 0%, 15%, or 20%, depending on your income level.
Knowing how long you’ve held your investment and what tax bracket you’re in gives you the foundation for planning. Long-term gains save you money compared to short-term gains, so patience often pays off in the tax world.
2. Timing Is Everything: More Taxes on a Lump Sum Payment
One of the simplest ways to reduce your tax burden is to control when you take your windfall. Cashing out your entire investment in one year could push you into a higher tax bracket, meaning you’ll lose more of your hard-earned money to taxes.
Instead, consider spreading out the sale over multiple years. For example, if you’re sitting on a $500,000 gain, selling $250,000 this year and the other $250,000 next year could keep you in a lower bracket. This strategy isn’t always possible—but it's worth exploring if you have the flexibility.
3. Leverage Tax-Advantaged Accounts: Your Secret Weapon
One of the smartest moves you can make with a windfall is reinvesting it in accounts that come with tax benefits. Let’s explore some of your options:
- Traditional IRAs (Individual Retirement Accounts): You can contribute up to $7,000 annually ($8,000 if you’re over 50), and your contributions might be tax-deductible. The money grows tax-deferred, meaning you don’t pay taxes on earnings until you withdraw it in retirement.
- 401(k)s: If you’re still working and have access to an employer-sponsored 401(k), you can defer up to $23,000 annually ($30,500 if you’re over 50). Some employers even allow after-tax contributions that can later be converted into a Roth.
- Health Savings Accounts (HSAs): If you’re enrolled in a high-deductible health plan, an HSA offers triple tax advantages. Contributions are tax-deductible, growth is tax-free, and withdrawals for qualified medical expenses are tax-free. Your health plan, income, and whether you are using a family or an individual plan will determine how much you can contribute to your HSA.
Using a combination of these tax-advantaged accounts can help you put the maximum amount of your windfall out of Uncle Sam’s reach—and they come with the added benefit of growing your retirement savings, increasing your peace of mind.
4. Make Giving Work for You: Charitable Contributions
Giving to others feels good—and it can also give your tax bill a break. Maybe you’ve always wanted to be able to help more with a cause you believe in, or maybe this windfall has inspired you to pay it forward. If philanthropy is part of your financial plan, consider these strategies:
- Direct Donations: Donations to qualified charities are tax-deductible if you itemize your deductions. If you’re donating a large amount, spread the contributions over several years to maximize the deduction. The IRS allows you to deduct your cash donations up to 50% of your Adjusted Gross Income (AGI) to many nonprofit organizations or up to 30% to others.
- Donor-Advised Funds (DAFs): With a DAF, you can make a large, upfront donation (and take the deduction immediately) but distribute the funds to charities over time. You’ll need to do more legwork to set up a DAF, but doing so can buy you time to decide where you’d like your money to go. This can be a great way to lock in a big tax deduction in the year of your windfall while giving thoughtfully.
5. Offset Gains with Losses: Tax-Loss Harvesting Rules
Even if you’ve earned big with one investment, chances are you’ve got a few under-performers or downright dud investments lurking in your portfolio. Selling off these irksome investments can create losses that offset your taxable gains.
Here’s how it works:
- Suppose you have a $100,000 gain from your windfall. If you sell other investments at a $20,000 loss, you’ll only owe taxes on $80,000 of gains.
- If your losses exceed your gains, you can use up to $3,000 annually to offset ordinary income, with the remainder carried forward to future years. If you are spreading your windfall over multiple years, this is especially helpful for offloading those lemons and allowing you to balance the loss moving forward.
This strategy works best if you’re already planning to rebalance your portfolio. Just watch out for the IRS's wash-sale rule, which disallows losses if you buy back the same investment within 30 days.
6. Explore Qualified Opportunity Funds (QOFs): Tax Savings with a Purpose
Qualified Opportunity Funds (QOFs) are a powerful way to reduce your tax burden and contribute to revitalizing underserved communities. These funds are part of the Opportunity Zones program, created under the Tax Cuts and Jobs Act of 2017, designed to encourage investment in economically distressed areas.
Here’s how QOFs work:
- Deferral of Taxes: When you invest capital gains into a QOF within 180 days of selling an asset, you can defer paying taxes on those gains until December 31, 2026, or until you sell your QOF investment—whichever comes first.
- Tax-Free Growth: Any new gains generated by the QOF investment are tax-free if you hold the investment for at least 10 years.
