A tax efficient withdrawal strategy is a plan for the order in which a retiree draws money from taxable, tax-deferred, and tax-free accounts so that lifetime taxes, not just this year’s bill, stay as low as circumstances allow. The three widely discussed frameworks are the conventional sequence, the proportional approach, and bracket-filling.
The order retirees pull money in can change lifetime taxes more than which funds they own. The conventional sequence draws taxable accounts first, tax-deferred (Traditional IRA/401(k)) next, and Roth last. Required minimum distributions from most tax-deferred accounts begin at age 73 for people reaching 72 after 2022 (Source: SECURE 2.0 Act sec. 107; CRS report IF12750).
The three tax buckets that drive a withdrawal strategy
Retirement money sits in three tax buckets: taxable brokerage accounts, tax-deferred accounts such as a Traditional IRA or 401(k), and tax-free Roth accounts. Each is taxed differently when money leaves it, so the account you tap in a given year sets your taxable income that year. The sequence only matters relative to those three treatments.
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Retirement savings usually sit in three tax buckets, and each is taxed differently on the way out. Understanding the difference is the starting point for any tax efficient withdrawal strategy, because the sequence you choose only matters relative to how each account is taxed when money leaves it.
- Taxable / brokerage accounts. You have already paid tax on the money you invested. Only the growth is taxed, and long-term gains and qualified dividends can qualify for preferential capital-gains rates (Source: IRS Rev. Proc. 2025-32).
- Tax-deferred accounts (Traditional 401(k), 403(b), Traditional IRA). Contributions were generally pre-tax, growth is untaxed inside the account, and every dollar withdrawn is taxed as ordinary income (Source: IRS Pub 590-B).
- Tax-free accounts (Roth IRA, Roth 401(k)). Contributions were after-tax; qualified withdrawals, including growth, come out tax-free, and Roth IRAs carry no required distributions during the owner’s lifetime (Source: IRS RMD FAQs; Pub 590-B).
Because those tax treatments differ so sharply, the account you tap in a given year determines your taxable income that year, which in turn affects your tax bracket, how much of your Social Security is taxed, and your Medicare premiums two years later.
The conventional withdrawal order: taxable, then tax-deferred, then Roth
The conventional withdrawal order spends taxable accounts first, tax-deferred accounts second, and Roth accounts last. The idea is to let tax-advantaged accounts keep compounding while already-taxed money funds early spending. This is a planning heuristic, not an IRS rule. Its tradeoff is that a large tax-deferred balance can produce sizable required minimum distributions later (Source: IRS Pub 590-B).
The conventional withdrawal sequence spends taxable brokerage accounts first, tax-deferred accounts second, and Roth accounts last. The reasoning is that letting tax-advantaged accounts keep compounding, while spending already-taxed money first, can defer income tax and preserve tax-free Roth growth for as long as possible. This is a planning heuristic, not an IRS rule; the IRS documents the account mechanics but does not prescribe any ordering (Source: IRS Pub 590-B).
The tradeoff is that deferring all tax-deferred withdrawals can leave a large Traditional IRA or 401(k) balance intact until age 73, when required minimum distributions begin and are taxed as ordinary income. Large balances can produce large RMDs that push a retiree into a higher bracket later, which is the gap the bracket-filling and proportional approaches try to address.
The proportional withdrawal strategy
The proportional, or pro-rata, strategy draws from all three buckets each year in proportion to each bucket’s share of total savings, rather than emptying one before touching the next. The aim is to smooth taxable income across retirement, so a retiree avoids very low-income early years followed by very high-income years once required distributions begin.
The proportional, or pro-rata, withdrawal strategy draws from all three buckets each year in proportion to their share of total savings, rather than emptying one bucket before touching the next. The aim is to smooth taxable income across retirement so a retiree avoids very low-income early years followed by very high-income RMD years. Some retirement researchers and asset managers have published analyses discussing proportional-style approaches alongside the conventional order; the appropriate approach depends on individual circumstances.
