This post is was originally published on Mad Fientist

The most significant tax-reform bill in decades has just been signed into law.

Although one of the primary goals of the new bill was to make taxes simpler, the tax code is still very complicated and littered with loopholes that we can take advantage of.

Some additional optimization opportunities have also emerged, which I’m excited to write about soon, so if you want to be notified when new articles are published, just enter your email below:

Today though, let’s dive into some of the strategies I’ve already written about to see what’s still possible under the new legislation…

Roth Conversion Ladder

The Roth Conversion Ladder is a strategy that allows you to legally access the funds in your retirement accounts before standard retirement age, without paying any penalties.

Here’s how it works:

  1. Contribute to pre-tax retirement accounts like 401(k)s, 403(b)s, Traditional IRAs, etc.
  2. Transfer your 401(k)/403(b) funds to a Traditional IRA
  3. Roll the money from your Traditional IRA over into a Roth IRA (paying tax on the conversion)
  4. Wait 5 years
  5. Withdraw the converted money, penalty free

Here’s a graphic that illustrates the strategy:

So is the Roth Conversion Ladder still valid under the new legislation?

Verdict: Still valid!

The new legislation still allows the Roth Conversion Ladder but if you decide to convert money from your Traditional IRA to your Roth IRA, you can no longer change your mind and undo the conversion.

Substantially Equal Periodic Payments

Another way of getting access to retirement account money early is through Substantially Equal Periodic Payments (SEPP).

Here is a graphic to illustrate this strategy:

Substantially Equal Periodic Payments (SEPP)

Verdict: Still valid!

The SEPP rules appear to be unchanged in the new legislation.

Backdoor Roth

The Backdoor Roth strategy allows someone who wouldn’t normally be able to contribute to a Roth IRA (due to exceeding the income limits) to legally fund a Roth account.

The way it works is this:

  1. Make contribution to a non-deductible Traditional IRA
  2. Immediately roll that money over into a Roth IRA

Verdict: Still Valid!

Since this is such a blatant skirting of the rules, I figured this loophole would be closed but it wasn’t!

The new tax legislation still allows for the Backdoor Roth but the only difference is, you can’t undo the Traditional-to-Roth conversion after you execute it.

Mega Backdoor Roth

The Mega Backdoor Roth is similar to the Backdoor Roth but it allows you to potentially contribute an extra $36,000 to your Roth IRA every year.

Here’s how it works:

  1. In addition to your normal pre-tax 401(k) contributions, make additional after-tax contributions
  2. Perform an in-service withdrawal and move your pre-tax contributions to a Traditional IRA and the after-tax contributions to a Roth IRA

Is the Mega Backdoor Roth IRA still possible with the new tax legislation?

Verdict: Still Valid!

This loophole has also survived!

Roth IRA Horse Race

The Roth IRA Horse Race is an advanced strategy that allows you juice your IRA conversions.

You can check out the link above to get all the details but you may not want to waste your time because now this strategy is…

Verdict: Eliminated!

You can no longer recharacterize or undo IRA conversions so sadly the Roth IRA Horse Race and all other IRA-recharacterization strategies are dead.

Tax-Loss Harvesting

Tax-Loss Harvesting is a strategy that allows you to lower your taxes by:

  1. Selling shares that have decreased in value
  2. Buying simliar but not identical shares (e.g. selling a Total Stock Market index fund and buying an S&P 500 index fund) so that you realize the loss but remain fully invested
  3. Using the tax loss to reduce your taxable income

Verdict: Still Valid!

You can still harvest your losses and use those losses to decrease your taxable income.

Tax-Gain Harvesting

Tax-Gain Harvesting is a strategy that allows you to increase your cost basis so that when you eventually sell shares, you have less gains to pay taxes on.

Here’s how it works:

  1. In tax years that you are in the 0% tax bracket for capital gains, you sell shares that have appreciated and pay tax on those gains (since you’re in the 0% bracket though, you actually pay nothing)
  2. Immediately buy back the same investment
  3. Since you bought the investment back at a higher price, you’ll have a higher cost basis and will therefore have less gains to pay taxes on when you eventually sell the investment (or you’ll have a bigger loss to harvest next time you do some tax-loss harvesting)

Verdict: Still Valid!

Specific Identification of Shares

To make tax-gain harvesting and tax-loss harvesting easier and more effective, you should set your taxable investment accounts to use Specific Identification of Shares so you can pick individiual shares to sell.

There were rumors that the new tax bill would require FIFO accounting (First In, First Out) but that didn’t make it into the final bill so Specific Identification of Shares has survived too!

Verdict: Still Valid!

Using the Health Savings Account as a Retirement Account

The HSA is actually the Ultimate Retirement Account when used as an investment account rather than a savings account.

Here is the strategy:

Maximize the Benefits of a Health Savings Account

Verdict: Still Valid!

Although the Obamacare individual mandate has been repealed, the HSA rules haven’t changed so this strategy is still valid!


It’s great that all the tax-avoidance strategies I’ve written about over the years (except for the Roth IRA Horse Race) have survived the new legislation.

Not only that, there seem to be some exciting new opportunities that early retirees can take advantage of so I look forward to exploring those soon (I’m looking at you, “20% deduction for pass-though entities”).

It will also be interesting to see if the new cap on state/local/property tax deductions causes people to focus more on domestic geographic arbitrage. Or, if the increased standard deduction makes people realize the mortgage interest deduction isn’t all it’s cracked up to be, resulting in more people renting instead of buying.

There’s still a lot to process with these changes but at least most of the core early retirement tax-avoidance strategies are still in place.

If you want to read more about the new tax legislation, check out this comprehensive summary by past podcast guest, Michael Kitces.

And if you’re a glutton for punishment and have nothing better to do over the holidays, here’s a link to the actual tax bill so you can see all the details.

What do you think? Will the new tax law help you achieve financial independence sooner? Are there any new strategies you plan to take advantage of? Anything you plan to do differently? Let me know in the comments below!

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The post The New Tax Law and How It Impacts Your Early Retirement appeared first on Mad Fientist.


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