Example: Investing in a Qualified Opportunity Fund
Suppose you recently sold some stock and realized $300,000 in capital gains. Instead of paying taxes on those gains immediately, you could reinvest the full $300,000 into a QOF.
Imagine you invest in a QOF that focuses on revitalizing housing in a designated Opportunity Zone in a growing city like Detroit or Austin. Your funds might go toward building affordable housing units or mixed-use developments that bring new life to the area.
Here’s how this could play out financially:
- Deferral: You won’t owe taxes on your $300,000 capital gains until the end of 2026.
- Tax-Free Growth: Over 10 years, your QOF investment appreciates to $500,000. If you meet the holding requirements, you’ll owe no taxes on the $200,000 of new gains.
- Community Impact: Your investment helps create jobs, build housing, and spur economic growth in a community that needs it.
Professional Help Pays Off: How Five Pine Wealth Management Can Help
Cashing out a big investment windfall is not the time to go it alone. Tax laws are complicated, and small mistakes can lead to big bills—or missed opportunities. Five Pine Wealth Management can help you:
- Run the numbers on your options.
- Identify strategies you may not have considered.
- Navigate complex situations, like equity compensation or inherited assets.
You don’t have to figure it all out by yourself. At Five Pine Wealth Management, we can explain your tax obligations and offer strategies to potentially keep more of your money working for you. To see how we can help support your financial goals, send us an email or call us at: 877.333.1015.
“Should I convert my traditional IRA or 401(k) to a Roth?” If you’ve asked yourself this question lately, you’re in good company. Perhaps you’re a high-earner who makes too much to contribute directly to a Roth IRA but wants access to tax-free growth. Or maybe you’re concerned about future tax rates and want to ensure more tax-free income in retirement. With market volatility and changing tax laws on the horizon, many of our clients are wondering if a Roth conversion could be a smart money move to save on taxes and provide more flexibility down the road. While we think Roth conversions are a great strategy, they don’t make sense for everyone. Let’s break down when Roth conversions actually make sense — and when they don’t — in plain English. Back to Basics: What is a Roth IRA? Before we dive into strategy, let’s recap the differences between a Roth retirement account and a traditional one. Traditional retirement accounts, such as a traditional IRA or 401(k), provide you with a tax deduction when you contribute. You save on taxes now , but you’ll pay taxes on that money in the future when you withdraw it as income in retirement. A Roth IRA allows you to contribute money that you’ve already paid income taxes on. You don’t enjoy savings this year, but the interest you earn on that money grows tax-free, and the withdrawals are 100% tax-free in retirement once you meet certain eligibility requirements. For many people, these lifetime tax savings are significantly greater , which is why a Roth conversion is such an intriguing strategy. What Is a Roth Conversion? Imagine you’ve been making retirement contributions to a traditional 401(k) for the past 25 years. You’ve enjoyed income tax deductions each year as you squirrel away money for your future. But as you’re scrolling through your newsfeed one night after dinner, you come across an article about the unexpected tax bills many retirees are faced with in retirement, significantly eating into their retirement income. The article suggests making contributions to a Roth account instead, in order to avoid this scenario in the future. But you’ve already been making contributions to a traditional account for 25 years. Have you missed out? Not necessarily. With a Roth conversion, you can move money from another retirement account, such as a Traditional IRA or 401(k), into a Roth IRA. Essentially, a Roth conversion allows you to “pre-pay” taxes so your future self won’t have to. For many people, this can be a smart move. But there are caveats: Convert too much at once, and you might push yourself into a higher tax bracket this year. Convert too little over time, and you might miss opportunities to lower your lifetime tax bill. The challenge lies in finding the right balance. When Roth Conversions Make Sense In general, Roth conversions can make sense for individuals in the following circumstances: 1. You’re a High Earner For 2025, direct Roth IRA contributions are phased out for single filers with incomes between $150,000-$165,000 and for joint files with incomes between $236,00-$246,000. If your income exceeds these thresholds, you can’t contribute directly to a Roth IRA. However, Roth conversions have no income limits. This creates a powerful opportunity for high-income earners to still enjoy tax-free growth in retirement. By making non-deductible contributions to a traditional IRA (which has no income limits) and then converting those funds to a Roth IRA — often called a “backdoor Roth” — you can effectively circumvent the income restrictions. 