Originally published March 2015. Last updated March 2026.
When you retire, how you withdraw money matters almost as much as how much you saved. Two strategies can keep more money in your pocket and less going to the IRS.
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1. Build After-Tax Wealth Now
Roth accounts (Roth IRA and Roth 401(k)) are funded with after-tax dollars. You pay tax now, but withdrawals in retirement are completely tax-free. This means your taxable income in retirement is lower, which can:
- Keep you in a lower tax bracket
- Reduce the amount of Social Security that’s taxable (up to 85% can be taxed if income is high enough)
- Avoid Medicare surcharges (IRMAA) that kick in above $106,000 single / $212,000 married
If you’re currently in a lower tax bracket than you expect to be in retirement (or if you think tax rates will rise), prioritize Roth contributions. The 2025 limits: $7,000/$8,000 for IRAs, $23,500/$31,000 for 401(k)s.
Roth conversions are another powerful tool. Converting traditional IRA or 401(k) funds to a Roth during lower-income years (early retirement, before Social Security and RMDs start) lets you pay tax at today’s rates and lock in tax-free growth.
2. Draw From the Right Accounts in the Right Order
The conventional wisdom: withdraw from taxable accounts first, then tax-deferred (traditional IRA/401(k)), then Roth. The logic is letting tax-advantaged accounts grow longer.
But the optimal order depends on your situation:
- Taxable accounts first (brokerage): Long-term capital gains rates (0%, 15%, or 20%) are usually lower than ordinary income rates.
- Tax-deferred accounts (traditional IRA/401(k)): Withdrawals are taxed as ordinary income. Required minimum distributions start at age 73 (75 if born 1960+), so you’ll be forced to take these eventually.
- Roth accounts last: Tax-free withdrawals and no RMDs make these ideal to keep growing as long as possible.
The real art is blending withdrawals from multiple account types each year to “fill up” lower tax brackets without spilling into higher ones.
FAQ
Should I do Roth conversions in retirement?
Often, yes. The years between retirement and age 73 (when RMDs start) can be a sweet spot for conversions. Your income may be lower, and converting now reduces future RMDs. Run the numbers with your advisor to find the right annual conversion amount.
What about the 4% withdrawal rule?
The 4% rule is a starting point, not a law. A better approach: calculate your actual expenses, subtract guaranteed income (Social Security, pensions), and withdraw the remainder from the optimal mix of accounts. Adjust annually based on market performance and spending.
Schedule a free 20-minute consultation to build a tax-efficient withdrawal strategy for your retirement.
R.L. Brown Wealth Management
106 W Vine St, Suite 300, Lexington, KY 40507
859.317.5889
