The Full Fit & Whealthy System

Pre-Tax (Staging) + Invested Tax Savings (Taxable Buddy) + Harvesting + Conversion Harvesting + Margin Optionality

Most people talk about pre-tax vs Roth like it’s a permanent fork in the road. Pick one. Commit forever. Hope your assumptions about income, life, markets, and tax law stay true for decades.

But your life isn’t a straight line. Markets aren’t a straight line. And taxes definitely aren’t a straight line. So instead of building a plan that only works in “perfect conditions,” I built a system that still works when things get hard: high income years, low income years, layoffs, market crashes, volatility spikes, unexpected expenses, divorce, changes in filing status, and everything else life throws at real people.

Here’s the system in one sentence: I use pre-tax as my staging area, I invest the tax savings into a taxable brokerage “buddy” account, and I use market cycles to harvest gains, harvest losses, and harvest conversions—while maintaining exposure and protecting my behavior.

Part 1 — The Real Comparison Everyone Gets Wrong

The broken debate is: Pre-tax vs Roth. That debate compares two things that are not equivalent because it ignores the most important variable: what happens to the tax savings created by pre-tax contributions.

Pre-tax is not a strategy by itself. Pre-tax is a two-step system:

• Step 1: Contribute pre-tax (reduce current taxes / increase cash flow).
• Step 2: Invest the tax savings into taxable (the “buddy” account).

If you contribute pre-tax and then spend the savings, you didn’t optimize—you just deferred. In this framework, every dollar of tax savings is redirected into taxable to compound, create flexibility, and unlock levers that retirement accounts cannot provide.

Roth:
- Pay tax now (today’s marginal rate)
- Contribute after-tax
- No tax savings created
- No taxable companion account created
- No loss harvesting
- No margin access
- Less timing flexibility later

Pre-Tax + Invested Tax Savings:
- Avoid tax now (deferral = optionality)
- Tax savings becomes investable cash flow
- Tax savings is invested into taxable buddy
- Taxable buddy enables harvesting + margin + liquidity
- Downturns become opportunities (not threats)
  

Part 2 — Why Roth Can “Lock In” a Tax Outcome

Roth contributions can be great tools. But they come with a tradeoff most people ignore: Roth contributions are a permanent tax decision made at today’s marginal rate.

When you go Roth, you’re choosing certainty now. That’s not always wrong—but certainty can be expensive. You don’t get to revisit that decision later when your income changes, when credits change, when a downturn creates a conversion discount, or when your filing status changes.

Pre-tax is different. Pre-tax preserves the right to decide later. And in tax planning, the right to decide later is often the entire advantage.

Part 3 — The Taxable “Buddy” Account: The Control Panel

The taxable brokerage account funded by the pre-tax savings is not an afterthought. It becomes the control panel for the whole system because it can do things retirement accounts cannot:

• Capital loss harvesting (turn downturns into tax assets).
• Capital gain harvesting (fill the 0% / 15% LTCG bands intentionally).
• Liquidity without retirement rules (no 59½ gate, no ordering rules).
• Margin capability (liquidity without liquidation, when used conservatively).

This matters because the real enemy in wealth building is not the market—it’s behavior under stress. The taxable buddy account reduces the chance that you panic-sell, break your plan, or get forced into the wrong move at the wrong time.

Part 4 — Harvesting: Gains, Losses, and Conversions

A) Capital Gain Harvesting (Tax Timing, Not Market Timing)

When markets are up, and my taxable position has appreciated, I can choose to realize long-term capital gains when my income stack allows it. This is not predicting the market. It’s managing the tax stack.

The key concept: ordinary income fills the stack first, and long-term capital gains sit on top. That means how much of your LTCG is taxed at 0% vs 15% vs 20% depends on your taxable ordinary income.

B) Capital Loss Harvesting (Turning Pain Into an Asset)

In a meaningful downturn, taxable accounts can show losses. That’s not “bad”—it can be strategically powerful. Losses can offset gains (and some ordinary income), and anything unused carries forward.

This is where your ETF logic matters: in a loss-harvest move, I can sell VT and maintain exposure using VOO + VXF + VXUS (a global “not identical” blend). The goal is to keep my money working while converting the drawdown into a tax asset.

C) Conversion Harvesting (The Discount Window)

Downturns can create a “discount window” for conversions: if pre-tax balances are lower, you can convert the same share exposure at a lower market value. You’re harvesting volatility.

Combine conversion harvesting with taxable loss harvesting and you’re layering levers: market drop → cheaper conversion values + harvested losses + bracket management.

Part 5 — Margin: Liquidity Without Liquidation

This is the feature most retirement accounts simply do not offer: margin capability in taxable. Roth and pre-tax retirement accounts are gated by rules. They are not designed to be collateralized the same way.

In the Fit & Whealthy framework, margin is not “leverage for gambling.” It’s a conservative liquidity buffer—a tool that can help you avoid selling at the worst possible time.

The psychological effect matters: knowing you have a buffer can reduce panic behavior. Sometimes the best return isn’t a bigger number—it’s not making the mistake.

Part 6 — Fitness Parallel: Periodization Beats Permanent Max Effort

Roth-only can feel like training at the same intensity forever: clean, simple, consistent—but not adaptive. Your full system is periodization:

• High income season → pre-tax + invest savings.
• Downturn season → harvest losses + convert at a discount.
• Low income season → harvest gains inside favorable LTCG bands.
• Always → stay invested, stay consistent, protect behavior.

In the gym, the goal is not to PR every session. It’s to build a body you can maintain. In wealth, the goal is not to outguess every year. It’s to build a system you can sustain for decades.

Fit & Whealthy Master Calculator

Includes: ordinary bracket tax, LTCG stacking, qualified dividends, NIIT toggle, multi-year loss carryforward schedule, VT ↔ VOO/VXF/VXUS harvest workflow (guardrails), max-convert-to-bracket mode, and max-0%-LTCG mode.

Closing Thought

This isn’t about being anti-Roth. This is about being pro-optional. Roth is a tool. Pre-tax is a tool. Taxable is a tool. Harvesting is a tool. Margin (used conservatively) is a tool. The Fit & Whealthy edge is that you don’t choose a single tool—you build a system.

The same rule applies in the gym: the best program isn’t the most extreme. It’s the one you can run through hard seasons without breaking. That’s how strength compounds. That’s how wealth compounds.