The Complete Guide to Tax-Smart Retirement Withdrawals
The withdrawal sequencing framework — which accounts to draw from, when to convert to Roth, how to manage IRMAA cliffs, and year-by-year tax bracket optimization.
“It’s not how much money you make, but how much money you keep, how hard it works for you, and how many generations you keep it for.
— Robert Kiyosaki
Overview
You spent decades saving for retirement. Now the challenge flips: how do you spend that money in a way that minimizes the tax bite and maximizes what your portfolio can support? The difference between a naive withdrawal strategy and an optimized one can be $100,000-$300,000 in lifetime tax savings — money that stays in your portfolio instead of going to the IRS.
This guide is the most technical on the site. It’s designed for people approaching or already in retirement who have assets in multiple account types and want to sequence withdrawals optimally. If you’re earlier in your career, our Complete Retirement Planning Guide covers the full arc from accumulation through distribution.
Who This Guide Is For
- •People within 5-10 years of retirement planning their transition
- •Current retirees with assets in Traditional, Roth, and taxable accounts
- •Anyone navigating Roth conversions, RMDs, IRMAA, or Social Security timing
What You’ll Learn
The Retirement Tax Landscape
Before you can optimize withdrawals, you need to understand how different income sources are taxed in retirement. The interactions are more complex than during your working years — your Social Security taxation, Medicare premiums, and capital gains rates all depend on your total income picture.
Your Three Tax Buckets
Every retirement asset falls into one of three tax categories. The goal is to have meaningful balances in all three — giving you a “tax dial” to control your taxable income each year.
Tax-Deferred
Traditional IRA, 401(k), 403(b), TSP
Every dollar withdrawn is taxed as ordinary income
Subject to RMDs at age 73+
Tax-Free
Roth IRA, Roth 401(k), HSA (medical)
Qualified withdrawals are completely tax-free
Roth IRA: No RMDs. Roth 401(k): RMDs (roll to Roth IRA to avoid)
Taxable
Brokerage accounts, savings, CDs
Dividends and gains taxed; basis withdrawn tax-free
Long-term capital gains rates (0%, 15%, or 20%)
How Retirement Income Is Taxed
| Income Source | How Taxed | Affects MAGI? | Affects SS Taxation? |
|---|---|---|---|
| Traditional IRA/401(k) withdrawal | Ordinary income rates | Yes | Yes |
| Roth IRA withdrawal | Tax-free | No | No |
| Social Security | 0%, 50%, or 85% taxable | Yes (if taxable) | N/A |
| Pension income | Ordinary income rates | Yes | Yes |
| Long-term capital gains | 0%, 15%, or 20% | Yes | Yes |
| Qualified dividends | 0%, 15%, or 20% | Yes | Yes |
| Interest income | Ordinary income rates | Yes | Yes |
| HSA withdrawal (medical) | Tax-free | No | No |
| Roth conversion | Ordinary income rates | Yes | Yes |
The key insight: Roth withdrawals and HSA withdrawals are invisible to the tax system — they don’t trigger Social Security taxation, IRMAA surcharges, or capital gains bracket changes. This makes Roth dollars uniquely valuable in retirement.
The Tax Torpedo: Social Security Taxation
Social Security benefits are taxed based on your “provisional income” — a measure that includes half your Social Security benefit plus all other taxable income. This creates a zone where each additional dollar of income is effectively taxed at much higher rates than the bracket suggests.
| Provisional Income Single / Married | % of SS Benefits Taxable | Effective Marginal Impact |
|---|---|---|
| Under $25K / $32K | 0% | No tax on benefits |
| $25K-$34K / $32K-$44K | Up to 50% | Each $1 of income can cause $1.50 in taxable income |
| Above $34K / $44K | Up to 85% | Each $1 can cause $1.85 in taxable income — the "torpedo" |
The Torpedo in Action
In the 50%-to-85% transition zone, an additional $1,000 in Traditional IRA withdrawals can create $1,850 in new taxable income ($1,000 + $850 of newly-taxable Social Security). In the 22% bracket, that $1,000 withdrawal costs $407 in federal tax — an effective rate of 40.7%, even though the bracket is “only” 22%. This is why strategic use of Roth withdrawals (which don’t count as provisional income) is so valuable.