For example, if 60% of savings sits in tax-deferred accounts, 30% in taxable, and 10% in Roth, a proportional withdrawal takes roughly those same percentages from each bucket to fund a year’s spending. Spreading tax-deferred withdrawals across more years can keep more income inside lower brackets and shrink the eventual RMD, though the right mix depends on individual circumstances.
Bracket-filling and the low-income window before age 73
Bracket-filling means intentionally realizing income, through Traditional IRA withdrawals or Roth conversions, up to the top of a chosen low tax bracket in years when other income is low. The window between retirement and the start of RMDs at age 73, often before Social Security begins, can let a retiree recognize income at lower rates than may apply later (Source: IRS Rev. Proc. 2025-32).
Bracket-filling means intentionally realizing income, through Traditional IRA withdrawals or Roth conversions, up to the top of a chosen low tax bracket in years when other income is low. The years between retirement and the start of RMDs at age 73, and often before Social Security begins, frequently produce a temporary low-income window where more income can be recognized at 10%, 12%, or 22% rates rather than at higher rates later (Source: IRS Rev. Proc. 2025-32).
The 2026 ordinary-income brackets set the ceilings a retiree might fill. The table below shows the married-filing-jointly and single thresholds.
| 2026 marginal rate | Married filing jointly | Single |
|---|---|---|
| 10% | $0 to $24,800 | $0 to $12,400 |
| 12% | to $100,800 | to $50,400 |
| 22% | to $211,400 | to $105,700 |
| 24% | to $403,550 | to $201,775 |
| 32% | to $512,450 | to $256,225 |
| 35% | to $768,700 | to $640,600 |
| 37% | over $768,700 | over $640,600 |
The 2026 standard deduction is $32,200 for married filing jointly and $16,100 for single filers (Source: IRS IR-2025-103). A separate additional deduction of up to $6,000 per eligible individual age 65 and older applies for tax years 2025 through 2028, phasing out above $75,000 of MAGI for single filers and $150,000 for joint filers (Source: IRS OBBB guidance). These deductions raise the amount of income a retiree can recognize before tax applies.
How Roth conversions fit the withdrawal picture
A Roth conversion moves money from a tax-deferred account into a Roth account, paying ordinary income tax now so future qualified withdrawals are tax-free and exempt from lifetime RMDs. Filling a low bracket in the pre-73 window is one common context in which conversions are discussed. Conversions raise MAGI in the year they occur, which can affect Social Security taxation and Medicare premiums.
A Roth conversion moves money from a tax-deferred account into a Roth account, paying ordinary income tax now so that future growth and withdrawals are tax-free and exempt from lifetime RMDs. Filling a low bracket in the pre-73 window is one common context in which conversions are discussed, because converting in a low-income year can cost less tax than the RMDs those same dollars would generate later. For a deeper treatment, Q3 Advisors covers this separately under Roth conversion planning.
Conversions raise MAGI in the year they occur, which can affect Social Security taxation and Medicare premiums, so the size and timing of any conversion interacts directly with the constraints discussed below.
Capital gains and the 0% rate
Long-term capital gains on assets held more than a year are taxed at 0%, 15%, or 20% depending on taxable income, often lower than ordinary rates on tax-deferred withdrawals. In 2026 the 0% rate applies to taxable income up to $98,900 for married filing jointly and $49,450 for single filers (Source: IRS Rev. Proc. 2025-32).
Long-term capital gains on assets held more than a year are taxed at 0%, 15%, or 20% depending on taxable income, which is often lower than ordinary-income rates on tax-deferred withdrawals. In 2026, the 0% long-term capital-gains rate applies to taxable income up to $98,900 for married filing jointly and $49,450 for single filers, with the 20% rate beginning above $613,700 (MFJ) and $545,500 (single) (Source: IRS Rev. Proc. 2025-32 sec. 3.03).
In a low-income year, some investors sell appreciated taxable holdings up to the top of the 0% bracket to reset cost basis at no federal tax on the gain, a technique sometimes called gain harvesting. High earners may also owe the 3.8% net investment income tax on investment income above $200,000 (single) or $250,000 (joint), a separate statutory threshold that is not inflation-indexed (Source: IRC sec. 1411). Q3 Advisors covers the net investment income tax in more detail.
