By Joe Dowdall, CFP®, RICP®, CRPC®, CCFC, TPCP®
The balance on your account statement isn’t how much you get to spend. Unfortunately, taxes can take a substantial cut of your retirement savings. When it comes to retirement planning, how you withdraw money matters just as much as how much you save.
Let’s look at a hypothetical couple, both 66, who need $90,000 to live on this year. They take all of it from the traditional IRA, because that is where the balance is. Nothing about that looks careless. Pull the same $90,000 in a different order, though, with part of it coming from the brokerage account, and they may come in under a lower bracket and keep more of their Social Security out of the tax calculation.
With that in mind, let’s explore some tax-efficient withdrawal strategies to help you make the most of your savings.
First, Put Your Accounts in the Right Order
Many people have three distinct types of retirement savings accounts, each with a different tax treatment:
- Brokerage: Taxed
- Traditional IRA/401(k): Tax-deferred
- Roth accounts: Not taxed
Retirement withdrawal order is more critical than many people realize. If you take too much out of a pre-tax account in one year, you could accidentally push yourself into a higher tax bracket. It might even make your Social Security taxable or trigger income-related monthly adjustment amount (IRMAA) surcharges on your Medicare premiums. For 2026, a married couple filing jointly crosses from the 12% bracket into the 22% bracket once taxable income passes $100,800. For a single filer, that number is $50,400.
You may be familiar with the conventional wisdom around withdrawals: Withdraw from taxable accounts first, then pre-tax accounts, and then Roth accounts. However, this isn’t always the right advice, and I generally suggest that my clients seek personalized guidance.
Know When the IRS Stops Letting You Choose
Required minimum distributions, or RMDs, are the withdrawals you’re obligated to take from traditional IRAs and 401(k)s once you hit a certain age. If you were born between 1951 and 1959, that age is 73. If you were born in 1960 or later, you have until 75.
The years before that first required withdrawal are the years you have the most say over your own tax bill. Once RMDs start, they stack on top of whatever else you’re bringing in, and the required amount tends to grow as you get older. Planning around them ahead of time gives you far more room than reacting to them after the fact.
Make Use of “Gap Years”
If you’re thinking about how to reduce taxes in retirement, the low-income years between retirement and when you start drawing Social Security are an ideal time for Roth conversions. A Roth conversion means moving money you already have in a traditional IRA over into a Roth IRA. You pay income tax on the amount you move in the year you move it, and from then on, it grows without being taxed again. If you follow the holding rules, withdrawals are tax-free.
If you’re married and your taxable income is running around $70,000 during a “gap year”, you have roughly $30,000 of room before you’d reach the 22% bracket in 2026. That room closes the year Social Security starts and closes further when required withdrawals begin.
Keep an Eye Out for Hidden Tax Traps
When it comes to retirement income tax planning, there are two major tax traps you’ll want to avoid.
Social Security Tax Torpedo
If you withdraw too much taxable income in a year, part of your Social Security benefits may become taxable. You could potentially face hundreds or even thousands of dollars in surprise taxes.
The IRMAA Cliff
Tax brackets aren’t the only important thing to consider when planning your retirement. You also need to be aware of “cliffs.”
The measure Medicare uses is modified adjusted gross income (MAGI), which, for most retirees, is close to their total income for the year, with tax-exempt interest added back in. For 2026, the first threshold is $109,000 for single filers and $218,000 for married couples. If you go over by a dollar, the standard Part B premium jumps from $202.90 a month to $284.10, with a Part D surcharge added on top of that.
There’s also a built-in delay in the system. Medicare looks at your tax return from two years ago, so your 2026 premium is based on your 2024 income. A large withdrawal or a big Roth conversion doesn’t show up on your Medicare bill until two years later.
Think About the Year One of You Files Alone
When one spouse passes away, the surviving spouse generally files as a single taxpayer the following year. The income usually doesn’t fall by anywhere near half. The pension keeps paying and the IRA balance hasn’t changed. One of the two Social Security checks continues.