The Withdrawal Sequence
The order in which you tap your accounts is the single biggest controllable factor in your retirement tax bill. A small change in sequencing can shift tens of thousands of dollars from the IRS back into your portfolio over a 30-year retirement.
The Conventional Wisdom (and Why It’s Wrong)
The standard advice is simple: spend taxable first, then tax-deferred, then Roth last. The logic is appealing — let tax-free accounts grow as long as possible. But this approach has a critical flaw: it leaves your Traditional balances untouched, growing larger until RMDs force massive taxable withdrawals in your 70s and 80s.
The Conventional Approach
- 1. Spend taxable accounts first
- 2. Spend tax-deferred accounts next
- 3. Spend Roth accounts last
Problem: Tax-deferred balances grow unchecked, creating enormous RMDs that push you into high brackets and trigger IRMAA surcharges. You pay more tax overall.
The Dynamic Approach
- 1. Take RMDs (mandatory)
- 2. Fill low brackets with Traditional + conversions
- 3. Use taxable for LTCG-friendly spending
- 4. Use Roth for spiky expenses and high-income years
Advantage: Proactively draws down Traditional balances, reduces future RMDs, and uses each account type at the moment it’s most tax-efficient.
The Dynamic Withdrawal Strategy
The dynamic strategy adapts every year based on your current tax situation. Here’s the decision framework:
Satisfy RMDs from Traditional accounts
This is mandatory taxable income. It forms the floor of your tax picture.
Determine your target taxable income for the year
What bracket do you want to fill to? Usually the top of the 12% or 22% bracket — sometimes higher if IRMAA thresholds permit.
Fill the remaining bracket with Traditional withdrawals or Roth conversions
If your RMDs + Social Security don’t fill the target bracket, take additional Traditional withdrawals or convert to Roth up to the line.
Fund spending above the bracket target from Roth or taxable accounts
If you need more income than the target allows, pull from Roth (invisible to taxes) or taxable (favorable capital gains rates).
Harvest capital gains in the 0% bracket if room remains
If taxable income is under ~$94,000 (married), long-term capital gains are taxed at 0%. Sell and immediately repurchase to reset the cost basis.
Bracket Filling: The Core Technique
Bracket filling means deliberately generating taxable income up to the top of a chosen bracket — and no further. The key insight: an empty bracket is a wasted opportunity. If your RMDs and Social Security only put you in the 10% bracket, and you have room in the 12% and 22% brackets, you should fill that space with Roth conversions or additional Traditional withdrawals.
| 2025 Bracket Married Filing Jointly | Taxable Income Range | Bracket Space | Strategy |
|---|---|---|---|
| 10% | $0-$23,850 | $23,850 | Always fill this — it’s nearly free |
| 12% | $23,851-$96,950 | $73,100 | Fill with conversions. 12% now is a bargain vs. 22%+ later. |
| 22% | $96,951-$206,700 | $109,750 | Fill partially if conversions at 12% are complete. Watch IRMAA. |
| 24% | $206,701-$394,600 | $187,900 | Rarely optimal to fill unless facing very large future RMDs. |
| 32%+ | Above $394,600 | — | Almost never worth converting here. Use Roth for spending. |
*After the standard deduction of $32,300 for married filing jointly in 2025. A couple with no other income can convert $96,950 + $32,300 = $129,250 of Traditional IRA to Roth while staying in the 12% bracket.
The Roth Conversion Ladder
The Roth conversion ladder is the most powerful tax optimization technique available to pre-retirees and early retirees. It moves money from Traditional accounts (taxed later at unknown rates) to Roth accounts (tax-free forever) while you’re in a low bracket.