Required minimum distributions and the age-73 rule
Required minimum distributions from Traditional IRAs and most workplace plans begin at age 73 for people who reached 72 after December 31, 2022. The first RMD can be delayed until April 1 of the year after you turn 73; each later RMD is due by December 31 (Source: SECURE 2.0 Act sec. 107; IRS RMD FAQs).
The required beginning age rises to 75 for people who reach age 73 after December 31, 2032. RMDs are taxed as ordinary income, so a large tax-deferred balance can create large RMDs that push a retiree into a higher bracket and raise Medicare premiums. Roth IRAs, and since 2024 designated Roth 401(k)/403(b) accounts, carry no RMDs during the owner’s lifetime (Source: IRS RMD FAQs). Missing an RMD triggers a 25% excise tax, reduced to 10% if corrected within a two-year window. Q3 Advisors maintains a dedicated page on required minimum distributions.
Social Security, Medicare, and the constraints most guides skip
Two constraints can reshape a withdrawal plan: how withdrawals affect Social Security taxation, and how they affect Medicare premiums two years later. Both turn on the same lever, the taxable income a withdrawal creates. Extra income can make more of a Social Security benefit taxable and can push a retiree across a Medicare income-related premium threshold.
Two constraints that mainstream guides mention only in passing can reshape a withdrawal plan: how withdrawals affect Social Security taxation, and how they affect Medicare premiums two years later. Both turn on the same lever, the taxable income a withdrawal creates.
Social Security taxation and the tax torpedo
Up to 85% of Social Security benefits can become taxable once combined income, which is AGI plus tax-exempt interest plus half of benefits, crosses fixed statutory thresholds. Because those thresholds are set in statute and not indexed for inflation, more retirees cross them over time. An extra dollar of withdrawal that makes more benefits taxable is often called the tax torpedo (Source: IRC sec. 86).
Up to 85% of Social Security benefits can become taxable once “combined income” (AGI plus tax-exempt interest plus half of benefits) crosses fixed thresholds. For single filers, up to 50% of benefits are taxable between $25,000 and $34,000 of combined income and up to 85% above $34,000; for joint filers the tiers are $32,000 to $44,000 and above $44,000 (Source: IRC sec. 86; IRS). These thresholds are set in statute and are not inflation-indexed, so more retirees cross them over time. The interaction where an extra dollar of withdrawal makes more Social Security taxable is often called the Social Security tax torpedo.
IRMAA and the two-year look-back
Medicare Part B and Part D premiums rise through the income-related monthly adjustment amount, or IRMAA, once modified adjusted gross income crosses set thresholds. The 2026 surcharges are based on 2024 income, a two-year look-back. IRMAA is a cliff, not a phase-in, so crossing a threshold by one dollar can add the full surcharge for that tier (Source: CMS 2026 fact sheet).
Medicare Part B and Part D premiums rise through the income-related monthly adjustment amount (IRMAA) once MAGI crosses set thresholds, and 2026 premiums are based on 2024 MAGI, a two-year look-back (Source: CMS 2026 fact sheet). IRMAA is a cliff, not a phase-in: crossing a threshold by one dollar can add the full surcharge. The 2026 Part B tiers are shown below.
| 2024 MAGI (individual) | 2024 MAGI (joint) | 2026 monthly Part B premium |
|---|---|---|
| $109,000 or less | $218,000 or less | $202.90 |
| over $109,000 to $137,000 | over $218,000 to $274,000 | $284.10 |
| over $137,000 to $171,000 | over $274,000 to $342,000 | $405.80 |
| over $171,000 to $205,000 | over $342,000 to $410,000 | $527.50 |
| over $205,000 to under $500,000 | over $410,000 to under $750,000 | $649.20 |
| $500,000 or more | $750,000 or more | $689.90 |
Because IRMAA is a cliff tied to income from two years earlier, the size of a bracket-filling withdrawal or Roth conversion is often capped just below the next threshold. Q3 Advisors keeps current figures on its Medicare IRMAA 2026 brackets page.