2. You’re in a “Tax Valley” You may be in a “tax valley” if you’re currently experiencing a period where your income is lower than you expect in the future. For example, you may be early in your career, taking a sabbatical from work, or starting a business. These can all be opportune years to make a Roth conversion. New retirees may also find themselves in a temporary “tax valley.” For example, if you’re recently retired but haven’t yet started collecting Social Security or required minimum distributions (RMDs), this window from your early 60s to 70s could be a golden opportunity to convert portions of your traditional retirement savings into a Roth. By strategically moving money over a few years, you can fill up the lower tax brackets and reduce your future RMDs, which might otherwise push you into a higher bracket later. This can also help reduce the tax burden on your Social Security benefits once you begin collecting them. 3. You Have a Long Time Horizon Younger investors in their 30s and 40s may benefit from a Roth conversion if they have decades for that money to grow tax-free. For example, $100,000 converted to a Roth at age 35 could potentially grow to over $1 million by retirement age — all of which could be withdrawn tax-free. That same conversion done at age 60 might only have time to grow to $140,000-$150,000 before withdrawals begin. 4. You Want to Leave a Tax-Free Legacy Roth IRAs are powerful estate planning tools. Your spouse can treat an inherited Roth IRA as their own, allowing the assets to continue growing tax-free without requiring distributions during their lifetime, creating the potential for decades of additional tax-free growth. Kids or grandkids who inherit a Roth IRA will also enjoy a tax-free inheritance, at least for a time. In contrast, inheriting a traditional IRA means your beneficiaries would pay taxes on every dollar they withdraw — potentially during their peak earning years when they’re in a higher tax bracket. When Roth Conversions Don’t Make Sense Of course, just because you can convert doesn’t mean you should . Here are a few situations when a Roth conversion strategy might not work in your favor: 1. You’re Currently in a High Tax Bracket If you’re currently in your peak earning years and already paying taxes in the 35% or 37% federal tax brackets, converting could mean handing over a substantial portion of your retirement savings to the IRS. For example, a $100,000 conversion for someone in the 35% federal tax bracket could trigger an additional tax bill of $35,000 or more. If you expect to be in a lower bracket during retirement — say 22% or 24% — waiting to pay taxes then might be more advantageous. 2. You Don’t Have Cash to Pay the Taxes The most efficient Roth conversion strategy requires having cash outside your retirement accounts to pay the resulting tax bill. Here’s why this matters: If you have to withdraw extra money from your traditional IRA to cover the taxes on the conversion, you’re reducing your future growth potential. For instance, if you want to convert $50,000 and are in the 24% tax bracket, you may need an additional $12,000 for taxes. If you take that $12,000 from your IRA too, you’d pay taxes on that withdrawal as well, creating a compounding tax problem. Even worse, if you’re under age 59½, you could face a 10% early withdrawal penalty on any funds used to pay the taxes, further reducing the effectiveness of your conversion. 3. You’ll Need the Money Soon In general, Roth IRAs have a five-year rule that states you must wait five years from the beginning of the tax year of your first contribution to make a withdrawal of the earnings. (You can withdraw contributions , not earnings, tax-free and penalty-free at any time.) For Roth conversions, however, a new five-year rule starts separately for each conversion. While there are exemptions to this penalty, such as disability and turning age 59½, it’s worth considering if you plan to use the converted funds in the near future. Enter: The Roth Conversion Ladder One strategy we often recommend to clients who want to implement a Roth conversion is the Roth conversion ladder. This approach helps work around the five-year rule while building a tax-efficient income stream, especially for those planning an early retirement. Here’s how it works: Year 1: You convert a portion of your traditional IRA to a Roth (let’s say $30,000). Year 2: You convert another $30,000. Year 3: You convert another $30,000. Year 4: You convert another $30,000. Year 5: You guessed it — you convert another $30,000. Year 6: Now the Year 1 conversion is available for withdrawal without penalties. Each following year : A new “rung” of the ladder becomes accessible while you continue adding new conversions at the top. Over time, you build a steady stream of tax-free income in retirement that you can predictably access. This strategy is particularly valuable for early retirees who need income before the traditional retirement age or for anyone looking to minimize RMDs down the road. For example, a couple retiring at 55 might build a conversion ladder to provide $30,000 of annual tax-free income starting at age 60, giving them a bridge until they begin taking Social Security benefits at age 67. Meanwhile, they can use other savings for the first five years of retirement while the initial conversions “season.” The ladder approach also allows you greater flexibility to manage your tax bracket each year by controlling exactly