The Gap Years Explained
The “gap years” are the period between retirement and the start of Social Security and/or RMDs — when your taxable income is at its lowest. This is the conversion window.
Typical Gap Year Windows
Retire at 60, SS at 67
7 years
Excellent — long window, low income
Retire at 62, SS at 67
5 years
Good — still meaningful conversion space
Retire at 65, SS at 67
2 years
Limited — but two years at 12% is still valuable
The Conversion Math
The decision to convert boils down to: is my tax rate now lower than the rate I’d pay on this money later? If yes, convert. If no, don’t. The challenge is estimating the “later” rate, which depends on future RMDs, Social Security, and potential tax law changes.
Conversion Break-Even Example
Convert Now (Age 62, Gap Year)
Don’t Convert (RMD at Age 78)
Converting at 12% today saves $20,000-$28,000 vs. paying 22%+ later on the grown balance — and that’s before accounting for the tax drag of IRMAA and Social Security taxation.
Model Your Roth Conversions
Net Benefit of Converting
+$42,567
at retirement, compared to leaving in Traditional
Tax Cost Now
$12,000
Roth Value (tax-free)
$193,484
Traditional (after-tax)
$150,918
After-Tax Portfolio Value Over Time
For a comprehensive conversion analysis, see our Roth Conversion Strategies Insight.
Constraints: ACA, IRMAA & State Taxes
The optimal conversion amount isn’t just about the federal bracket — it interacts with three other systems:
ACA Subsidies (pre-65)
Conversions increase MAGI, which can reduce or eliminate marketplace insurance subsidies. A $60K conversion might cost an extra $5,000-$10,000 in lost subsidies.
Tip: Model subsidy cliffs before converting. Stay below 400% FPL if subsidies are critical.
IRMAA (65+)
IRMAA uses MAGI from 2 years prior. A large conversion at age 63 triggers IRMAA surcharges at age 65 when you enroll in Medicare.
Tip: Map conversion amounts against IRMAA tiers. Stay below $206K married if possible.
State Income Tax
Some states tax conversions; others don’t tax retirement income at all. Moving from a high-tax state to a zero-tax state before converting is worth six figures.
Tip: If you’re relocating in retirement, time conversions for after the move.
Year-by-Year Conversion Example
Here’s how a Roth conversion ladder might play out for a married couple retiring at 60 with $1.2M in Traditional IRAs:
| Age | Status | Conversion | Fed Tax | Constraint |
|---|---|---|---|---|
| 60-62 | Gap years, ACA insurance | $75,000/yr | ~$5,100 | ACA: stay below 400% FPL |
| 63-64 | Gap years, approaching Medicare | $95,000/yr | ~$8,300 | IRMAA: keep 2-yr-prior MAGI below $206K |
| 65-66 | Medicare, pre-SS | $90,000/yr | ~$7,700 | IRMAA: watch tier at $103K single / $206K married |
| 67 | SS begins | $50,000/yr | ~$6,000 | SS taxation + bracket fills faster |
| 68-72 | SS + reduced conversions | $30,000/yr | ~$3,600 | Less room in low brackets with SS income |
| 73+ | RMDs begin | Stop converting | — | RMDs fill brackets; conversions less efficient |
Over 13 years, this couple converts approximately $700,000-$800,000 to Roth, paying roughly $55,000-$65,000 in federal tax at an average rate of ~8%. Without conversions, that same money would be taxed at 22-24% via RMDs — a cost of $154,000-$192,000. Net savings: $90,000-$130,000.
Managing Required Minimum Distributions
Starting at age 73 (75 for those born in 1960 or later under current law), you must take minimum withdrawals from Traditional IRAs and 401(k)s. RMDs are calculated by dividing your December 31 balance by a life expectancy factor from IRS tables.
