Book Club

Posted February 9, 2026, By Cole Ferrier

As foretold, in the basement of the Green Lake Library, Kevin Estes CFP, Christian Klein (a local FIRE community member) and I (Cole Ferrier) met with the local Seattle Choose FI group on the topic of Tax Planning To and Through Early Retirement by Cody Garrett and Sean Mullaney.

The event was hosted by Laila Atallah, who shared some heartfelt sentiments about what’s currently going on in the country. She mentioned some people in the group unfortunately weren’t able to attend because of recent events. 

She also thanked Kelly Cannon for founding, leading, and growing the ChooseFI Seattle Facebook group. Kelly helped organize and promote this event. She also contributed to several discussions during the event.

Laila kicked off the session by gathering requirements—what do people want to talk about?

Backdoor Roth / Mega Backdoor Roth:

We started off the conversation by talking about the Backdoor Roth and Mega Backdoor Roth strategies. There was a question about other resources to read about the concepts laid out in the book, and Cole mentioned that the Bogleheads wiki is a great place to look to learn more about various financial concepts, hence the earlier links to the specific wiki articles. The editors there produce high quality content that typically is easy to understand. Furthermore, if the articles leave you with questions, the forums there are a great place to ask specific questions about those articles.

Cole clarified that it may be possible to contribute to a non-deductible IRA and then convert those funds to a Roth IRA. Any gains between the contribution and the conversion could result in taxable income.

There was a specific question on the pro rata rule. Cole clarified that what matters is whether any traditional (pre-tax) IRA account has a balance at the end of the calendar year. If there are, then the pro rata rule will apply to any conversion from traditional IRA to Roth IRA. A portion of the conversion will be taxable and a portion of the conversion will be not taxable.

An audience member asked whether a backdoor Roth can only be done through a workplace retirement account. Kevin mentioned that’s not necessarily the case. Someone may be able to contribute to a traditional IRA and then convert it to a Roth IRA. 

However, the limits may be much lower. The regular limit for a traditional IRA is $7,500 for 2026. The regular total limit for workplace defined contribution plans is $72,000 for 2026. This larger limit includes employee and employer direct contributions. That could leave tens of thousands of dollars for an employee to fund an After-Tax account to then convert them to Roth.

International Investing

The conversation moved to international investing and why international? There was a discussion that Jack Bogle didn't see a need for international investing because the large US companies are multinational companies and therefore, have significant international exposure within them. 

That being said, there are significant documented benefits of international diversification.

History is littered where there are significant bubbles that when they pop, they can have the ramifications that can reshape the world. Here are but a few:

• Tulip Mania

• John Law's Company

• South Sea Company

• Wall Street Crash of 1929

• Japanese Asset Price Bubble & Lost Decades

The last one is most interesting, as some of us might actually remember it.  The Japanese asset price bubble and following lost decades was quite significant to the Japanese investor. We didn't fact check this graph, but it rings true to our memory, but if you look at it, Japan was approaching 50% of the world market cap around 1990. (We don't have exact data on hand.)  The question is, should a Japanese investor have a significant home bias, where they only invest in Japanese stocks? Looking at this chart, it is sort of obvious to say that they would have been better off in the long run if they had a portfolio that was diversified over the world. The issue is you never know if this is going to be your country. 

Cole and Kevin significantly differ on "How much international?" 

• Kevin mentioned that John C. Bogle didn’t find it necessary to invest internationally since many large companies headquartered in the U.S. do most of their business abroad. Investing in other countries also adds some currency and political risk for those living in the United States. However, Kevin feels there are industries like fashion, luxury, and green metal mining that are significantly underrepresented by U.S. domiciled companies. He views investing abroad as a way to improve diversification; however, he likened international investing to a side dish - not the main course.

• Cole is on the other end of the spectrum that investing at the world market cap allocation is a prudent strategy, especially for investors with longer time horizons, but might not be right for everyone. The historical differences of returns show the US having better returns, but this can be partially attributed to the fact that they are the current winner.  If you would have ended this data back in 1990, it might have looked significantly different. 

More reading is available on the Bogleheads’ Wiki at International Investing.

Target Allocation

Kevin pulled back to consider overall portfolio allocation. That’s what percentage to hold in stocks, international, bonds, and cash.

Kevin shared it’s important to have an appropriate cash reserve. Even wealthy people can slip into a scarcity mindset without ready access to funds.

He believes in Modern Portfolio Theory. He feels markets are generally efficient. He doesn’t try to beat the market by actively investing in individual stocks.

Kevin prefers to set a target allocation and then rebalance. If stocks rise relative to bonds, it could make sense to sell stocks and buy bonds to bring the portfolio in line with the target allocation. The opposite is true if stocks fall relative to bonds. Setting a target and regularly rebalancing can help someone routinely sell investment classes that have risen and buy those that have fallen in value.

