Conventional Wisdom (and Its Limits)

Traditional advice: spend taxable first, then tax-deferred, then Roth last Logic: let tax-advantaged accounts grow longer; Roth grows tax-free the longest Problem: this approach often leads to huge RMDs later, pushing retirees into the highest brackets A more dynamic approach — adjusting withdrawals year by year based on tax brackets — usually outperforms

Large tax-deferred balances at age 73+ generate forced distributions (RMDs) that may spike your bracket Strategic pre-RMD withdrawals and Roth conversions can reduce future RMD amounts Every dollar converted to Roth before RMDs begin is a dollar that won't generate forced taxable income later Coordinate Roth conversions with the gap between retirement and Social Security/RMD start dates

The 'spend taxable first' rule of thumb is often suboptimal — dynamic sequencing produces better outcomes Fill low tax brackets with tax-deferred withdrawals; use Roth strategically for high-income years Pre-RMD Roth conversions can dramatically reduce lifetime tax liability and IRMAA exposure Work with a financial advisor to model your optimal withdrawal sequence across all three account types

Retirement Income Distribution Strategy: Account Sequencing

Curated by: Rubric Advisors

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The Three Account Types

Taxable accounts: cost basis + gains; only gains are taxed, and at favorable long-term capital gains rates
Tax-deferred accounts (Traditional IRA, 401k): all withdrawals taxed as ordinary income at your marginal rate
Roth accounts: qualified withdrawals are completely tax-free — both contributions and growth
Each account type has different tax characteristics that create sequencing opportunities

Dynamic Sequencing Strategy

Each year, assess your taxable income and determine how much bracket space remains before the next rate jump
Fill lower brackets with tax-deferred (Traditional IRA) withdrawals — this is effectively converting at low rates
Use taxable account withdrawals for spending above that — capital gains are taxed at preferential rates
Preserve Roth assets for high-income years, late retirement, or legacy purposes

RMD Management

Large tax-deferred balances at age 73+ generate forced distributions (RMDs) that may spike your bracket
Strategic pre-RMD withdrawals and Roth conversions can reduce future RMD amounts
Every dollar converted to Roth before RMDs begin is a dollar that won't generate forced taxable income later
Coordinate Roth conversions with the gap between retirement and Social Security/RMD start dates

Impact on Medicare and Social Security

Higher MAGI triggers IRMAA surcharges on Medicare Parts B and D — potentially $2,000-$6,000+ per person per year
Roth withdrawals do not count toward MAGI — strategic Roth use can keep you below IRMAA thresholds
Up to 85% of Social Security benefits become taxable as combined income rises
Account sequencing directly affects how much of your Social Security is subject to federal income tax

Key Takeaways

The 'spend taxable first' rule of thumb is often suboptimal — dynamic sequencing produces better outcomes
Fill low tax brackets with tax-deferred withdrawals; use Roth strategically for high-income years
Pre-RMD Roth conversions can dramatically reduce lifetime tax liability and IRMAA exposure
Work with a financial advisor to model your optimal withdrawal sequence across all three account types

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The Three Account Types

Conventional Wisdom (and Its Limits)

Dynamic Sequencing Strategy

RMD Management

Impact on Medicare and Social Security

Key Takeaways

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The Three Account Types

Conventional Wisdom (and Its Limits)

Dynamic Sequencing Strategy

RMD Management

Impact on Medicare and Social Security

Key Takeaways

Related Topics

Pension Lump Sum vs Annuity — Evaluating Your Payout Options

Annuity Types: Fixed, Variable, and Indexed

Tax-Efficient Asset Location