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You've probably seen the conventional wisdom. It's all over the place: Roth last. Do not spend it. Roth dollars get taken last.

Now, I'm not saying I disagree with that wholesale. But I am saying I think it's overblown. This post is going to walk you through exactly why and when you should consider taking Roth dollars early as part of an overall tax planning strategy, and what I'm going to call return on life.

The Standard Withdrawal Order

Most conventional wisdom says early in retirement, you withdraw from taxable accounts first. Then you take from tax-deferred accounts. And then, very last, you touch the Roth. In my opinion and in my experience, what ends up happening is the Roth never actually gets spent.

Now, if that's your goal, I get it. Maybe you have a legacy play and you want to leave as much Roth as possible to the next generation. But my argument is this: you should maximize your return on life early in retirement. You did not get to early retirement and save all the money you saved just to skimp on expenses and refuse to touch your Roth, even though you actually could, in order to get more out of those years.

I think there's a way to have your cake and eat it too. That's what this is actually about.

I'll be upfront: I am very balanced when it comes to early retirement years and tax planning. I think a lot of people, when they look at tax planning in early retirement, become way too aggressive to the detriment of their own life. Retirement is not the time to keep delaying gratification in a way that impacts your ability to enjoy life and do things with people you love. That's not retirement. That's just another job. Basically, your job becomes working for the tax calculator. You shouldn't do that.

Introducing the Three One Hundred Plan

Before we get into the numbers, I want to walk you through what I call the Three One Hundred Plan, because it sets the stage for everything else.

The premise is simple. There are three accounts that, if you are entering early retirement with roughly one hundred thousand dollars in each, give you an incredible amount of flexibility. Here's what the three accounts are:

1. A Roth IRA

I'm going to talk about Roth conversions in a moment, but for now I'm simply referring to someone who has saved some Roth along the way, maybe not as much as they wanted, but it's there. So picture someone with a three million dollar traditional IRA who still has one hundred thousand dollars in Roth. I'm going to make the case that, in the right scenario, that Roth money should actually be spent first in order to make those Roth conversions more effective and more tax efficient.

2. Cash

If you are entering early retirement, having a substantial amount of liquid cash can be really, really helpful in your plan. That could be literally cash in a checking account, a high-yield savings account, or a money market. The point is it's liquid. One hundred thousand dollars is the working number here, but more is always better.

3. A Health Savings Account

If you are retiring at fifty-five or sixty, there's a good chance you've had some years to build up a health savings account. And if you were smart about it, the best way to utilize that account is to pay medical expenses out of pocket while you were covered by a high-deductible health plan, and let that HSA be invested and grow.

Here's the great thing: there is no time limit on when you can reimburse yourself for those healthcare expenses. So if you had twenty thousand dollars in medical expenses over a decade, you can reimburse yourself for all of it later. That's the number I'm going to use in this scenario.

Setting Up the Five-Year Window

Now let's get into the actual scenario. I'm going to walk you through a five-year window in early retirement. Whether that's fifty-five to sixty for you, or sixty to sixty-five, or sixty-two to sixty-seven, the logic holds. For this example, I'm going to use sixty to sixty-five, and I'm going to assume we are looking at a married couple filing jointly.

They have one hundred thousand dollars in a Roth, one hundred thousand dollars in cash savings, and one hundred thousand dollars in a health savings account.

The premise is this: the conventional argument says leave the Roth alone. Let tax-free growth compound forever. Why would you interrupt that? What I'm going to show you is that you can still keep the same tax-free growth working for you, and actually create more Roth dollars than you would have had by just leaving that original balance to compound in the market. And on top of that, you can actually live your life.

The Distribution Strategy

Here is how the income sources break down over that five-year window.

Roth withdrawals: $20,000 per year

We're going to take twenty thousand dollars per year from the Roth, which is the full one hundred thousand over five years. The beautiful thing about Roth is that none of this shows up on the tax return. Zero. It does not affect your income for subsidy purposes. It does not affect your tax bracket. It's just clean, tax-free money.

Taxable brokerage account: $40,000 per year

If you've watched any of my content, you know I'm a huge fan of taxable brokerage accounts. I'm assuming there's enough there to draw from in early retirement. Of that forty thousand dollar withdrawal, I'm going to assume twenty thousand dollars is actually taxable as capital gains. Everyone's account is different, so we have to make some assumptions, but this is a reasonable one.