Single Stock Exposure

Kevin also mentioned it’s important to consider the impact of individual stocks. Someone who owns a significant tech stock position might be overweight in large-cap stocks, even if the rest of their portfolio is diversified.

It may be necessary to work around a concentrated position. The rest of the portfolio might need to hold other investment types to reach the target allocation.

Kevin felt that an individual stock generally has higher risk than a well-diversified bundle. Something could happen to one company:

• a competitor could enter their space,

• an executive could make a poor strategic decision,

• someone could cook the books, etc.

Since he believes in Modern Portfolio Theory, he feels the best estimate for a stock is market returns. He considers an investment with a higher risk and the same expected return inferior.

Kevin mentioned he’s discussed this with Cody Garrett. They both feel diversification generally takes priority over tax savings. However, it’s worth considering the tax impact. Everyone’s situation is unique.

Christian mentioned this has been his approach in early retirement. He’s been selling single stocks to diversify even though doing so increased his taxable income and caused him to give up Affordable Care Act (ACA) credits.

Tax Location

An audience member asked about the tax drag of investments. Kevin shared the concept of tax location. He reminded everyone again that none of this is advice.

Roth and Health Savings Accounts (HSAs) may never be taxed again during someone’s lifetime. As such, it could make sense to invest these accounts more aggressively to hopefully benefit from long-term growth.

He also mentioned that it could make sense to hold investments with heavy interest or dividends in a pre-tax retirement account like a traditional IRA, 401(k), 403(b), 457, etc. Doing so may defer taxable income. That can give a taxpayer more tax planning control. Investments like bonds may grow more slowly, resulting in less taxable income when the funds are distributed.

Also consider beneficiaries. A Health Savings Account (HSA) may be fine if it passes to a spouse. However, it can be a problem for other beneficiaries. If a non-spouse inherits a Health Savings Account, it generally stops being an HSA and becomes immediately taxable in full. Someone who is charitably inclined may consider naming a nonprofit organization as a contingent beneficiary.

Specific Investment

An audience member asked which international investment to choose. Neither Cole nor Kevin responded to this question.

Christian mentioned that he felt the international equivalent of the domestic low-cost Vanguard index fund is the Vanguard Total International Stock Index Fund ETF (VXUS). Specifically he felt that combining that with the domestic Vanguard Total Stock Market Index Fund ETF (VTI) essentially equaled the Vanguard Total World Stock Index Fund ETF (VT).

Kevin mentioned that many accounts have limited investment options. That’s especially true for qualified workplace retirement funds like a 401(k), 403(b), or 457. There may also be limited investment options for a Health Savings Account (HSA).

He challenged everyone to review the expense ratio of each investment. Kevin suggested they search online for the specific investment and the words “expense ratio” to estimate the cost. He personally likes the Morningstar reports. He cautioned that he still sees investments with over a 1% annual expense.

ETF BOXX

The question came up "Should I use the ETF BOXX for holding cash?” which we never actually answered but instead provided a basic framework to think through any investment.

What is it? In the Alpha Architects marketing material, they state "Cboe:BOXX is an options-based alternative to an ultrashort duration bond position". 

What are the risks? If you read the prospectus and focus on the section on Tax Risk, you have to determine if (1) you really understand what is going on and (2) accept the specific risks that are laid out. The first sentence of the tax risk is: 

"The Fund may enter into various transactions, including transactions involving options contracts, for which there is a lack of clear guidance under the Internal Revenue Code of 1986"

This statement should trigger an investor to do serious amounts of homework to determine if they are willing to accept this type of risk. We opted to not copy the whole “Tax Risk” section, but there are many more statements that an investor should ponder.

You always read the prospectus, right?

Do I understand it? Generally speaking, a person should be able to articulate in their own words what an investment is, how it is expected to make money, and any risks involved. If an investor can’t explain it, then they probably don’t really understand it.

Is it right for me? Only when an investor understands a potential investment can they make an educated decision if a particular investment is right for them. 

Note: Before making any investment decision, make sure you understand the investment, and all of the prospectus disclosures, we are just pointing out one area of risk and need for understanding. We believe investors should be able to understand the investments that they are making, and if they cannot understand it, it probably is not an appropriate investment.

Cole does not own any Cboe:BOXX as of 1/27/2026.

Managed Futures

An audience member asked about managed futures. Neither Cole nor Kevin replied.

Christian mentioned he’s invested in some systematic trend following managed futures which can use a range of underlying asset classes. He mentioned it’s become easier to access this asset class in recent years with the rise of ETFs like iMGP DBi Managed Futures Strategy ETF (DBMF) and KraneShares Mount Lucas Managed Futures Index Strategy ETF (KMLM).

