Retirement is a time to enjoy the results of decades of saving, investing, and planning. But without a thoughtful approach to withdrawals, retirees may face tax surprises that impact their income and long-term financial goals. Implementing tax-aware withdrawal strategies in retirement can help support income consistency while managing the impact of taxes on your overall plan.
Where your income comes from matters. Different account types carry different tax treatments, and how you coordinate distributions can influence everything from your annual tax bill to your Medicare premiums.
Understanding Account Types and Their Tax Treatment
Most retirement income strategies involve drawing from several types of accounts, each with distinct tax characteristics:
- Tax-deferred accounts (Traditional IRAs, 401(k)s): Withdrawals are taxed as ordinary income
- Tax-free accounts (Roth IRAs): Qualified withdrawals are tax-free
- Taxable accounts (Brokerage or investment accounts): Only capital gains, dividends, and interest are taxed
A key goal of tax-aware withdrawal strategies in retirement is determining the most efficient sequence for accessing these funds. There’s no one-size-fits-all order—it depends on your income needs, tax bracket, and other financial factors.
The Traditional Approach: Taxable, Then Tax-Deferred
One commonly referenced strategy is withdrawing from taxable accounts first, followed by tax-deferred accounts, and saving Roth IRA withdrawals for later. This sequence allows tax-free assets to continue growing while limiting taxable income early in retirement.
However, while this strategy may work in some cases, it’s not ideal for everyone. It can lead to larger required minimum distributions (RMDs) down the road, which may increase taxes significantly in later retirement years. That’s why it’s important to revisit your plan regularly and consider a more balanced approach.
Blended Withdrawal Strategies
Instead of following a fixed order, some retirees use a blended approach that pulls income from multiple account types each year. This strategy can help:
- Maintain income while smoothing out annual tax liability
- Avoid large spikes in income that affect Medicare premiums or tax credits
- Reduce the size of tax-deferred accounts gradually before RMDs begin
For example, you might withdraw a portion of your income from a traditional IRA and another portion from a Roth IRA to manage your total taxable income and stay within a preferred tax bracket.
Blended strategies can be particularly helpful between retirement and age 73, when RMDs begin.
Strategic Roth Conversions
Strategic Roth conversions may also play a role in tax-aware withdrawal strategies in retirement. By converting a portion of tax-deferred assets into Roth IRAs during years when taxable income is lower, you may reduce future RMDs and create more flexibility later.
When planned carefully, these conversions can potentially shift assets into a tax-free environment over time, which may support income planning and legacy considerations.
Managing RMDs Thoughtfully
Once you reach age 73 (as of 2025), you must begin taking RMDs from traditional IRAs and 401(k)s. These distributions are added to your taxable income and can sometimes push you into higher tax brackets.
Strategies to manage RMDs may include:
- Drawing down tax-deferred accounts before RMD age to reduce future required amounts
- Using qualified charitable distributions (QCDs) to donate directly from an IRA to a qualified charity, which may count toward your RMD without increasing taxable income
- Coordinating RMDs with Social Security timing to avoid overlapping high-income years
The earlier you begin planning for RMDs, the more options you have to adjust your withdrawal strategy.
Considering Tax Bracket Management
One of the core goals of tax-aware withdrawal strategies in retirement is tax bracket management. Keeping taxable income within a target range may reduce exposure to:
- Higher marginal tax rates
- Increased Medicare Part B and D premiums
- Additional taxes on Social Security benefits
Using tools such as Roth withdrawals or capital gains harvesting from taxable accounts, retirees may be able to fill lower brackets without crossing into higher tax thresholds.
Working with a financial advisor and tax professional can help identify opportunities for year-by-year adjustments that align with your long-term goals.
Coordinating with Social Security and Other Income Sources
Social Security benefits may be taxable depending on your total income, including withdrawals from retirement accounts and investment earnings. Up to 85% of benefits may be subject to federal income tax if income exceeds certain thresholds.
Careful coordination of Social Security benefits with other sources of income can help reduce unnecessary tax exposure. Delaying Social Security and relying on other income sources early in retirement may also provide tax advantages, depending on your broader plan.
Reviewing Your Withdrawal Strategy Regularly
Retirement isn’t static. As your lifestyle, expenses, and income sources change, your withdrawal strategy should evolve as well. Annual reviews allow you to:
- Adjust for market performance or unexpected expenses
- Respond to changes in tax laws or bracket thresholds
- Coordinate distributions with healthcare needs or large purchases
Building flexibility into your withdrawal strategy helps ensure that your income plan remains responsive and tax-aware over time.
Putting Tax-Aware Withdrawal Strategies in Retirement into Action
Tax-aware withdrawal strategies in retirement aren’t about avoiding taxes entirely—they’re about managing when and how you recognize income. By coordinating your withdrawals across accounts and planning ahead, you can work toward more consistent income and fewer surprises over the course of your retirement.
Connect with SageGuard Financial Group for a Personalized Review
At SageGuard Financial Group, we help clients build tax-aware withdrawal strategies in retirement that reflect their financial priorities, income needs, and evolving tax landscape. Contact us to schedule a review of your income plan and explore how thoughtful withdrawal timing can support your retirement goals.
