Most people spend decades focused on accumulating retirement savings. They maximize their 401(k), contribute to an IRA, build a taxable brokerage account, maybe open a Roth. By the time retirement arrives, they have money in multiple buckets — each with different tax treatment, different rules, and different long-term implications.
What very few people plan carefully is the order in which they draw from those buckets. That sequencing decision — which account to tap first, which to let grow, and when to shift — has a larger impact on how long your money lasts than most people realize.
Done well, a thoughtful withdrawal strategy can reduce your lifetime tax burden by tens of thousands of dollars, lower Medicare premium surcharges, reduce the taxation of your Social Security benefits, and leave more to your heirs. Done without a plan, the default approach often produces unnecessary tax bills year after year.
Here is how to think about it.
The Three Buckets of Retirement Money
Before sequencing withdrawals, it helps to understand the tax character of each account type. Most retirees have money spread across three categories.
Taxable accounts — brokerage accounts, savings, CDs — are funded with after-tax dollars. Growth is taxed annually as dividends or interest, and gains are taxed when you sell at long-term capital gains rates (0%, 15%, or 20%).
Tax-deferred accounts — traditional IRAs, 401(k)s, 403(b)s, SEP IRAs — are funded with pre-tax dollars. Every withdrawal is taxed as ordinary income. These accounts also carry Required Minimum Distributions starting at age 73.
Tax-free accounts — Roth IRAs and Roth 401(k)s — grow tax-free and allow qualified withdrawals completely tax-free with no lifetime RMDs.
The order you draw from these buckets determines your tax bracket each year, how much of your Social Security is taxable, and whether you trigger Medicare IRMAA surcharges.
The Conventional Wisdom — and Why It's Incomplete
The traditional guidance is to spend taxable accounts first, then tax-deferred, then Roth last. This lets tax-advantaged accounts compound longer.
That framework isn’t wrong, but it’s incomplete. Following it mechanically without considering your actual tax situation each year often leads to large, avoidable tax bills later — especially from big RMDs at age 73.
A smarter approach looks at your marginal tax bracket each year and strategically fills lower brackets.
Why the Early Retirement Years Are a Tax Planning Window
The years between retirement and age 73 (when RMDs begin) are often the best tax planning window of your life. Income is frequently lower, Social Security may not have started, and tax brackets can be favorable.
This is prime time for strategic IRA withdrawals and Roth conversions to reduce future tax exposure.
The RMD Problem
Starting at age 73, Required Minimum Distributions force taxable withdrawals from traditional IRAs and most retirement plans. For those with large balances, RMDs can push you into higher tax brackets, increase Social Security taxation, and trigger Medicare IRMAA surcharges.
Strategic withdrawals and Roth conversions before 73 can significantly reduce this future burden.
Roth Conversions: The Most Powerful Tool in the Window
A Roth conversion moves money from a traditional IRA to a Roth IRA. You pay tax now, but the money then grows and is withdrawn tax-free with no RMDs.
This strategy works best when your current tax rate is lower than your expected future rate. Many retirees in their 60s can fill the 22% or 24% brackets through conversions without jumping higher.
The Social Security Interaction
Pulling from tax-deferred accounts can increase the taxable portion of your Social Security benefits (up to 85%). The years before claiming Social Security are often ideal for larger conversions.
A Framework for Sequencing Withdrawals by Phase
Phase 1: Early Retirement (Before Social Security and RMDs)
Priority: Draw from taxable accounts first while executing Roth conversions to fill lower tax brackets. Goal: Reduce future RMDs and build tax-free Roth assets.
Phase 2: Social Security Begins
Priority: Continue using taxable accounts. Scale back conversions to avoid pushing income into higher brackets or triggering IRMAA.
Phase 3: RMDs Begin (Age 73+)
Priority: Satisfy RMDs first. Use Qualified Charitable Distributions (QCDs) where possible. Supplement with tax-free Roth withdrawals.
The Role of Taxable Accounts
Taxable brokerage accounts offer long-term capital gains rates and a step-up in cost basis at death, making them efficient for both income and inheritance.
Asset Location: The Foundation of Withdrawal Planning
Place income-generating assets (bonds, REITs) in tax-deferred accounts, high-growth assets in Roth accounts, and tax-efficient investments in taxable accounts.
This Is Not a Set-It-and-Forget-It Decision
Review your withdrawal strategy annually as tax laws, account balances, and personal circumstances change.
The advisors at Inventa Wealth Advisors help clients build and manage tax-smart withdrawal strategies that integrate Roth conversions, Social Security timing, RMD planning, and estate goals.
Our office is at 7440 South Creek Road, Suite 250, Sandy, UT 84093. We offer Telewealth virtual appointments nationwide. Visit inventawealth.com to schedule a consultation.
The information in this article is for educational purposes only and does not constitute legal, tax, or financial advice. Consult a qualified financial advisor and tax professional regarding your specific circumstances.