Planning for Low Income Years

Summary of Planning for Low Income Years

by DIY Money

16m•January 28, 2026
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Overview of Planning for Low Income Years (DIY Money — episode: Planning for Low Income Years)

This episode answers a listener question from Zach, who plans to backpack for 6 months–2 years (mainly New Zealand) and asks how to manage cash, investments, retirement accounts and taxes while he’ll have little or no W‑2 income. Hosts Ali and Howard (with advisor commentary from Quint) walk through practical, tax-aware strategies to take advantage of low‑income years — especially Roth conversions — as well as account logistics, investment positioning while away, and other non‑tax items you must plan for.

Key takeaways

  • Low‑income years are a prime opportunity to do Roth conversions: you pay taxes now at a lower rate and allow future growth to be tax‑free.
  • Don’t wait to use tax‑efficient strategies until required minimum distribution (RMD) age — you can often reduce lifetime taxes by moving taxable money into Roths in low‑income years.
  • You must handle account logistics (403(b) → IRA rollovers, opening Roth IRA, custodian paperwork) before or during travel; this takes time and internet access.
  • Keep investments simple while traveling — passive/index allocations or target‑date funds are recommended to avoid frequent monitoring.
  • Don’t forget non‑investment practicalities: health insurance coverage, secure internet access for admin tasks, and budgeting for living/travel expenses.

What Zach asked (context)

  • Trip: 6 months–2 years backpacking (mainly New Zealand, possible other countries)
  • Accounts: high‑yield savings, brokerage account, 457(b), Roth IRA, traditional IRA
  • Main question: How to plan finances and what to do with money while earning zero W‑2 income

Detailed advice given

Tax strategy: Roth conversions

  • Use low‑income years to convert money from traditional/IRA accounts into a Roth IRA.
    • Conversions are taxable in the year converted, but future growth and qualified withdrawals are tax‑free.
    • Converting in a low‑income year can place you in a much lower tax bracket (or even cost little to nothing).
    • You can convert incrementally — no need to convert everything at once; pick amounts that keep you within desired tax brackets.
  • Important implementation notes:
    • 403(b) or 403B often must be rolled into an IRA first (usually after separation from service).
    • Open the receiving Roth account and process the IRA → Roth conversion via your custodian.
    • Do NOT elect voluntary tax withholding on the conversion; pay tax from other funds.
    • Consult a tax advisor to model marginal tax brackets and calculate optimal conversion amounts.

Account logistics and admin

  • Rolling 403(b) into an IRA can be slow and sometimes requires proof of separation from employer — plan ahead.
  • Each custodian has its own forms and processes for rollovers and conversions; expect some paperwork and e‑signing.
  • Ensure you’ll have secure internet, access to email, and the ability to sign documents (DocuSign) while traveling.

Investment positioning while away

  • Keep it simple and passive:
    • Index funds or a diversified passive allocation are recommended.
    • Consider target‑date funds if they match your risk profile and timeline.
  • Avoid holding investments you’ll be tempted to micromanage or that require frequent oversight. If you do hold concentrated or risky holdings that worry you, consider reducing exposure before leaving.
  • Adopt a long‑term mindset: investments should be chosen for 10+ year horizons; you shouldn’t need to react to daily market noise while backpacking.

Cashflow and budgeting

  • Time your cash needs — have enough liquid cash (HYSA or similar) for travel and emergency funds so you don’t need to tap retirement funds unexpectedly.
  • Decide which accounts you will draw from while away (e.g., brokerage or savings), not retirement accounts (unless necessary).
  • Plan expenses and potential tax bills from conversions in advance.

Health insurance and other practicalities

  • Health insurance is critical:
    • COBRA is often available immediately after leaving a job but can be expensive.
    • With low/no income you may qualify for subsidized coverage via healthcare.gov — check timing and rules.
    • For international travel, research travel or international health insurance options; domestic subsidies may not cover care abroad.
  • Think through logistics like mail forwarding, maintaining a U.S. address, and tax filing while abroad.

Actionable checklist (for someone about to travel)

  1. Model your projected income for travel years and estimate tax brackets.
  2. Decide target Roth conversion amounts (annual) that keep you in favorable tax brackets — consult a tax advisor.
  3. Initiate 403(b) → IRA rollover (do this early; it may require employer confirmation).
  4. Open Roth IRA and arrange IRA → Roth conversions with your custodian (avoid withholding).
  5. Fund travel cash reserve in a high‑yield savings account (cover living expenses + tax payments).
  6. Simplify investments into a passive allocation or target‑date fund; sell any holdings you don’t want to monitor.
  7. Arrange health insurance coverage (COBRA vs marketplace vs travel insurance).
  8. Set up secure internet access, email, and e‑signing capability; confirm custodial login details and two‑factor settings.
  9. Inform a trusted advisor or family member of access plans and contingency instructions.
  10. Keep records and receipts for tax purposes; plan for filing taxes while abroad or upon return.

Notable quotes & framing

  • “This is prime candidate…for someone who could look at what's called Roth conversion.” — hosts emphasize using the low‑income window strategically.
  • “The secret to wealth is pretty simple: live on less than you make, invest the rest, and do so for a very long time.” — closing mantra of the show.

When to seek professional help

  • If you have substantial balances in employer plans, complex tax situations, or uncertain future income, consult a CPA or financial planner to model:
    • The tax impact of conversions
    • State tax considerations and potential residency changes while abroad
    • Health insurance eligibility and optimal timing
  • Advisors can also help with custodial forms and ensuring conversions are handled correctly.

Quick resources to check

  • healthcare.gov for marketplace plans and subsidies
  • Your plan custodian(s) for 403(b) rollover procedures
  • Roth conversion calculators or a CPA to estimate taxable impact
  • Custodian support for e‑sign and conversion paperwork

If you’re planning a long trip like Zach’s, the main wins are pre‑trip preparation and using your low‑income years intentionally (Roth conversions, simple investments, and ensuring liquidity and insurance). Safe travels — and plan the finances before you backpack.