The Most Tax-Efficient Wedding in Target Rock History

Thanks to all who’ve read our newsletter and engaged with us throughout the year!

Here’s a fun client parable to close out 2025.

Joseph came to us after something caught his eye in our recent newsletter, 4th Quarter Tax Plays:

“Those in retirement or otherwise low-earning years might consider Roth conversions before year-end.”

Hmm, I’m in a low-earning year,?thought Joseph, a “wood-tech” founder on sabbatical as he awaits a liquidity event next year.?

Joseph casually mentioned that he and his betrothed, Mary, were kicking around plans to get married.?But unless Mary came to be with child, there didn’t seem to be any impetus to tie the knot.?

That is until we started modeling out Joseph’s potential for Roth conversions in 2024, on the morning they were to hop on an international flight to Bethlehem where they’d spend the rest of the calendar year.?

Why Roth Conversions?

The idea of Roth conversions in low-income years is to move assets from pre-tax retirement accounts to post-tax (Roth) accounts and recognize taxable income today, so that you can earn tax-free growth from here on out.?

Because income tax brackets are progressive (the higher the income, the higher the rate), these conversions can happen with much less tax impact when they aren’t stacked on top of income from employment, and before they rack up decades of more growth. Given the power of compounding, the potential lifetime tax savings can be truly eye-popping.

So, Joseph had a prime opportunity to pay some taxes now to avoid much higher lifetime taxes if the assets grew inside the pre-tax bucket.?

In our meeting the morning of their flight, we compared the single filer tax brackets to the married-filing-jointly ones. Not surprisingly, the married tax brackets are roughly twice as wide as the single ones, so you could fit a lot more household income into lower tax rates.?

Notice that one of the biggest jumps in tax rates is from 24% to 32%, which occurs at $192k for single filers, but $384k for married couples. We decided that our goal should be to fill up the 24% bucket and convert as many assets as we could to stay just under the 32% rate.

We pulled up our tax modeling software to see how much Joseph could convert to Roth in the 24% bracket if he were to file singly versus married.

Mary earns a modest income as a freelance shepherd. After plugging in her earnings, the standard deductions, and capital gains from the year, we determined that Joseph could convert $130k?more?if they were to get married on US soil before December 31st.?

Joseph is a wealthy, high-income dude. It’s possible he won’t be in the 24% marginal tax bracket for the rest of his life.?

It’s difficult to estimate exactly how much this would save in lifetime taxes since it depends on so many unknown, long-term variables, but according to one plausible set of assumptions, we are talking well into the six figures. Plus, if they were to get married, the tax bill due today would be considerably lower for the same conversion amount.

Hark! The Airport Wedding Bells Ring

Although Mary wasn’t with child, Joseph - pregnant with pretax retirement assets and a once-in-a-lifetime opportunity - was ready to arrange a shotgun wedding.?Romantic, huh?

But how were they going to pull this off? They were heading out for a three-week international trip in four hours, and they still had to pack!

The decisive startup founder he is, Joseph was already Googling: “Can I get married at LAX?”

Lo and behold, a minister had set up shop there. It was 6am in California. Joseph called and left a message. We signed off the Zoom with a game plan on how much to convert depending on whether they got married or not.?

Later that afternoon, we received an email from Joseph bearing the amazing news that the minister called back and got them married just before they took flight!

Is that a Christmas miracle or what? Congrats to the happy couple.?

Cheers to a prosperous and purposeful holiday season, and a tax-efficient 2025! See you all in the new year.??

This was prepared by Target Rock Wealth Management, LLC (Target Rock). a federally registered investment adviser under the Investment Advisers Act of 1940. Registration as an investment adviser does not imply a certain level of skill or training.

All opinions and estimates constitute the firm’s judgment as of the date of this report and are subject to change without notice. This is provided to investment advisory services clients of Target Rock. It is not intended as an offer or solicitation with respect to the purchase or sale of any security. Investing may involve risk including loss of principal. Investment returns, particularly over shorter time periods are highly dependent on trends in the various investment markets. Past performance is no guarantee of future results.

The information herein was obtained from various sources. Target Rock does not guarantee the accuracy or completeness of such information provided by third parties. The information given is as of the date indicated and believed to be reliable. Target Rock assumes no obligation to update this information, or to advise on further developments relating to it.

The views expressed within are for commentary purposes only and do not take into account any individual personal, financial, legal, or tax considerations. As such, the information contained herein is not intended to be personal legal, investment, or tax advice. We recommend you speak with your CPA or tax professional.