Bracket Management: The Discipline Most Advisors Skip

Most people think tax planning means filing an accurate return by April 15th. And most people, as a result, overpay the IRS by tens of thousands of dollars over their lifetime — not because they're doing anything wrong, but because they're thinking about taxes a year too late.

Real tax planning isn't about reporting what happened. It's about engineering what will happen — specifically, which bracket your income lands in, when it lands there, and how much of your wealth survives the transaction. That's bracket management. And for my clients, it's one of the most valuable disciplines we practice every single year.

Let me show you how it works.

First, Let's Make Sure We're Reading the Brackets Correctly

Before we can manage tax brackets, we need to understand them — and the most common misconception I encounter is that people think a higher bracket taxes all of their income at that rate.

It doesn't. The U.S. has a progressive tax system, which means each bracket only applies to the income that falls within that bracket's range.

Here's a simplified example using 2025 rates for a married couple filing jointly:

If you earn $300,000, you're in the 24% bracket — but only the income above $206,700 is taxed at 24%. Everything below that threshold is taxed at the lower rates it falls into. This is the "marginal rate" system, and it creates opportunities that most people never exploit.

The key insight: there is often room left in your current bracket. And what you do — or don't do — with that room is one of the most consequential financial decisions you make each year.

What Is "Bracket Filling," and Why Does It Matter?

Bracket filling is the intentional strategy of using available room within a lower tax bracket to recognize income, convert assets, or harvest gains now, at a known rate, rather than allowing that income to accumulate and surface later at a potentially higher rate.

Think of your tax bracket like a bucket. Every year, that bucket has a capacity — the difference between your current taxable income and the top of your bracket. Any capacity you leave unused is gone forever. It doesn't carry over.

Depending on your situation, that might mean:

• Roth Conversions. If you have pre-tax retirement accounts (traditional IRAs, 401(k)s), converting a portion to Roth while you're in a lower bracket permanently removes that money from future forced distributions and future tax. You pay a known, lower rate today in exchange for tax-free growth and income forever.
• Capital Gain Harvesting. Long-term capital gains are taxed at preferential rates — 0%, 15%, or 20%, depending on your income. If you have appreciated investments in a taxable account and there's room in the lower brackets, you may be able to recognize gains at 0% or 15% today, reset your cost basis, and eliminate the embedded tax liability that would otherwise hit you at a worse time.
• Strategic Income Recognition. Business owners and self-employed individuals often have flexibility in when they recognize income or pay themselves. Deliberately pulling income into a lower-rate year — or deferring it out of a higher-rate one — is a straightforward form of bracket management with real dollar impact.

The Years That Matter Most

Bracket management isn't equally valuable every year. There are certain periods in a person's financial life when the opportunity is particularly significant — and when ignoring it is most costly.

• The Transition Years. These are years between a high-income career and the start of Social Security, RMDs, or a new business. Income often drops substantially, creating several years of artificially low taxable income. These are the highest-value windows for Roth conversions and gain harvesting — and they pass quickly.
• Pre-RMD Years. Once Required Minimum Distributions begin (currently at age 73), the IRS starts mandating withdrawals from pre-tax accounts whether you need the money or not. Those distributions are fully taxable as ordinary income and are added on top of Social Security, investment income, and anything else you're receiving. Planning in the years before RMDs begin — filling lower brackets with Roth conversions, for instance — can dramatically reduce the eventual RMD burden.
• Business Exit Years. Selling a business often creates a one-time spike in income. But the years leading up to a sale — when income may be more controllable — are prime territory for bracket-sensitive planning: accelerating deductions, maximizing retirement contributions, shifting appreciated assets, and structuring the sale itself.
• After a Significant Life Event. Divorce, job loss, a sabbatical, or a career change often creates a temporary income dip. That dip is a planning opportunity, not just a hardship.

The Difference Between a Tax Preparer and a Tax Planner

I want to be direct about something that matters a great deal to my clients.

A tax preparer's job is to accurately report what happened last year. They look at your income, apply the rules, and compute what you owe. They are looking in the rearview mirror — and they're very good at it.

A tax planner's job is to look through the windshield and engineer a better outcome before it's locked in. They're asking: where will your income land this year? Next year? In retirement? What can we move, accelerate, or defer to reduce the lifetime tax bill?

The overwhelming majority of Americans interact with the tax system only through preparers. And there's nothing wrong with that for simple situations. But if your financial life is complex — if you have significant investment accounts, a business, real estate, or are approaching retirement — then having only a preparer is like having a personal trainer who only weighs you at the end of the year. The feedback comes too late to matter.