RMD Mechanics
| Age | Distribution Period | RMD % | RMD on $500K | RMD on $1.5M |
|---|---|---|---|---|
| 73 | 26.5 | 3.77% | $18,868 | $56,604 |
| 75 | 24.6 | 4.07% | $20,325 | $60,976 |
| 78 | 22.0 | 4.55% | $22,727 | $68,182 |
| 80 | 20.2 | 4.95% | $24,752 | $74,257 |
| 85 | 16.0 | 6.25% | $31,250 | $93,750 |
| 90 | 12.2 | 8.20% | $40,984 | $122,951 |
A $1.5M Traditional IRA generates $56,000-$123,000/year in mandatory taxable income. Combined with Social Security, this can easily push you into the 22-24% bracket and trigger IRMAA surcharges.
Project Your Required Minimum Distributions
This Year’s RMD
$18,868
RMD % of Balance
3.8%
Balance After RMD
$481,132
Next Year Est.
$19,811
RMD & Balance Projection
For detailed projections, see our RMD Projector Insight Article.
Strategies to Reduce RMDs
Roth Conversions Before 73
Ages 60-72
Every dollar converted reduces the Traditional balance that RMDs are calculated on. $500K converted at 12% saves $30K-$50K in lifetime RMD taxes.
Qualified Charitable Distributions
Age 70½+
Donate up to $105,000/year directly from IRA to charity. Satisfies RMD without increasing taxable income. See below.
Qualified Longevity Annuity Contract (QLAC)
Before RMDs begin
Defer up to $200,000 of IRA into a longevity annuity. Deferred amount is excluded from RMD calculations until annuity payments begin.
Roth 401(k) Rollover
At retirement or age 73
Roth 401(k)s are subject to RMDs. Roll to Roth IRA to eliminate them. This is a simple administrative move with no tax consequences.
Qualified Charitable Distributions
QCDs are one of the most efficient charitable giving strategies for retirees. After age 70½, you can transfer up to $105,000/year directly from your IRA to a qualified charity. The distribution satisfies your RMD but does not count as taxable income.
Why QCDs Beat Standard Deductions
With the standard deduction at $32,300 (married, 65+), most retirees don’t itemize. That means charitable donations provide no tax benefit under the standard deduction. A QCD bypasses this entirely — the income never appears on your tax return, so it reduces your AGI whether you itemize or not. It also keeps income below IRMAA thresholds and Social Security taxation triggers.
IRMAA Cliff Management
Income-Related Monthly Adjustment Amounts (IRMAA) are surcharges on Medicare Part B and Part D premiums for higher-income retirees. The thresholds act as cliffs — exceeding them by even $1 triggers the full surcharge for the entire year.
The IRMAA Thresholds
| MAGI Threshold Single / Married | Part B Monthly | Part D Surcharge | Annual Cost Per Person above standard |
|---|---|---|---|
| ≤$103K / ≤$206K | $185.00 | $0 | $0 |
| $103-$129K / $206-$258K | $259.00 | +$13.70 | +$1,064/yr |
| $129-$161K / $258-$322K | $370.00 | +$35.50 | +$2,586/yr |
| $161-$193K / $322-$386K | $480.90 | +$57.30 | +$4,103/yr |
| $193-$500K / $386-$750K | $591.90 | +$79.00 | +$5,603/yr |
| ≥$500K / ≥$750K | $628.90 | +$85.80 | +$6,347/yr |
*2025 thresholds. For a married couple both on Medicare, double the surcharge. IRMAA is based on the tax return from 2 years prior — your 2025 Medicare premium is based on your 2023 tax return.
Planning Techniques
Map conversions against 2-year-ahead IRMAA tiers
Before converting at age 63, check what IRMAA tier that income will trigger at age 65. If a $95,000 conversion pushes you from Tier 0 to Tier 1, the extra $1,064/person/year may be worth it. If it pushes to Tier 3, probably not.
