Saving for retirement is only half the equation. How you withdraw those savings can have a major impact on how long your money lasts and how much you ultimately pay in taxes. A thoughtful, tax-efficient withdrawal strategy, often called withdrawal sequencing, is designed to reduce your lifetime tax burden while supporting a steady income throughout retirement.

Most retirees hold assets across different types of accounts: taxable accounts, tax-deferred accounts, and tax-free accounts. Each is taxed differently, which is why the order in which you use them matters.

Taxable accounts, such as brokerage accounts, are often the first place to start. These accounts may generate capital gains rather than ordinary income, which can be taxed at lower rates depending on your income level. Using taxable assets early can also help preserve tax-advantaged retirement accounts for later years, when required minimum distributions (RMDs) may force withdrawals whether you need the income or not.

Next are tax-deferred accounts, including traditional IRAs and 401(k)s. Withdrawals from these accounts are generally taxed as ordinary income. Strategically tapping these accounts before RMD age (currently 73 for most retirees) can help smooth out taxable income over time. Rather than waiting and facing large required withdrawals later, planned distributions earlier in retirement may keep you in a lower tax bracket and reduce future tax surprises.

Tax-free accounts, such as Roth IRAs, are often the most valuable assets to preserve. Qualified withdrawals from Roth accounts are not subject to income tax, and Roth IRAs are not subject to RMDs during the owner’s lifetime. Because of this flexibility, Roth funds are commonly used later in retirement or as a contingency for years with higher expenses. They can also play a strategic role in estate planning, as heirs may benefit from tax-free distributions.

In practice, the most effective strategy is rarely a strict, one-size-fits-all sequence. Many retirees benefit from a blended approach, drawing from multiple account types each year to manage taxable income and stay within favorable tax brackets. Factors such as Social Security timing, pensions, healthcare costs, and tax law changes all influence the optimal strategy.

Tax-efficient withdrawal planning is about coordination, aligning income needs, tax considerations, and long-term goals. A well-designed strategy can help extend the life of your portfolio, reduce unnecessary taxes, and provide greater confidence throughout retirement.

As your target retirement date approaches, schedule an appointment with us to discuss your goals once more. We can help you develop a withdrawal strategy that supports your short- and long-term plans.