Here's a problem I genuinely enjoy solving. Someone's done well — equity comp, years of maxing the 401(k), a liquidity event — and they want to step back at 48 or 52. The money exists. But a lot of it is locked behind age 59½, when retirement accounts open up penalty-free, and the years between now and then need to be paid for somehow.
I call these the bridge years, and the good news is the bridge is very buildable. The tax code has more doors in it than people think. You just have to know where they are and walk through them in the right order.
The order of operations
Early retirees usually have money in three buckets: taxable brokerage accounts, pre-tax retirement accounts (401(k)s, traditional IRAs), and Roth accounts. The bridge plan is mostly about which bucket pays for which years.
1. Taxable accounts do the heavy lifting
No age restrictions, no penalties — your brokerage account is bridge money by default, and it's taxed surprisingly gently. You only owe tax on the gains you realize, not the full withdrawal, and long-term gains get their own friendly brackets. In 2026 the 0 percent long-term capital gains rate covers taxable income up to $49,450 single / $98,900 married filing jointly. Read that again: a retired couple with no wages can realize close to six figures of income including long-term gains and pay zero federal tax on those gains. The bridge years are a low-income valley, and the valley is a feature — this is where you harvest gains cheaply, do Roth conversions, and reset basis.
2. The Roth conversion ladder
The elegant one. Each year during the bridge, convert a slice of your traditional IRA to Roth — paying ordinary income tax on the conversion at your now-low bracket. Under the Roth ordering rules in IRS Publication 590-B, converted amounts can come back out penalty-free once that conversion is five years old (earnings stay put until 59½). Start the ladder five years before you need it, convert a year's spending annually, and from year five onward a rung matures every year like clockwork. You're draining the pre-tax account at bargain rates and manufacturing accessible money. It's the rare strategy with no real catch beyond needing five years of runway — which is exactly what taxable accounts are for.
3. Rule of 55, if the timing fits
Leave your employer in or after the calendar year you turn 55, and that employer's 401(k) — just that one — can be tapped penalty-free immediately. It's on the IRS's official list of early-distribution exceptions. Two practical notes: don't roll that 401(k) into an IRA if you plan to use this (the exception doesn't follow the money), and check that your plan actually allows partial withdrawals — some force a lump sum, which wrecks the tax math.
4. 72(t), the door of last resort
You can tap an IRA at any age penalty-free through "substantially equal periodic payments" under section 72(t) — Fidelity has a solid walkthrough. The IRS gives you three calculation methods, and once you start, payments must continue for the longer of five years or until 59½. Break the schedule — even by accident — and the 10 percent penalty comes back retroactively on everything you took. It's rigid, it's unforgiving, and it works. I treat it as the tool you use when the timing didn't allow a conversion ladder, not the first choice.
The bracket game is the whole game
During your working years, the goal was deductions. During the bridge years, it flips: the goal is to fill the low brackets deliberately, every single year. An empty 10 or 12 percent bracket in a bridge year is a wasted asset — that's space where a Roth conversion or a gain harvest could have happened at rates you may never see again, especially once Social Security and required minimum distributions start crowding your brackets in your 70s. The plan is a yearly dial: convert this much, harvest this much, stop at this line.
The unglamorous part: health insurance
The biggest genuine obstacle in the bridge years isn't the IRS — it's health insurance. And it got harder recently. The enhanced ACA subsidies expired at the end of 2025, and per KFF's 2026 marketplace data, average out-of-pocket premiums jumped 58 percent and the subsidy cliff at 400 percent of the federal poverty level is back — cross it by a dollar and premium help disappears entirely.
Here's the twist that matters for planning: marketplace subsidies key off your income, and in the bridge years your income is substantially a choice — it's whatever your conversions and gain harvesting say it is. Which means the Roth ladder and the subsidy math are now in tension: every dollar converted is a dollar of income that can shrink the health insurance help. Sometimes the right answer is smaller conversions and cheaper insurance; sometimes it's the reverse. It's solvable, but only on paper, in advance, year by year.
What a real bridge looks like
- Years 1–5: live on taxable accounts, harvesting long-term gains inside the 0 percent bracket. Start the conversion ladder in year one, sized against the bracket line and the insurance math.
- Years 5 to 59½: matured conversion rungs come online annually alongside whatever taxable money remains. Rule of 55 or 72(t) fill any gap if the taxable runway came up short.
- 59½ and beyond: everything unlocks, and if the ladder did its job, your pre-tax balances — and the future tax bombs inside them — are meaningfully smaller.
Every one of these levers interacts with the others, which is why the bridge is designed as one plan, not assembled as five tricks. If you're within a few years of wanting the option to step back, that's the right time to draw it up — the ladder needs lead time. It's some of my favorite work. Come talk to me about it.
Sources
- IRS — Exceptions to Tax on Early Distributions — the official list, including SEPP/72(t) and separation from service at 55
- Fidelity — What Is the 72(t) Rule? — SEPP mechanics, the three calculation methods, and the cost of breaking the schedule
- IRS Publication 590-B — Distributions from IRAs — Roth ordering rules and the 5-year clock on conversions
- 2026 Long-Term Capital Gains Brackets (per IRS Rev. Proc. 2025-32) — 0% rate up to $49,450 single / $98,900 MFJ taxable income
- KFF — 2026 ACA Marketplace Premiums and Deductibles — post-subsidy-expiration costs and the return of the 400% FPL cliff
This article is for informational and educational purposes only and is not investment, legal, or tax advice. Nothing here is a recommendation for your specific situation — talk to your advisor and your CPA before acting on anything you read. Fathom Wealth is the private wealth practice of Cameron Hunt, conducted through Savvy Advisors, Inc., an SEC-registered investment adviser. Tax figures cited reflect rules in effect for the year noted and can change.