Income Smoothing Calculator
A flatter tax curve means hundreds of thousands of dollars saved.
Smooth Your Withdrawals
Model the optimal mix of account withdrawals to hit your spending goal without spiking your marginal tax bracket.
The Mechanics of Income Smoothing
As discussed in our Tax Optimization FIRE Guide, progressive tax brackets punish uneven income. Earning $200k in one year and $0 the next results in a drastically higher lifetime tax bill than earning $100k for two years.
Required Minimum Distributions (RMDs)
The government requires you to start withdrawing from pre-tax accounts at age 73. If you have a massive Traditional IRA, these RMDs can force you into the 32% or 35% tax brackets during your 80s.
To prevent this, early retirees practice income smoothing by intentionally taking pre-tax distributions (or Roth Conversions) in their 40s and 50s. By voluntarily paying 10% or 12% tax now, they shrink the pre-tax account balance, thereby defusing the future RMD tax bomb.
The ACA Subsidy Cliff
For early retirees, your taxable income also dictates your Affordable Care Act (ACA) health insurance premiums. If your income spikes, you could lose thousands of dollars in subsidies. A smoothed income keeps your MAGI consistent, allowing you to reliably predict and optimize your healthcare costs.
How to Implement This Strategy
Our Guide to Tax Efficient Withdrawals goes deeper into the exact order of operations. In general, you want to withdraw from your Traditional IRA until you hit the top of your target tax bracket, and then cover the remaining lifestyle expenses with tax-free Roth or HSA funds.