Bracket management is a forward-looking practice. It requires knowing your approximate taxable income mid-year, understanding where you are relative to key thresholds, and making deliberate decisions before December 31st. It requires coordination between your investment management and your tax strategy — because those two things are inseparable if you're serious about after-tax outcomes.

How Dynamic Portfolio Management Enables This

One of the reasons I manage money the way I do is that tax efficiency can't be bolted on after the fact. It has to be integrated into how a portfolio is constructed, rebalanced, and drawn down.

A tax-aware portfolio is designed with bracket sensitivity in mind. That means:

• Thoughtful asset location. Placing tax-inefficient assets (bonds, REITs, high-turnover funds) inside tax-deferred accounts, and keeping tax-efficient assets (index funds, individual stocks with low turnover, municipal bonds) in taxable accounts. This doesn't change what you own — it changes where you own it, and the tax impact can be substantial.
• Real-time bracket awareness. Monitoring where clients stand relative to key thresholds — not just income brackets, but the 0% capital gains rate, IRMAA surcharge levels, the Net Investment Income surtax at $200K/$250K, and the Social Security taxation thresholds. These are all income-sensitive cliffs, and they change what moves make sense in any given year.
• Tax-loss harvesting as a year-round practice. When positions fall in value, we harvest those losses systematically and use them to offset gains or reduce taxable income. Harvested losses can be "banked" and deployed strategically — to offset a large gain event, a Roth conversion, or a business sale.
• Coordination with tax professionals. I communicate with my clients' CPAs. This isn't always the norm in our industry, but it should be. The investment decisions I make have tax consequences, and the tax decisions a CPA implements have investment implications. When those two professionals aren't talking to each other, opportunities fall through the gaps.

A Real-World Example: $34,000 Saved by Getting the Timing Right

Let me share a simplified version of a situation I encounter regularly — the kind of thing that looks small on paper but represents tens of thousands of dollars in outcome.

A married couple, both in their early 60s, recently retired. They have $1.2 million in a traditional IRA, $300,000 in a taxable brokerage account, and $150,000 in a Roth. They've deferred Social Security and won't start RMDs for several years. Their current taxable income, mostly from part-time work and modest investment income, is around $130,000 — which puts them in the 22% bracket, with nearly $265,000 of room before hitting the 32% threshold.

Option A: Do nothing. Let the IRA continue to grow tax-deferred. At age 73, RMDs kick in and force distributions — potentially $60,000–$80,000 per year — stacked on top of Social Security and investment income. Their effective rate in retirement could easily be 28–32% or higher, and their heirs will inherit a massive tax liability.

Option B: Bracket-fill Roth conversions for five years. Each year during their lower-income window, convert $100,000–$120,000 from the traditional IRA to Roth, filling up to the top of the 24% bracket. After five years, they've moved $500,000–$600,000 into tax-free Roth accounts, permanently reduced their future RMD exposure, and paid tax at 22–24% instead of the 32% or higher rate they'd face in peak-RMD years.

The tax savings across the couple's lifetime, depending on longevity and future rates: conservatively $34,000 to over $100,000. And that doesn't account for the estate planning benefit — Roth assets pass to heirs income-tax-free.

The only reason this works is because we knew the opportunity existed, we modeled it, and we acted before the window closed.

What You Should Be Asking

If you're working with a financial advisor, a CPA, or both, here are the questions that will tell you quickly whether you're getting bracket management or just getting your taxes filed:

• Where will my taxable income land this year — and how close am I to the next bracket threshold?
• Do I have room to do a Roth conversion this year, and at what size does it make sense?
• What is the projected after-tax income I'll have in retirement — and what's my plan to get there efficiently?
• Are there losses in my portfolio we should be harvesting before year-end?
• What income events are coming in the next 2–3 years that we should be planning around today?

If these questions aren't part of your regular conversations, they should be. The tax code changes, brackets adjust for inflation, rates may rise when current legislation expires — and all of that creates a moving target. Bracket management isn't a one-time event. It's an ongoing discipline built into how we manage your money and your plan throughout the year.

The Bottom Line

The difference between a good tax return and a great financial outcome isn't the software your CPA uses. It's the decisions made in March, June, September, and November — before the year closes and your options disappear.

Bracket management is the practice of treating your tax bracket like what it is: a resource with a limited annual capacity, a set of rules that reward intentional action, and a system that consistently favors those who plan over those who react.

You worked hard for this income. The goal isn't just to report it accurately. The goal is to keep as much of it as possible — and to do that, you have to manage it before it hits the return.