how much you convert, rather than converting a large sum all at once and potentially pushing yourself into a higher tax bracket. Making Your Roth Conversion Decision As you’ve seen, Roth conversions are far from a one-size-fits-all strategy. The right approach depends on your unique financial situation, current and future tax bracket, retirement timeline, and long-term goals. When considering a Roth conversion, remember that it’s not just about the math. Many of our clients initially hesitate at the thought of writing a big check to the IRS today, even when they know the long-term benefits. That emotional response is completely normal. This is where thoughtful financial planning comes in. At Five Pine Wealth Management , we help you look beyond the immediate tax bill to see how today’s decisions impact your retirement income, Social Security strategy, and even your legacy plans. Sometimes, what feels uncomfortable at the moment creates the greatest long-term benefit for you and your family. So, should you do a Roth conversion? The answer depends on: Your current and projected future tax brackets Whether you’re above income limits for direct Roth contributions Your retirement timeline Whether you have cash available to pay the conversion taxes Your estate and legacy goals Your comfort with paying taxes now versus later A Roth conversion can be either a powerful wealth-building tool or an unnecessary tax expense. The difference comes down to proper planning and timing. The Next Step If you’re wondering whether a Roth conversion makes sense for your situation, let’s talk. Our fiduciary advisors will help you evaluate your options and develop a conversion strategy that aligns with your comprehensive financial plan. We’ll walk through different scenarios, look at the numbers together, and help you feel confident in your decision — whether that means converting, waiting, or taking a gradual approach with a conversion ladder. Ready to explore whether a Roth conversion is right for you? Give us a call at 877.333.1015 or send us an email at info@fivepinewealth.com to schedule a conversation.
You've been diligently saving for retirement, and your portfolio has hit the quarter-million mark—congrats! But now you're wondering: How do I take this to the next level? Hitting $250K in retirement savings is a major milestone, but getting from there to $1 million requires a shift in strategy. When you're just getting started, the focus is often on simply contributing as much as possible. But as your nest egg grows, things like asset allocation, tax efficiency, and long-term investing strategies become just as important as how much you save. The good news? With the right approach, reaching $1 million in retirement savings is not just a dream, but a realistic goal well within your reach. At Five Pine Wealth Management, we guide investors through this journey every day. As fiduciary financial advisors , we're legally obligated to put your interests first—you won't find product pitches or commission-driven recommendations here. Just straightforward strategies designed to help you reach your goals efficiently. So, let's talk about how to optimize your approach and make that million-dollar milestone a reality. Step 1: Investing for Retirement - Why Growth Matters More Than Ever When you had $50K or $100K saved, your main focus was likely getting more money into your accounts. However, once you cross the $250K mark, your portfolio's growth rate becomes a key factor in your future wealth. To illustrate this, let’s look at two different scenarios: If you have $250K saved and earn a 6% average annual return while contributing $15,000 per year, you’ll reach $1 million in about 15 years. If you have the same starting balance but earn an 8% return, you’ll hit $1 million in just under 12 years. That’s a three-year difference—just by optimizing your investment strategy. So, how do you make sure you’re maximizing growth? Max Out Your Tax-Advantaged Accounts Retirement accounts like 401(k)s, IRAs, and HSAs come with tax benefits that accelerate your savings. If you haven’t already, aim to max out contributions each year: 401(k): Up to $23,500 in 2025 (plus a $7,500 catch-up contribution if you’re over 50 or $11,250 for ages 60 to 63). IRA (Traditional or Roth): Up to $7,000 in 2025 (or $8,000 if you’re 50+). HSA (for those with a high-deductible health plan): $4,300 for individuals, $8,550 for families. HSAs are the only triple-tax-advantaged accounts. Max them out to use during retirement. Increase Your Savings Rate Over Time Even if you’re already contributing a healthy percentage of your income, small increases each year make a big difference. If you currently save 10% of your salary, try increasing that by 1% each year until you hit 20% or more. If you get a raise or bonus, direct at least half of it toward your retirement savings instead of lifestyle upgrades. These seemingly small changes can make a significant difference, potentially shaving years off your journey to $1 million. It’s all about the power of incremental progress. Step 2: Asset Allocation Strategies - The Right Mix of Investments Your asset allocation (the mix of stocks, bonds, and other assets in your portfolio) plays a huge role in whether or not you hit your financial goals. At $250K, you still have