He views managed futures as a means to further diversification. However, he cautioned that the expense ratios are higher and the strategy is more complicated. One should note that this strategy is different from a long-only commodities allocation.

Healthcare & 400% FPL Income Management

This was mostly a US healthcare focused discussion which was bifurcated at Medicare eligibility.  

Medicare

Starting with post Medicare, many people purchase either a Supplement or Advantage Plan because "Original Medicare (Medicare Part A and Part B) does not have a maximum out-of-pocket limit." There was a brief discussion about the difference between supplements and advantage plans. On the topic of resources, that led us to talk about Boomer Benefits which is a Medicare insurance broker that some audience members have used and spoke fondly of. They also have some great resources to better understand your options:

Boomer Benefits - Medicare Advantage vs Medigap (Medicare Supplement)

Boomer Benefits - Medicare Supplement Plans (Medigap)

Kevin mentioned that while Medicare expenses can rise with income, the impact may be less than assumed. Medicare costs are based on the Income-Related Monthly Adjustment Amount (IRMAA). Author Cody Garrett did the math and estimated that the cost is up to 3% of modified adjusted income from two years prior.

Affordable Care Act / Marketplace Plans

After that, we transitioned to pre-Medicare, which basically for traditional health insurance is the Affordable Care Act. In Washington you sign up via the WA Health Plan Finder.  An important thing to be aware of if children are involved, the income required for kids to not qualify for Medicaid in Washington is substantial. That being said, Cole has received positive feedback in the past from some people who have had their kids on CHIP / Apple Health.  One must decide for themselves if they want to make sure they have enough income to keep their kids off of Apple Health. The income limits for adults (who are not pregnant) are significantly lower.

When it comes to the ACA subsidy, there was a discussion that the marginal tax cost while getting the subsidy is higher than people realize. Cole had previously put together: The 2026 Subsidy Cliff and the Shadow Tax:  It’s (Probably) Back and It’s Expensive This shows the experienced marginal rates are much steeper when counting the loss of the credits. 

Furthermore, there are even more marginal costs that people incur as their income increases with respect to healthcare. In Washington, there is charity care where the hospital system by law has to give you a discount if you meet income requirements. How this program works differs slightly by every system, so you must investigate the system you use to make sure you understand the rules. More information is available at: Can't Afford Your Hospital Bill? Washington's Charity Care Law Might Be Your Lifeline

Cole also pointed out that if one expects the current system of ACA credits to continue in their current form, then it is important to understand that qualifying to be under the cliff is worth more for older people. As insurance costs are a function of age, a 64 year old person's policy costs are significantly more than a 30 year old's policy cost. 

• If they are both above the cliff, they both pay the "actual cost." 

• If they are both at the same income but below the cliff, they both pay the same amount as it is a function of income. 

Therefore, staying under the cliff matters more for the older person. If someone has to choose when to go over the cliff, have a bias to going over the cliff sooner than later. If someone goes over the cliff, the question ends up being how far over the cliff should they go with respect to recognizing income to ensure they can stay under the cliff in the future. More information is available at: The Art of Cliff Jumping: Why Jumping off the ACA Cliff Might Be Beneficial.

Cole repeatedly foot stomped the point that there are not any low marginal tax rate years in Washington, when you count things that do not appear on your 1040.

• Before 65, between the ACA credits and Charity Care, it creates a situation where there are significant marginal costs for increasing income. 

• After 65 (or anytime for those that are disabled), retirees face loss of income tested property tax discounts. 

For more information property tax discounts: Washington State Property Tax Exemptions: A Guide for Seniors & Disabled Persons and 2026 Planning for 2027 Savings: Updates for Washington State Property Taxes

Cole's point is that while WA does not have an "income tax", the discount program for property taxes is income tested. Therefore, one can quantify the discount as an income based marginal tax or tax reduction.

Kevin mentioned that many employees choose to go on COBRA after leaving the workforce. They don’t need to change healthcare providers and may continue to contribute to their Health Savings Account if they remain on a qualifying high-deductible health plan.

He also mentioned that many retirees have a working spouse with healthcare coverage. The benefits can be significant. This is the famed “Barista FIRE”, named in part for the benefits extended to some part-time Starbucks employees.

Kelly mentioned this was her experience. She was the working spouse. She had a tough time with the ACA finding doctors, so she went on COBRA. For her family, the math suggested COBRA was a better deal and she encouraged attendees not to rule it out.

Household Expenses

Kevin mentioned that he reviewed average household expenses. Yes, healthcare expenses tend to rise with age. However, there were a few bright spots.

Other household expenses tend to fall with age, adjusted for inflation. Vehicle costs tend to fall as we commute less. Clothing costs drop with less costuming. Food expenses fall as we dine out less and cook at home more. Social Security and Medicare flip from costs to benefits. Housing expenses fall as mortgages are paid down. Mortgage interest is an expense. A principal payment is more like moving money from one pocket to another. It doesn’t change net worth.

