Strategic Retirement Account Withdrawals: A Guide to Maximizing Your Nest Egg
By Andrew Whalen, Whalen Financial
The question of which retirement account to withdraw from first seems simple on the surface—but the answer can mean the difference between a comfortable retirement and running out of money too soon. After decades of helping retirees navigate this decision, I’ve found that while conventional wisdom can serve as a starting point, it often overlooks the complexity of real-life retirement planning.
Understanding Your Retirement Accounts
Before we explore withdrawal strategies, it’s essential to understand the three main types of retirement accounts and how they’re taxed:
🔹 Taxable Accounts
These include brokerage accounts, savings, and other non-retirement investment vehicles. You've already paid taxes on the money invested. Earnings and capital gains are taxed annually, but there are no age-related restrictions on withdrawals.
- Pros: Flexibility and liquidity
- Cons: No tax-deferral or tax-free growth benefits
🔹 Tax-Deferred Accounts
Traditional IRAs and 401(k)s fall into this category. You received a tax deduction upfront, but every dollar you withdraw is taxed as ordinary income. Required Minimum Distributions (RMDs) begin at age 73.
- Pros: Pre-tax growth and initial tax deduction
- Cons: Future taxable income and mandatory distributions
🔹 Tax-Free Accounts
Roth IRAs and Roth 401(k)s are funded with after-tax dollars. Withdrawals—including earnings—are tax-free if rules are met, and Roth IRAs don’t require RMDs during your lifetime.
- Pros: Tax-free growth and flexibility
- Cons: Contributions are not deductible
The Art of Tax Bracket Management
One of the most overlooked areas in retirement planning is how your withdrawals impact your tax brackets.
Think of your tax brackets as buckets. The goal isn’t necessarily to avoid taxes entirely, but to fill each bracket efficiently over time. Sometimes, paying taxes now at a lower rate is preferable to being pushed into a higher bracket later.
Example: If you’re married with a taxable income of $50,000, you fall within the 12% bracket (up to $89,450 for 2024). Instead of letting your traditional IRA grow untouched, which could result in much higher RMDs later, you might consider:
- Taking strategic withdrawals
- Performing Roth conversions to fill the 12% bracket
Strategies like Roth conversions and tax bracket management should be evaluated based on your personal financial circumstances. Results may vary, and tax laws are subject to change.
The Conventional Withdrawal Order
Many advisors suggest the following sequence:
- Withdraw from taxable accounts
- Then tax-deferred accounts
- Then tax-free accounts
This allows tax-advantaged accounts more time to grow. However, this rule-of-thumb may not always be optimal.
“In theory, there’s no difference between theory and practice. In practice, there is.”
A More Sophisticated Strategy
Here’s the approach I use with many clients:
- Start with RMDs if you’re 73+—they’re mandatory.
- Evaluate your current tax bracket.
- Consider Roth conversions in lower-tax years.
- Use taxable accounts strategically to manage income.
- Balance withdrawals to reduce lifetime tax liability.
Your taxable accounts give you control over realizing capital gains or drawing down cash without increasing ordinary income—powerful tools when paired with Roth conversions.
The Impact of Social Security & Medicare
Many retirees don’t realize their withdrawal strategy impacts Social Security taxation and Medicare premiums:
- Social Security: Up to 85% of benefits can be taxed based on your “provisional income.”
- Medicare: Higher income can trigger IRMAA surcharges.
Smart withdrawals can help reduce these burdens.
Legacy Planning Considerations
If leaving assets to heirs is a priority, it’s essential to consider how different accounts are treated:
- Traditional IRAs: Heirs must pay income tax and withdraw the account within 10 years.
- Roth IRAs: Still subject to the 10-year rule, but withdrawals are tax-free.
Roth IRAs can be an excellent legacy tool when paired with Roth conversions during your lifetime.
Creating a Personalized Withdrawal Plan
Your ideal strategy depends on:
- Income needs
- Tax status
- Age and RMD status
- Social Security timing
- Legacy goals
- Market conditions
- Risk tolerance
Break expenses into tiers—cover essentials with guaranteed income, and fund discretionary spending from growth-oriented investments. Review your plan regularly and stay flexible.
Common Mistakes to Avoid
- Waiting too long to plan withdrawals
- Being too rigid with a strategy
- Failing to prepare for RMDs and tax surprises
- Overlooking Roth conversion opportunities in early retirement
Why Professional Guidance Matters
Yes, you can do it yourself—but the stakes are high when navigating RMDs, Medicare brackets, Roth conversions, and legacy goals. A qualified fiduciary advisor can:
- Model tax outcomes
- Coordinate with CPAs and estate attorneys
- Adjust your plan as laws and markets change
- Help preserve your wealth across generations
A thoughtful withdrawal strategy could save you hundreds of thousands in taxes over your lifetime. This isn’t the place for guesswork.
Get Personalized Guidance
At Whalen Financial, we specialize in retirement income strategies tailored to high-net-worth families. If you’d like help developing a personalized withdrawal plan:
📞 Call: (702) 878-3900
🌐 Visit: whalenfinancial.com
Disclosures: Whalen Financial is a Registered Investment Adviser (RIA). Advisory services are offered to clients or prospective clients where Whalen Financial and its representatives are properly licensed or exempt from licensure. This content is for informational purposes only and should not be construed as investment or tax advice. Past performance is not indicative of future results. Tax laws are subject to change, and individual results may vary. Please consult with a tax advisor or financial planner before making any decisions based on this material.