Use Roth for spending in years that affect IRMAA
If you have a year with unusually high income (capital gain, RMD, pension lump sum), use Roth for spending that year instead of additional Traditional withdrawals.
Bunch income strategically
Sometimes it’s better to do a large conversion in one year and trigger a higher IRMAA tier for one year, rather than doing smaller conversions that trigger a lower tier for multiple years. Do the math on cumulative cost.
Time Roth conversions to avoid the 2-year lookback
Large conversions at age 62-63 affect IRMAA at ages 64-65 (your first Medicare years). Consider front-loading conversions before age 63 or after you’ve already established your Medicare baseline.
For a complete IRMAA analysis, see our Medicare IRMAA Insight Article and IRMAA Calculator.
Life-Changing Event Appeals
If your income drops significantly due to a qualifying life event — retirement, death of a spouse, divorce, loss of pension — you can file SSA-44 (Medicare Income-Related Monthly Adjustment Amount — Life-Changing Event) to have your IRMAA recalculated based on current income instead of the 2-year-old return. This is especially important in the year you retire, when your prior-year income from working is much higher than your retirement income.
Putting It All Together
Here’s how all the pieces fit into a unified retirement withdrawal plan. The example below shows a married couple (both 60) with $1.5M in Traditional IRAs, $200K in Roth, $300K in taxable, and an expected combined Social Security of $48,000/year at age 67. They need $80,000/year in spending.
Sample 15-Year Withdrawal Plan
| Phase | Income Sources | Conversion Strategy | Key Constraints |
|---|---|---|---|
| Ages 60-64 Early retirement | Taxable account ($60K/yr) Roth contributions ($20K/yr) | Convert $80-$95K/yr Filling 12% bracket | ACA subsidies Keep MAGI below ~$80K for best subsidy |
| Ages 65-66 Medicare, pre-SS | Taxable account ($50K/yr) Roth ($30K/yr) | Convert $85-$90K/yr Watch IRMAA 2-yr lookback | IRMAA at $206K married File SSA-44 for life-changing event |
| Age 67-72 SS begins | Social Security ($48K/yr) Traditional IRA ($25K/yr) Roth for remainder | Convert $30-$50K/yr Fill 22% bracket above SS | SS taxation torpedo Use Roth for spending above bracket target |
| Age 73+ RMDs begin | Social Security ($52K/yr) RMDs (mandatory) Roth for flexibility | Stop converting RMDs fill brackets | QCDs for charitable giving Roth for large expenses (home repair, travel) |
Estimated Lifetime Tax Savings
Compared to the naive approach (spend taxable → Traditional → Roth), this dynamic strategy saves an estimated $120,000-$180,000 in lifetime federal taxes for this couple. The savings come from: lower effective rates on Roth conversions ($70K-$90K), reduced IRMAA surcharges ($15K-$25K), reduced Social Security taxation ($20K-$35K), and 0% capital gains harvesting ($15K-$30K).
The Annual Review Checklist
This strategy requires an annual review — typically in October or November, when you have a good estimate of the year’s income and still have time to act.
Estimate total taxable income for the year (RMDs, SS, pensions, realized gains)
Determine remaining room in the target tax bracket
Decide conversion amount: fill the bracket to the optimal line
Check IRMAA impact: will this conversion trigger a surcharge 2 years from now?
Check ACA subsidy impact (if pre-65): does the conversion reduce subsidies?
Harvest capital gains if in the 0% long-term rate zone
Review asset allocation and rebalance across all accounts
Confirm RMD has been taken (or will be by December 31)
Plan charitable giving: QCD from IRA if age 70½+
Verify estimated tax payments are sufficient to avoid penalties
When to Hire a Professional
This guide gives you the framework, but the execution — especially the tax projections, multi-year modeling, and constraint management — is genuinely complex. A fee-only fiduciary financial planner who specializes in retirement tax planning can often save 3-5x their annual fee in tax optimization.
