These 4 tips to tame the tax beast give pre-retirees and retirees with a large tax-deferred 401(k) or IRA a clear plan to lower the lifetime tax on those accounts, and the tax their heirs will owe. The strategy centers on spending your accounts in the right order, filling the lower 2026 tax brackets on purpose, converting to Roth before required minimum distributions begin, and giving straight from the account tax-free.
To tame a large tax-deferred balance, many retirees fill the lower 2026 brackets (10%, 12%, 22%, and 24%) with intentional IRA withdrawals or Roth conversions during the lower-income years before required minimum distributions start at age 73. A qualified charitable distribution can satisfy an RMD tax-free, and planning around the 10-year inherited-IRA rule limits what heirs owe.
Tip 1: Spend your three tax buckets in the right order
Retirement savings sit in three buckets that the IRS taxes differently: taxable, tax-deferred, and tax-free. A common approach spends the taxable bucket first, draws the tax-deferred 401(k) and IRA next, and leaves the Roth bucket for last. Sequencing this way can keep more income inside the lower brackets and give Roth dollars more years to grow.
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The tax-deferred bucket is the beast. Every dollar you pull from a traditional 401(k) or IRA counts as ordinary income, and at age 73 the IRS forces you to start taking it whether you need the cash or not. The other two buckets give you room to control the timing, which is where most of the planning happens.
- Spend the taxable bucket first, using brokerage and savings so those dollars stop generating taxable income and gains are taxed at lower long-term capital-gains rates.
- Draw the tax-deferred 401(k) and IRA next, pulling ordinary-income dollars in the lower-income years and trimming the balance that later drives required minimum distributions.
- Leave the Roth bucket for last, giving tax-free dollars the most years to compound for you and for the heirs who inherit them.
| Bucket | Examples | How 2026 withdrawals are taxed |
|---|---|---|
| Taxable | Brokerage, bank savings | Long-term capital gains: 0% up to $49,450 single or $98,900 married filing jointly, then 15% |
| Tax-deferred | Traditional 401(k), traditional IRA | Ordinary income; required minimum distributions begin at age 73 |
| Tax-free | Roth IRA, Roth 401(k) | Qualified withdrawals are tax-free; a Roth IRA has no lifetime RMDs for the owner |
Order alone will not solve a seven-figure tax-deferred balance, but it sets up the next three tips. Once you see the buckets, you can start moving money from the taxable one into the lower brackets on purpose.
Tip 2: Harvest your tax bracket on purpose
Harvesting your tax bracket means withdrawing or converting just enough from your traditional IRA each year to fill the top of a target bracket, rather than leaving the beast to grow. Many retirees fill the 22% or 24% bracket during the lower-income years between retiring and starting Social Security, paying tax now at a known rate instead of a higher one later.
Our progressive system taxes each layer of income at a higher rate. Most retirees sit somewhere inside a bracket, meaning they could take more from a traditional IRA (available without penalty after age 59.5) at the same rate they are already paying. Instead of leaving that room unused, you can withdraw up to the top of your target bracket every year.
| 2026 marginal rate | Single (taxable income) | Married filing jointly |
|---|---|---|
| 22% | begins at $50,400 | begins at $100,800 |
| 24% | up to $201,775 | up to $403,550 |
| 32% | begins at $201,775 | begins at $403,550 |
| 35% | begins at $256,225 | begins at $512,450 |
| 37% | begins at $640,600 | begins at $768,700 |
The 2026 standard deduction shelters the first $16,100 of income for single filers and $32,200 for joint filers, with an extra $2,050 (single) or $1,650 per spouse for those age 65 and older. A separate senior deduction of $6,000 per person age 65 and older applies for 2025 through 2028 under the law known as OBBBA (P.L. 119-21). Those deductions widen the room you can fill at low rates.
The side effects matter as income rises. Higher income can pull more of your Social Security into taxation (often called the tax torpedo), can trigger the 3.8% net investment income tax above $200,000 single or $250,000 joint, and can raise Medicare premiums two years later. Modeling these together is the point of our net investment income tax guide for 2026.
Tip 3: Convert to Roth during the trough years, before RMDs hit
A Roth conversion moves money from a traditional IRA to a Roth IRA and pays ordinary income tax on the converted amount now. Done during the trough years between retirement and age 73, conversions shrink the traditional balance that later drives required minimum distributions, and Roth dollars then grow tax-free for you and your heirs.
A conversion is uncapped in dollars, irreversible, and must be completed by December 31 to count for that tax year. You cannot convert an RMD, so conversions generally have the most room before RMDs begin at age 73 (age 75 for anyone born in 1960 or later, whose first age-75 distributions arrive in 2035). Filling the beast down during these lower-income years can lower every future RMD.