What changes is the tax treatment. The brackets for a single filer are roughly half as wide, and the standard deduction drops from $32,200 to $16,100 for 2026. The same income can cost more once it’s taxed on a single return. For couples, that is one of the strongest reasons to look hard at Roth conversions while you both have the wider joint brackets available.
Have a Few More Strategies in Your Toolkit
There are a few other strategies to be mindful of when you create your retirement tax plan. Remember that if your taxable income stays below a set threshold, your long-term capital gains tax (tax on investments held over a year) is 0%. For 2026, that threshold is $98,900 in taxable income for a married couple filing jointly and $49,450 for a single filer. If you stay under those limits, qualifying long-term gains carry no federal tax at all. Keep in mind that the threshold applies to taxable income, which is measured after your standard deduction, so your gross income can run higher than those numbers, and you can still qualify
If charitable giving is part of your financial plan, you might consider qualified charitable distributions (QCDs). With a QCD, you direct funds from an IRA directly to a charity of your choice. That money counts toward your required minimum distribution (RMD) amount, but it isn’t taxed as income. For 2026, you can send up to $111,000 from your IRA this way, and you need to be at least 70½ on the day the money moves. If you’re married and you each have your own IRA, you can each do it.
Lastly, Texas has an advantage worth considering. Because there’s no state income tax, you end up keeping more of your retirement savings. That matters when you compare your situation to a retiree drawing the same dollars in California or New York. It also means the federal side is where the entire planning effort goes, because Texas isn’t adding a layer on top of it.
Need Help Crafting Tax-Efficient Withdrawal Strategies?
I read my clients’ tax returns every year for exactly this reason. The return tells me which tax bracket you landed in, how much of your Social Security got taxed, and where there was unused room you could have filled. That’s the document that shows whether last year’s withdrawal order worked.
If you’d like a second set of eyes on your finances, bring last year’s return and a list of your accounts to a 15-minute complimentary call. We can walk through where this year’s withdrawals are coming from and how they’re affecting your tax bracket. From there, we can talk about whether a different sequence makes sense for you.
Frequently Asked Questions About Tax-Efficient Withdrawal Strategies
What are the most tax-efficient withdrawal strategies in retirement?
Tax-efficient withdrawal strategies often involve coordinating withdrawals across taxable brokerage accounts, traditional IRAs or 401(k)s, and Roth accounts to help manage your tax bracket over time. Depending on your situation, strategies such as Roth conversions during lower-income years, qualified charitable distributions, and careful timing of withdrawals may help reduce your lifetime tax bill rather than just this year’s taxes.
What is the best retirement withdrawal order to minimize taxes?
There is no one-size-fits-all retirement withdrawal order. While many people have been told to withdraw from taxable accounts first, then tax-deferred accounts, and Roth accounts last, that approach isn’t always the most tax-efficient. I help retirees develop personalized retirement income tax planning strategies that account for tax brackets, Social Security taxation, Medicare IRMAA surcharges, and long-term financial goals to determine the most effective withdrawal sequence.
How can I reduce taxes on my retirement income?
Reducing taxes in retirement often requires proactive planning, not just smart investing. Coordinating withdrawals, managing Roth conversions, avoiding unnecessary Social Security taxes and Medicare premium surcharges, and using strategies like qualified charitable distributions can all make a meaningful difference. I provide ongoing, fee-only fiduciary guidance to help retirees adapt their withdrawal strategy from year to year and potentially keep more of what they’ve earned.
About Joe
Joe Dowdall is a fee-only CERTIFIED FINANCIAL PLANNER® professional in Dallas, TX. With over 20 years in the financial services industry, Joe is a fiduciary who creates tax-focused financial plans for people nearing or in retirement—to help them build and safeguard their wealth through all life stages.
The information provided is for educational and informational purposes only. Please consult with a qualified financial and tax professional for advice tailored to your specific financial situation.