Bridge accounts: the gap years when you're too old for paychecks and too young for penalty-free IRAs

By Tom, CPA · Updated October 25, 2026

TL;DR: A bridge is the money that pays your bills between leaving work and the age when retirement accounts open freely (59½ for most IRAs). Common bridge sources are taxable brokerage accounts, cash, Roth IRA contributions, seasoned Roth conversions, a governmental 457(b), the Rule of 55, and 72(t) payments. Size it by years of spending times annual cost, plus a buffer.

Educational only, not tax, legal, or investment advice. Examples are illustrations, not predictions. Rules and limits change; verify current figures and talk to a qualified professional about your situation.

Early retirement has an awkward middle chapter. You've left the paycheck behind, but most of your money sits in accounts that charge a 10% cover fee to enter before 59½. The bridge is how you cross that canyon without paying the toll or eating ramen for a decade.

Good bridges are boring on purpose: a few dependable sources, sized with a buffer, used in a sensible order. Let's size one, look at each plank, and then walk across with a worked example.

CPA Warning Label: A bridge built from one source has one point of failure. Mixing taxable assets, Roth contributions and an early-access option gives you more ways across when markets or plans misbehave.

Sizing the bridge

Start with three numbers:

1. Years to bridge: retirement age to 59½ (or to the age when your chosen access method kicks in).
2. Annual spending: including health insurance, which is often the largest new cost for early retirees.
3. Other income: part-time work, rental income, a spouse's paycheck.

Bridge need ≈ years × (spending − other income) + buffer. A buffer of one to two years of spending covers bad markets and surprise expenses. For a 45-year-old spending $60,000 a year with no other income, that's 14.5 years × $60,000 = $870,000, before the buffer and before any help from conversions or early-access rules. That number looks scary, which is why most bridges combine several planks, including some that use retirement money early without the 10%.

Plank 1: the taxable account

A regular brokerage account is the most flexible bridge. There's no age rule, and selling investments generates long-term capital gains on the growth, not ordinary income on the whole withdrawal.

• Only the gain is taxed, and under current law long-term gains can be taxed at 0% for part of a low-income household's income.
• Selling high-basis lots first keeps taxable income low, leaving room for Roth conversions.
• Qualified dividends add income each year whether you sell or not, so they count against your bracket plan.
• Low-income years in early retirement are also good years to "harvest" gains at 0% and reset basis.

The drawback: no tax break going in. That's why most people build taxable accounts after the 401(k) match, HSA and IRAs, or in addition to maxing them for an early-retirement target.

Plank 2: Roth contributions and seasoned conversions

Roth IRA contributions can be withdrawn at any time, any age, with no tax or 10% additional tax, because they come out first under the ordering rules. If you and a spouse contributed $7,500 each for 10 years, that's $150,000 of accessible bridge money, even if the account has grown to much more.

Converted amounts are next in line, and each conversion becomes penalty-free after its own five-year period. That's the Roth conversion ladder: taxable accounts carry years 1–5, then seasoned conversions take over. Earnings come last and are usually best left alone until 59½ and five years.

Plank 3: early-access rules for retirement accounts

See the Rule of 55, 457(b) and 72(t) guides.

Sequencing with 72(t) and the Rule of 55

• Retiring at 55 to 59: the Rule of 55 often covers everything. Leave enough money in the last employer's plan, don't roll it all to an IRA.
• Retiring at 50 to 54: taxable account plus Roth contributions for a few years, then possibly a 72(t) on one IRA if the bridge runs short.
• Retiring at 40 to 49: taxable account for years 1–5, a Roth ladder after that, and a 72(t) as a backup if the taxable account underperforms.
• Splitting IRAs: a 72(t) can be run from one IRA only; the rest stays flexible for conversions. Split accounts before starting.

Illustration: a bridge from 47 to 59½

Illustration (assumptions): Fran retires at 47 in 2026, single, spending $50,000 a year including health insurance. She has $300,000 in a taxable account (basis $200,000), $70,000 of Roth IRA contributions (account worth $110,000), $750,000 in a traditional IRA, and $40,000 of saved HSA receipts. Returns and inflation are ignored for clarity.

• Ages 47–52 (6 years): taxable account, $300,000. Each year she also converts about $45,000 to Roth. With the $16,100 standard deduction, that's $28,900 of taxable income, mostly in the 12% bracket, with federal tax of roughly $3,220.
• From about 52: her 2026 conversion is seasoned January 1, 2031, and one more rung matures each year after that, about $45,000 a year. Roth contributions and HSA receipts fill any gaps.
• Ages 56–59½: more seasoned rungs; a 72(t) on part of the IRA stands by as a fallback.

Her bridge has four planks and a backup. If the market drops 30% in year one, she can lean on Roth contributions and HSA receipts for a year rather than selling stocks at a low. That flexibility is the whole point.

Health insurance is part of the bridge

The bridge isn't only money; it's the coverage you buy with it. Marketplace premium tax credits depend on MAGI, so the mix of planks changes your premium. Withdrawing Roth contributions or high-basis taxable lots creates little MAGI; conversions and pre-tax withdrawals create a lot. Planning the bridge and the health insurance budget together often saves more than any investment tweak.

Where to keep the next few years of spending

Bridge money you'll spend soon shouldn't ride the same roller coaster as money you'll spend in 20 years. A common structure is a "spending runway":

• Year 1–2 of spending: high-yield savings, money market funds, or short Treasury bills. Boring, liquid, and immune to stock crashes.
• Years 3–5: short-term bond funds, CDs or I bonds held at least 12 months.
• Beyond year 5: the diversified long-term portfolio, which also refills the runway in good years.

Each year, top up the runway by selling whatever is up. In a bad year, spend from the runway and leave the stocks alone to recover. This won't maximize returns in a straight-line bull market, but it keeps the bridge from collapsing in the one scenario that hurts early retirees most: a crash in the first few years. Think of it as guardrails on the bridge rather than a speed bump.

A yearly bridge check-up

Once a year, compare what is left in each plank with the years remaining to 59 and a half. If the taxable account is shrinking faster than planned, the fix is usually small and early: trim spending a little, take a part-time project, or increase conversions so later rungs are bigger. Waiting until the last plank is nearly gone leaves only expensive options.

Common mistakes

• Rolling the last employer's 401(k) to an IRA at 55 and losing Rule of 55 access.
• Counting Roth earnings as bridge money.
• Forgetting that conversion clocks start January 1 of the conversion year.
• Ignoring sequence-of-returns risk in the first five years.
• Withholding tax from conversions before 59½, which can trigger the 10% on the withheld amount.
• Leaving the bridge in volatile investments when you'll spend it in two years.