How much to convert is a bracket question, not a guess. Many investors convert only up to the top of the 22% or 24% bracket shown above, then stop for the year. Our how much to convert to Roth analysis walks through the math, and the Roth conversion planning service models it against your RMD projection. A timing rule for Medicare also applies: the last conversion year that does not affect a future premium is age 62, because IRMAA uses a 2-year lookback.
Because conversions run on a calendar-year deadline, the year end matters. See the 2026 Roth conversion deadline notes before you cut it close.
Tip 4: Give from the beast tax-free, and defuse the inherited-IRA bomb
Once you reach age 70.5, a qualified charitable distribution (QCD) sends up to about $111,000 in 2026 straight from an IRA to charity, excluded from your income and able to count toward your RMD. For heirs, planning around the 10-year inherited-IRA rule matters: most non-spouse beneficiaries must drain a traditional IRA within 10 years and pay ordinary income tax on every dollar.
A QCD can satisfy an RMD tax-free. The transfer must go directly from the IRA custodian to a qualified charity, and it works from an IRA, not directly from a 401(k). Retirees who want to use QCDs sometimes roll old 401(k) money into an IRA first so the option is available.
The inherited-IRA math changed with the SECURE Act. A traditional IRA left to your children is no longer a slow, lifetime stretch. Most non-spouse heirs must empty the account within 10 years, and each withdrawal stacks on top of what are often their peak earning years, which is why a bequeathed IRA has become a tax bomb. Converting to Roth during your lifetime does not remove the 10-year rule, but it hands heirs an account whose qualified withdrawals are tax-free. Shrinking the traditional balance now through the earlier tips is the direct way to shrink what your family inherits and owes.
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Q3 Advisors is a registered investment adviser focused on retirement tax planning. This page is educational and is not advice; consult a qualified professional.
Frequently asked questions
At what age do required minimum distributions start?
Required minimum distributions (RMDs) from a traditional IRA or 401(k) start at age 73 under SECURE 2.0. If you were born in 1960 or later, your RMD age is 75, with the first age-75 distributions due in 2035. Your first RMD can be delayed to April 1 of the year after you turn 73, though that stacks two distributions into one tax year. See our RMD guide for 2026.
How can I reduce taxes on my required minimum distributions?
Many retirees shrink future RMDs by converting part of a traditional IRA to a Roth in the lower-income years before age 73, since a Roth IRA carries no lifetime RMDs for the owner. Once RMDs begin, a qualified charitable distribution can satisfy the RMD tax-free by sending up to about $111,000 in 2026 straight from the IRA to a qualified charity, which keeps that amount out of your taxable income.
Is it better to withdraw from a 401(k) or IRA first in retirement?
There is no universal order; it depends on your buckets. Many retirees spend taxable brokerage money first, then tax-deferred 401(k) and IRA dollars, and leave Roth accounts for last so they keep growing. Because a qualified charitable distribution works from an IRA and not directly from a 401(k), some retirees roll 401(k) money into an IRA to keep QCDs available after age 70.5.
How much can I convert to a Roth without moving up a tax bracket?
A Roth conversion is uncapped, but the converted amount is added to your ordinary income for the year. To stay inside a bracket, many investors convert only enough to reach the top of the 22% or 24% bracket: in 2026, the 24% bracket runs to $201,775 of taxable income for single filers and $403,550 for joint filers. You cannot convert an RMD, so conversions like this happen before age 73.
What is a qualified charitable distribution (QCD)?
A qualified charitable distribution (QCD) is a direct transfer from a traditional IRA to a qualified charity, available at age 70.5 and older. In 2026 you can give up to about $111,000 per person. The amount is excluded from taxable income and can count toward your RMD. A QCD works from an IRA, not directly from a 401(k), so the transfer must leave the IRA custodian directly.
Do my heirs pay taxes on an inherited IRA?
Yes. Under the SECURE Act, most non-spouse heirs who inherit a traditional IRA must empty it within 10 years, and each withdrawal is taxed as ordinary income on top of their own earnings. A Roth IRA still follows the 10-year rule, but qualified withdrawals are tax-free, which is why some owners convert before death to lighten the tax their heirs face.
How do Roth conversions affect Medicare premiums (IRMAA)?
A Roth conversion raises your modified adjusted gross income, which can trigger IRMAA, an income-related surcharge on Medicare Part B (base premium $202.90 in 2026) and Part D. IRMAA applies above $109,000 single or $218,000 joint MAGI and uses a 2-year lookback, so 2026 income sets 2028 premiums. The last conversion year that does not affect a premium is age 62.