DIY Is Reasonable If…
You have a simple situation (one IRA, straightforward SS, no pension). You’re comfortable with tax software and spreadsheets. Your total retirement assets are under $500K.
Hire Help If…
You have $500K+ across multiple account types. You have a pension decision. You’re navigating the Roth conversion window. You have ACA + IRMAA interactions. Your situation involves divorced/widowed SS benefits.
Finding the Right Advisor
Look for: Fee-only (no commissions), fiduciary (legally obligated to act in your interest), and tax-focused (not just investment management). Search NAPFA.org or the Garrett Planning Network for fee-only planners. Expect to pay $2,000-$5,000 for a comprehensive retirement tax plan, or $3,000-$8,000/year for ongoing management. For a portfolio of $1M+, this typically pays for itself many times over in tax savings.
The Bottom Line
Tax-smart withdrawals are about controlling when and from where you take income — deliberately filling low brackets, converting to Roth while rates are favorable, managing the interactions between Social Security, IRMAA, and capital gains, and using each account type at the moment it provides the most tax efficiency. The framework is straightforward: fill brackets from the bottom up, convert aggressively in the gap years, use Roth for invisible income when you need it, and review the whole picture every October. The execution takes attention and discipline, but the payoff — $100,000-$300,000 in lifetime tax savings — makes this the highest-return financial project available to most retirees.
Social Security Integration
Social Security claiming is not an isolated decision — it interacts deeply with your withdrawal and conversion strategy. When you claim affects how much room you have for Roth conversions, how much of your benefits are taxed, and which accounts you draw from first.
Claiming Age & Conversion Window
Every year you delay Social Security is another year in the conversion window. Claiming at 62 immediately fills bracket space with Social Security income, reducing room for conversions. Delaying to 70 gives you 8 more years of conversion space —and a 77% higher monthly benefit.
Claiming Age vs. Conversion Capacity
Claim at 62
$1,750/mo
Conversion window: 0-1 years
Very low — SS income fills brackets immediately
Claim at 67
$2,500/mo
Conversion window: 5-7 years
Good — substantial conversion possible before SS begins
Claim at 70
$3,100/mo
Conversion window: 8-10 years
Maximum — longest conversion window + highest SS benefit
Provisional Income Thresholds
Once you begin Social Security, managing your “provisional income” determines how much of your benefits are taxed. The key levers are Roth withdrawals (don’t count) and capital gains management.
Provisional Income = AGI + Tax-Exempt Interest + 50% of Social Security
For a married couple with $30,000 in Social Security, provisional income includes $15,000 (half of SS) plus all other taxable income. If your only other income is $20,000 in Traditional IRA withdrawals, provisional income is $35,000 — barely above the $32,000 threshold where SS taxation begins. Pulling an additional $10,000 from Roth instead of the IRA keeps provisional income at $35,000 and avoids triggering additional SS taxation.
For a complete Social Security analysis, see our Social Security Insight Article and Social Security Estimator.
Spousal Coordination
For married couples, Social Security claiming is a joint decision. The most common optimal strategy: the higher earner delays to 70 (maximizing both the retirement benefit and the eventual survivor benefit), while the lower earner claims earlier (62-67) to provide bridge income during the conversion window.
Why the Higher Earner Should Delay
The survivor benefit equals the larger of the two spouses’ benefits. When one spouse dies, the smaller benefit disappears. Delaying the higher earner’s claim maximizes the benefit the surviving spouse will receive — often for 10-20+ years. This is the single largest Social Security optimization for married couples.
Why the Lower Earner Can Claim Earlier
The lower earner’s benefit will eventually be replaced by the survivor benefit anyway. Claiming at 62-64 provides income that reduces portfolio withdrawals during the conversion window, allowing more aggressive Roth conversions. The reduced benefit is temporary — it gets replaced by the larger survivor benefit.