Subscribe to Our YouTube Channel for More Topic Breakdowns
Many people spend thirty years focused on one question: how much can I save? It’s the right question for most of a career. Then retirement approaches, and a different question takes over, one that almost nobody thinks to ask until they’re already in it.
Which account do you touch first?
You might retire with money spread across four or five different places. A traditional IRA or 401(k). A Roth. A taxable brokerage account. Social Security waiting in the background, maybe a pension. Each one is taxed differently. Each one interacts with the others in ways that, depending on the order you draw from them, can either work quietly in your favor or cost you tens of thousands of dollars over thirty years.
The order isn’t a detail. For most households, it’s one of the highest-leverage decisions in all of retirement planning.
If you find this useful, subscribe and hit the bell. We put out content specifically for people in the ten years before and after retirement, and this is exactly the kind of planning decision that gets missed.
The Rule Everyone Follows and What It Gets Wrong
There’s a standard sequence many people follow: draw from taxable accounts first, then from tax-deferred accounts like your IRA or 401(k), then from Roth accounts last. The logic holds up at face value. Let the tax-advantaged money compound as long as possible.
That’s not bad advice; it’s just incomplete, and, if followed too rigidly, it can create a problem that quietly compounds for a decade before it shows up on a tax return.
Here’s the piece that gets missed. When you retire before age 73, especially if you haven’t started Social Security yet, your taxable income can often drop to the lowest level it’s been in decades. Your paycheck is gone. Social Security hasn’t started. The IRS isn’t yet requiring you to take distributions from your retirement accounts. For a window that might be three, five, even eight years long, your marginal tax rate could be the lowest it will ever be for the rest of your life.
That window is where real planning happens. Most people let it pass without doing anything with it.
What Happens at 73
At age 73, the IRS begins requiring you to take required minimum distributions from any traditional IRA or 401(k) you hold. Every dollar that comes out is taxed as ordinary income, whether you need the money or not.
If you’ve spent the years between retirement and age 73 leaving that account untouched, doing exactly what the standard advice suggested, you can arrive at 73 with a balance that has grown considerably. The RMD on that balance can be substantial. We’ve seen clients discover their required distribution is $60,000 or $70,000 a year, stacked directly on top of two Social Security checks that also carry their own tax exposure.
That combination pushes people into tax brackets they never expected. It can also trigger IRMAA (the income-related Medicare adjustment amount), which increases Part B and Part D premiums, calculated based on income from two years prior. A large RMD in one year becomes a higher Medicare bill two years later.
None of this is a crisis. It’s also not inevitable. The structure of the problem is clear, which means there’s a structure to the solution.
A Different Path Through the Same Numbers
Take a couple that retires at 63 with $1.4 million in a traditional IRA, $200,000 in a Roth, and $300,000 in a taxable brokerage account. Social Security starts at 70 for both of them.*
Following the standard advice, drawing from the brokerage account first and leaving the IRA alone, they arrive at 73 with that IRA having grown for a decade. Their required distribution at that point, based on IRS life expectancy tables, could run $55,000 to $65,000 a year.* Stack that on two Social Security checks, and a meaningful portion of those benefits becomes taxable. IRMAA starts to apply. The tax bill they carry into their 70s and 80s is larger than it needed to be.
Now run the same household through a different sequence. During those seven years between retirement and the start of RMDs, they use the low-income window to do modest Roth conversions. Each year, they move $40,000 to $60,000 from the IRA into the Roth, paying tax on that money now at a lower rate (say, 22%) and shifting it permanently out of the tax-deferred bucket.*
Over time, the IRA balance comes down from $1.4 million to something closer to $800,000.* The RMD at 73 is roughly half of what it would have been. Total taxable income is lower. IRMAA exposure may disappear entirely. The Roth balance, now several hundred thousand dollars, can be drawn from freely with no RMD requirements and no tax consequence.
The difference in lifetime taxes between those two paths, same household, same savings, different sequence, can reach $150,000 to $200,000 over a thirty-year retirement.* That’s not from investing differently or saving more. It comes entirely from the order and timing of withdrawals.
Social Security Is Part of the Same Decision
When you claim Social Security is not a separate question from how you sequence withdrawals. They’re the same question.
Up to 85% of Social Security benefits can become subject to federal income tax once your combined income from all sources crosses certain thresholds. The larger your benefit, the more of it may be taxable. Delaying Social Security to age 70 produces a meaningfully larger benefit for life, roughly 77% more than claiming at 62, for someone who waits the full eight years.* It also preserves more of that low-income window for Roth conversions, since Social Security hasn’t yet started adding to your taxable income.
These two decisions interact directly. Planning them separately often leaves money on the table.