Worked example: conventional versus proportional
This hypothetical shows how ordering can change a tax picture; it is educational and not a projection of any result. A married couple, both 66, hold $600,000 tax-deferred, $300,000 taxable, and $100,000 Roth, and need $60,000 a year before Social Security. The comparison below contrasts spending taxable accounts first with spreading tax-deferred withdrawals across more years.
This hypothetical illustrates how ordering can change the tax picture; it is educational and not a projection of any individual result. Consider a married couple, both 66, retired, not yet claiming Social Security, with $600,000 tax-deferred, $300,000 taxable, and $100,000 Roth. They need $60,000 a year before Social Security starts at 70.
Conventional order: They spend the $300,000 taxable account first over several years, recognizing little ordinary income. The $600,000 tax-deferred balance keeps compounding untouched, so its balance and the resulting required minimum distribution at age 73 are larger than they would otherwise be. A larger RMD stacks on top of Social Security, which can make up to 85% of benefits taxable and, in some years, cross an IRMAA threshold. The exact RMD depends on the account balance and the IRS life-expectancy factor that applies (Source: IRS Pub 590-B).
Proportional / bracket-filling order: They instead withdraw or convert from the tax-deferred account each year up to the top of the 12% bracket ($100,800 taxable income MFJ in 2026, less the $32,200 standard deduction and the senior deduction), funding spending from taxable holdings and shifting the rest to Roth. This shrinks the future RMD, can keep more Social Security untaxed, and aims to stay under the first IRMAA threshold (Source for figures: IRS Rev. Proc. 2025-32; CMS 2026 fact sheet). The tradeoff is more tax paid in the early years.
| Factor | Conventional (taxable first) | Proportional / bracket-filling |
|---|---|---|
| Early-year taxable income | Low | Moderate (fills low bracket) |
| Future RMD size at 73 | Larger | Smaller |
| Social Security taxed | More likely up to 85% | May stay lower |
| IRMAA risk later | Higher | Managed below thresholds |
| Roth balance for heirs | Smaller | Larger, tax-free |
Withdrawal rate and legacy: the 10-year rule
How much a retiree draws each year, and what heirs inherit, both interact with withdrawal sequencing. Sustainable withdrawal rates are the subject of longstanding retirement research and depend on circumstances and markets. Separately, under the SECURE Act, most non-spouse beneficiaries must fully empty an inherited IRA within 10 years, which shapes the after-tax value of what passes on.
Sustainable withdrawal rates, the share of a portfolio a retiree can draw each year without running out, are the subject of longstanding retirement research. Any such figure is a rule of thumb, not a guarantee, and the appropriate rate depends on individual circumstances, spending needs, and market conditions.
Sequencing also affects heirs. Under the SECURE Act 10-year rule, most non-spouse beneficiaries who are not eligible designated beneficiaries must fully empty an inherited IRA by the end of the tenth year after the owner’s death, and inherited Traditional IRA withdrawals are taxed as the heir’s ordinary income, often during the heir’s peak earning years (Source: IRS Pub 590-B). Because inherited Roth withdrawals are generally tax-free, shifting assets toward Roth during life can change the after-tax value passed on, a factor that ordinary withdrawal-order discussions frequently omit.
Qualified charitable distributions
A qualified charitable distribution lets an IRA owner age 70.5 or older send money directly from an IRA to a qualified charity, excluding it from taxable income and, for those subject to RMDs, counting toward the RMD. The 2026 annual QCD limit is $111,000 per person (Source: IRS Notice 2025-67). Because a QCD never enters AGI, it can satisfy an RMD without raising MAGI.
A qualified charitable distribution (QCD) lets an IRA owner age 70½ or older send money directly from an IRA to a qualified charity, excluding it from taxable income and, for those subject to RMDs, counting toward the RMD. The 2026 annual QCD exclusion is $111,000 per person, with a one-time $55,000 split-interest option (Source: IRS Notice 2025-67). Because a QCD never enters AGI, it can satisfy an RMD without raising the MAGI that drives Social Security taxation and IRMAA.
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Q3 Advisors is a registered investment adviser focused on retirement tax planning. This article is educational and is not advice; for guidance on your own circumstances, consult a qualified tax or financial professional.