time before retirement, meaning your portfolio should be focused on growth. Here’s what that looks like: Stock-heavy allocation: Most mid-career investors should have at least 70-80% of their portfolio in stocks, with the remainder in bonds and alternative assets. Stocks historically provide higher long-term returns, which is key to reaching $1 million. Global diversification: Investing across U.S. and international stocks helps manage risk while still capturing growth. Low-cost index funds & ETFs: These offer broad market exposure with low fees—meaning more of your money stays invested. Remember that proper diversification isn't just about owning different stocks—it's about owning investments that behave differently under various economic conditions. Many portfolios we review are far less diversified than their owners realize, with multiple funds holding essentially the same underlying investments. Avoid These Common Mid-Career Investment Mistakes Being too conservative too early: Some investors start shifting too much into bonds and cash once they hit mid-career, but if you have 15+ years until retirement, you need growth-oriented investments. Chasing “hot” stocks or trends: Stick to a solid long-term strategy instead of jumping into whatever’s trending. Forgetting to rebalance: Market movements can throw your asset allocation off balance over time. Rebalancing once or twice a year keeps your portfolio aligned with your goals. Need help figuring out the best allocation for you? A retirement planning financial advisor (like us!) can help you fine-tune your strategy. Step 3: Using Tax-Smart Strategies to Boost Growth When you’re working your way toward $1 million, tax efficiency matters. The less you pay in taxes on your investments, the more your money can grow. Consider these tax-smart moves: Utilize Roth accounts: If you expect to be in a higher tax bracket later, Roth contributions or conversions can save you tens of thousands in future taxes. Use a tax-efficient withdrawal strategy: If you’re drawing from your portfolio, pull from taxable accounts first before tapping tax-advantaged ones. Harvest tax losses: If you have investments that lost value, selling them to offset capital gains can reduce your tax bill. Many mid-career investors start thinking about Roth conversions in their 40s and 50s. Doing small annual conversions allows you to pay taxes now at potentially lower rates and enjoy tax-free growth in retirement. Step 4: Leveraging Employer Benefits & Alternative Investments If you’re earning a healthy income, your employer might offer additional investment opportunities that can help speed up your progress toward $1 million. Employer Benefits to Take Advantage Of After-tax 401(k) contributions (if your employer allows) let you save beyond the normal contribution limits. Backdoor Roth conversions enable you to convert after-tax 401(k) dollars into a Roth IRA for tax-free growth. Stock purchase plans or equity compensation can be another valuable tool—just be sure to diversify. Alternative Investments for Higher Earners For investors with additional funds beyond traditional retirement accounts, other options might include: Real estate investing for rental income or appreciation. Private equity or venture capital for high-growth opportunities. Tax-efficient municipal bonds for those in high tax brackets. These strategies aren’t for everyone, but for higher-net-worth individuals, they can provide valuable diversification and growth potential. Step 5: The Psychological Game - Staying the Course Here's something we've noticed after working with hundreds of successful savers: the journey from $250k to $1 million is often more psychological than mathematical. Market volatility will test your resolve multiple times on this journey. When (not if) markets drop by 20% or more, your $250,000 could temporarily become $200,000 or less. This is precisely when many investors make costly mistakes. The clients who reach their goals fastest are those who: Have a clear plan they trust. Understand that volatility is the price you pay for growth. Can distinguish between temporary market noise and true financial risks. Take the market downturn of early 2020, for example. Clients who stayed invested or even added to their investments during that scary time saw their portfolios not only recover but significantly grow in the following years. In many cases, those who sold at the bottom are still trying to catch up. Building Your Million-Dollar+ Retirement Plan Turning $250,000 into $1 million+ is within reach for many mid-career professionals—particularly those who implement a strategic, disciplined approach. The difference between reaching your goals on schedule or falling short often comes down to having a customized plan that addresses your specific situation. At Five Pine Wealth Management , we've guided numerous clients through this critical growth phase of retirement planning. We believe financial advice should be straightforward, jargon-free, and focused on what works. Are you ready to accelerate your path to financial independence? Let's talk. Schedule a no-obligation consultation by calling 877.333.1015 or emailing info@fivepinewealth.com . Together, we can build a plan to help you pursue that million-dollar milestone—and potentially well beyond.
