Most people spend decades saving for retirement. But how you spend it matters just as much as how you saved it—especially when taxes are involved. Without a clear withdrawal strategy, affluent retirees risk paying more in taxes than necessary and shrinking their nest egg faster than they need to. That’s why tax-efficient withdrawal sequencing is one of the most powerful levers in retirement planning.
In this post, we’ll explore how to sequence your withdrawals in retirement to reduce your lifetime tax bill, increase portfolio longevity, and give you more control over your financial future.
Why Withdrawal Order Matters
Taxes in retirement don’t disappear. In fact, without careful planning, they may increase. That’s because most retirement savings accounts, like Traditional IRAs and 401(k)s, are tax-deferred. When you take money out, it’s taxed as ordinary income.
Understanding the order of withdrawals is critical because it determines your tax bracket each year and how much you lose to taxes over time. For example:
- Meet John and Mary: They’re both 60 and recently retired. They have $3 million in savings: $1M in a taxable brokerage account, $1.5M in a Traditional IRA, and $500K in a Roth IRA. How they draw down their assets will impact whether they pay 15%, 22%, or 32%+ in taxes in any given year—and whether they trigger higher Medicare premiums down the line.
By structuring withdrawals to "fill up" lower tax brackets and avoid spikes, John and Mary can save tens or even hundreds of thousands over a 30-year retirement. At Wealthquest, our in-house tax department—staffed with multiple CPAs—makes designing and executing strategies like these easier, more cost-efficient, and more precise. Instead of coordinating across disconnected professionals, clients benefit from real-time collaboration between their advisor and tax team, all under one roof.
The Three-Bucket Framework
Think of retirement accounts in three buckets:
- Taxable: Brokerage accounts with investments taxed annually on dividends, interest,
and realized capital gains. - Tax-Deferred: Traditional 401(k)s, IRAs, and other accounts where taxes are owed
upon withdrawal. - Tax-Free: Roth IRAs and HSAs (if used for qualified expenses), which grow and can be
withdrawn tax-free.
Each has pros and cons:
- Taxable accounts offer flexibility and capital gains treatment but less tax deferral.
- Tax-deferred accounts allow long-term growth but may create RMD issues.
- Tax-free accounts are incredibly valuable but often limited in size.
Using the right mix at the right time allows you to manage your tax exposure each year.
Common Withdrawal Strategies
Let’s break down the most common approaches to drawdowns:
1. Traditional Approach: Taxable → Tax-Deferred → Roth
This method prioritizes spending taxable assets first, then IRAs, then Roth IRAs.
- Pros: Lets Roth assets grow the longest; reduces taxable income early.
- Cons: Can cause large RMDs later and push you into higher brackets in your 70s and
80s.
2. Proportional Withdrawal
Withdraw from all account types in proportion to their values.
- Pros: Simple to implement.
- Cons: May miss opportunities for tax arbitrage and strategic bracket management.
3. Tax Bracket Management (Recommended)
Withdraw strategically to keep your marginal tax rate as low as possible.
- Example: Use IRA withdrawals or Roth conversions to fill up the 12% or 22% bracket,
then switch to taxable or Roth if nearing a higher bracket.
This approach requires annual planning but can dramatically improve tax efficiency.
Roth Conversion Planning
One of the best tools in a tax-efficient drawdown plan is the Roth conversion. Here’s how it
works:
- Move money from a Traditional IRA to a Roth IRA.
- Pay taxes now (at a known rate).
- Withdraw tax-free later, with no RMDs.
The sweet spot for conversions is often between retirement and age 73 (when RMDs begin). With lower income during this phase, you can convert at lower tax rates.
- Beware of Medicare IRMAA: If you convert too much and your income rises above
certain thresholds, you may face higher Medicare premiums. In 2025, that threshold
starts at $103,000 for individuals and $206,000 for couples.
Other planning tips:
- Convert gradually over several years.
- Consider converting up to—but not into—the next tax bracket.
- Coordinate with Social Security and other income streams.
Social Security & Withdrawal Timing
Delaying Social Security until age 70 increases your monthly benefit by up to 8% per year. But it also creates a withdrawal gap you need to fill.
Using taxable and tax-deferred accounts to bridge this gap creates room for Roth conversions and bracket planning.
Also consider:
- Up to 85% of your Social Security may be taxable depending on your provisional
income. - With smart planning, you can reduce this taxation and preserve more of your benefit.
Mistakes to Avoid
Even well-intentioned retirees can make costly errors:
- Triggering excessive capital gains in taxable accounts
- Missing Roth conversion windows before RMDs begin
- Ignoring Medicare thresholds (IRMAA)
- Treating withdrawal strategy as set-and-forget instead of reassessing annually
Building a Personalized Withdrawal Plan
There is no one-size-fits-all approach. Your plan should reflect:
- Portfolio composition
- Longevity expectations
- Charitable goals
- Healthcare needs
- State tax considerations
- Inheritance plans
A good advisor can help you:
- Run tax projection models
- Optimize your bracket usage
- Plan conversions and RMDs
- Align withdrawals with lifestyle spending
Conclusion: Keep More of What You Earned
A smart withdrawal plan is about more than spreadsheets and tax forms. It’s about control. It’s about keeping more of what you worked hard to earn. It’s about giving yourself peace of mind in retirement.
Our “All Under One Roof” approach brings together tax, investment, retirement, and estate planning with one coordinated team. That means you avoid juggling professionals or disconnects in your strategy.
If you’re approaching retirement and want to build a tax-efficient withdrawal plan that supports your lifestyle and legacy goals, schedule a conversation with Wealthquest today. We’ll help you create a strategy that gives you more freedom—and fewer surprises.
For informational purposes only. Past performance is not indicative of future results. Investing involves risk, including the possibility of loss of principal. Wealthquest Corporation (“Wealthquest”) is an SEC registered investment adviser. Registration as an investment adviser does not imply a certain level of skill or training. The ideas and opinions expressed herein do not constitute legal, tax, or investment advice or a recommendation of any particular security or strategy. Before making any investment decision, you should seek expert, professional advice and obtain information regarding the legal, fiscal, regulatory and foreign currency requirements for any investment according to the laws of your home country and place of residence. Any forward-looking statements or forecasts are based on assumptions and actual results may vary. Information presented from third parties is believed to be reliable, but no warranty is provided. Wealthquest is not required to update information presented, unless otherwise required by applicable law. For more information about Wealthquest, including our Form ADV Part 2A Brochure, please visit https://adviserinfo.sec.gov/firm/summary/141473 or contact us at 513-530-9700