What really surprised Kevin was how consistent insurance premiums were as a percentage of total healthcare. It was about 60% to 70% across all age groups. Unfortunately, there’s no telling what the expenses will be for each of us.

Roth Contributions / Conversions

An audience member asked, “When should you pay tax to get dollars into a Roth as either a conversion or direct contribution?”  Cole and Kevin initially talked about how the book talks about doing it “when you pay less tax.”

Kevin prefers to forecast annual income taxes for the rest of someone’s life. People often pay a high marginal tax rate when they’re working. Early retirees may then have years where they pay little or no income tax because of their low income. If they’ve saved more than they need in pre-tax (traditional) retirement accounts, they may be impacted by Required Minimum Distributions (RMDs).

RMDs can generate taxable income and cause someone to pay a high tax rate. Kevin mentioned it often makes sense to shift taxable income from higher-income years to lower-income ones. That may mean reducing taxable income when working and then increasing taxable income in early retirement to fill the standard or itemized deductions and low tax brackets. This process can pull forward income and limit future Required Minimum Distributions.

Roth conversions generally require additional cash to pay the tax bill. Selling other investments to fund the tax payments could further increase taxes.

Cole takes this a set further and has a general framework to think through this. His framework includes the idea of regret avoidance:

• If you can pay a "true" 0%, 10% or 12% marginal tax, there are very few scenarios where this might end up a truly bad deal. If it is wrong, what is the pain of it being wrong? For the tax cost certainty and optionality was created. 

• If you are in the 30%+ range, generally pre-tax should be prioritized, because it takes someone being wildly successful in retirement to be able to get back to those 30%+ brackets. Even if one ends up marginally in the same range of brackets, why not pay tax later if it is the same?  The main thing that people should be concerned about if they are able to deduct income at 30%+ is Public Policy Risk. The book makes a significant argument that taxation of seniors is becoming more favorable, not less favorable, which reinforces the idea that taking the tax deduction in the 30%+ is probably a good idea. 

• This leaves the messy middle of the 22% and 24% tax brackets. One way to look at this is do you already have enough pretax to fill all the low tax brackets (0/10/12%)?

  • If you don't, then you probably should consider pre-tax.

  • If you do, then the decision becomes more nuanced and personal. How do you know if you have enough to fill all the low tax brackets? One has to build a long-term financial projection, or use the concepts laid out in these two old articles Is Your 401k Too Big and Is Your 401k Too Big – Part 2 adjusted for current tax law to determine if your pretax asset size is substantial enough to fill those brackets.

Cole mentioned that IRA contributions require earned income. Health Savings Account (HSA) contributions do not. Kelly clarified that the earned income could come from a spouse on a joint tax return. That’s known as a spousal IRA.

International Tax Planning

Cole and Kevin basically punted on this set of questions saying that there are experts out there that focus on multi-country taxation, and this is one of those areas that it is essential to get good advice from someone actually qualified to give it.

Kevin mentioned that there can be complications with Roth and Health Savings Accounts (HSAs). If another country taxes distributions, funds in these accounts could be taxed twice.

Cole mentioned that U.S. citizens and residents are generally taxed in income regardless of where in the world it’s earned. The IRS wants its cut. However, there are some tax treaties in place to limit double taxation.

An audience member questioned whether someone could receive Social Security benefits if they were to move abroad. Kevin mentioned that he believes it may depend on the country.

Another attendee asked about renouncing their citizenship. Cole mentioned there are many considerations with that decision.

An audience member shared that moving abroad can result in different tax treatments for capital gains, inheritance, and estate taxes. Also, some custodians may handle cross-border taxation more seamlessly than others.

Another attendee mentioned that some countries can be skeptical about mutual funds. Individual investments are more transparent. However, the country may ask for additional disclosure on the mutual funds. They also mentioned there may be an exit tax when moving abroad.

Yet another audience member cautioned that things can change. Bangkok used to be cheap. Now it’s not. It’s possible a country could exclude pre-existing conditions for healthcare.

Running out of Time - Early Termination

It felt like there were many more hours of questions, but we had to wrap up, because of the NFC Championship Game. Most importantly, the Hawks won and are off to the Superbowl. Hopefully, we can celebrate the Superbowl win when we get together the next time.

Save the Date

The next book club meeting is:

When: Sunday, March 8, 2026 - 10:30am - 12:30pm

Where: Greenwood Branch | The Seattle Public Library

Homework: Read Chapters 11-20

Recent Podcast: Cody Garrett and Sean Mullaney: ‘For Most Americans, You’re Going to Pay Less Tax in Retirement’ | Morningstar