HSA reimbursements: $4,000 per year

Remember those twenty thousand dollars in past medical expenses? We're going to reimburse ourselves at four thousand dollars a year over the five-year period. This money does not count as income. It's a reimbursement for expenses you already paid out of pocket.

Cash: $10,000 over five years

We're not going to drain the cash account completely. The reason is that when Social Security turns on, or when other things shift in the plan, you still want to have some kind of emergency reserve. Taxes will also likely come out of this bucket since cash distributions don't flow through to the tax return.

Put it all together and the couple is living on seventy-four thousand dollars. Not bad at all.

Staying Under the ACA Subsidy Threshold

Here's where this really gets interesting. What actually flows through to the tax return in this scenario? You have some taxable interest from the savings account, a mix of qualified and ordinary dividends, twenty thousand dollars in capital gains from the brokerage, and then the big one: a Roth conversion of fifty-five thousand dollars per year.

That puts total reportable income right around eighty-four thousand five hundred dollars for a household of two adults. And in many states, that number lands right at or below four hundred percent of the federal poverty line, which is the ACA premium subsidy cutoff for a two-person household.

What does that actually mean for healthcare? Without the premium tax credit, a silver plan might run around seven hundred and one dollars per month. But if you use four thousand dollars per year from your HSA to help offset that cost, your net payment drops to just over four thousand dollars for the year, or about three hundred and sixty-seven dollars per month. That's real healthcare coverage at a real price, for a couple in their early sixties who are retired and living on their own terms.

The Real Return on That Roth

Now I want to address the pushback head-on. The argument against spending the Roth is: you're interrupting compounding tax-free growth. Fair point. So let's actually do the math.

If you left one hundred thousand dollars in your Roth and earned eight percent per year for five years, you'd end up with just under one hundred and forty-seven thousand dollars. That's the compound growth argument.

Now here's the other side. If you spend that one hundred thousand in Roth over five years, and you use that flexibility to do fifty-five thousand dollars per year in Roth conversions, at the end of five years you've moved two hundred and seventy-five thousand dollars into Roth. Yes, you spent the original one hundred thousand to get there. So subtract that. You're at one hundred and seventy-five thousand.

Now, to be a real stickler about it, you did pay some tax on those conversions. At roughly twenty-seven hundred and eighty dollars per year in taxes over five years, that's about thirteen thousand nine hundred dollars. Subtract that too. You're left with one hundred and sixty-one thousand one hundred dollars in real value inside of Roth, based on what you started with.

That's roughly a ten percent annualized return on your original Roth dollars. Not in the market. Not taking on equity risk. But by strategically spending and converting.

And here's what makes that even better: you still lived your life. You spent what you wanted to spend. You stayed under the subsidy threshold. You kept your healthcare costs low. And you ended up with more Roth dollars in five years than you would have had if you'd left that account completely untouched.

A Few Important Caveats

This strategy is not for everyone, and I want to be honest about that.

First, the math works best when your starting Roth balance is in that one hundred thousand dollar range. I've run the same scenario with larger Roth balances, and the returns on this approach do diminish as the balance grows. If you have two or three hundred thousand already in Roth, the case is weaker because you have less conversion headroom relative to what you're spending.

Second, this assumes you have the other two buckets, the cash and the HSA, working alongside it. Without those, the income structure falls apart.

Third, none of this is personal advice. Every situation is different, and the numbers in your plan will be different from the numbers in this example. Please work with a qualified financial planner and a tax professional before making any decisions.

The Bottom Line

You did not become a disciplined saver and a diligent planner just to continue delaying gratification in retirement. If it's going to impact your ability to enjoy life and spend time with the people you love, that's not the point of this.

The Three One Hundred Plan is one way to think about how to structure early retirement so you can actually live, keep taxes low, maintain your ACA subsidy, and still build more Roth wealth than conventional wisdom would suggest. Return on life and return on dollars do not have to be in conflict.

If you've been wondering whether any of this applies to your situation, that's exactly the kind of planning I do at Brightworks Financial Planning. Feel free to reach out, and I'll see you in the next one.

This post is for educational purposes only and does not constitute personal financial, tax, investment, or legal advice. Please consult appropriate professionals for guidance specific to your situation.