Frequently asked questions
What is the most tax-efficient way to withdraw retirement funds?
There is no single answer for everyone. Common approaches sequence withdrawals across taxable, tax-deferred, and Roth accounts to smooth taxable income and reduce lifetime tax, often using low-income years before age 73 to fill lower brackets. The right mix depends on account balances, income, and goals (Source: IRS Rev. Proc. 2025-32).
In what order should I withdraw from my retirement accounts?
The conventional heuristic draws taxable accounts first, tax-deferred (Traditional IRA/401(k)) next, and Roth last, letting tax-advantaged accounts compound. Proportional and bracket-filling approaches instead spread tax-deferred withdrawals across more years to avoid large future RMDs. This ordering is planning guidance, not an IRS rule (Source: IRS Pub 590-B).
Should I withdraw from my 401(k) or IRA first?
Both Traditional 401(k) and Traditional IRA withdrawals are taxed as ordinary income, so the choice often turns on RMD rules, fees, investment options, and features like net unrealized appreciation on employer stock. RMDs apply to most workplace plans and Traditional IRAs beginning at age 73 (Source: IRS RMD FAQs).
How can I avoid paying taxes on my retirement withdrawals?
Taxes usually cannot be eliminated, but qualified Roth withdrawals are tax-free, long-term capital gains can be taxed at 0% below $98,900 MFJ in 2026, and QCDs let those 70½+ give from an IRA without adding income (Source: IRS Rev. Proc. 2025-32; IRS Notice 2025-67).
At what age are you required to withdraw from retirement accounts?
Required minimum distributions from Traditional IRAs and most workplace plans begin at age 73 for people who reached 72 after 2022, rising to 75 for those reaching 73 after 2032. The first RMD may be delayed to April 1 of the following year (Source: SECURE 2.0 Act sec. 107; IRS RMD FAQs).
Do withdrawals from retirement accounts affect Medicare premiums?
They can. Medicare Part B and Part D premiums rise through IRMAA once MAGI crosses set thresholds, and 2026 premiums are based on 2024 MAGI, a two-year look-back. IRMAA is a cliff, so a withdrawal or conversion that crosses a threshold can add the full surcharge (Source: CMS 2026 fact sheet).
How do Roth conversions reduce taxes in retirement?
Converting tax-deferred money to a Roth pays ordinary income tax now in exchange for tax-free growth, tax-free qualified withdrawals, and no lifetime RMDs. Converting in low-income years may cost less than the tax on future RMDs, though conversions raise MAGI and can affect Social Security taxation and IRMAA that year (Source: IRS Pub 590-B).
What is the proportional withdrawal strategy?
The proportional, or pro-rata, strategy withdraws from taxable, tax-deferred, and Roth accounts each year in proportion to each account’s share of total savings. The goal is to smooth taxable income across retirement rather than emptying one bucket first, which can reduce large late-retirement RMD spikes (Source: IRS Rev. Proc. 2025-32).
Sources
IRS Rev. Proc. 2025-32 (2026 brackets, standard deduction, capital-gains breakpoints); IRS IR-2025-103 (2026 inflation adjustments); IRS Notice 2025-67 (2026 contribution and QCD limits); IRS Publication 590-B and IRS RMD FAQs (RMDs, inherited-IRA 10-year rule, Roth lifetime exemption); SECURE 2.0 Act sec. 107 and CRS report IF12750 (RMD age); IRC sec. 86 and IRS (Social Security taxability); IRC sec. 1411 (net investment income tax); CMS 2026 Medicare Parts B fact sheet (IRMAA); IRS One Big Beautiful Bill guidance (senior deduction).
About the author
Disclaimer
This article is provided by Q3 Advisors for educational and informational purposes only. It is not investment, tax, or legal advice and is not a recommendation to buy, sell, or pursue any strategy. Tax rules and figures cited apply to 2026 and are subject to change. Individual circumstances vary; consult your own qualified tax or financial professional before acting. Q3 Advisors is a registered investment adviser; additional information is available in its Form ADV.
