Explore tax-smart strategies for retirement withdrawals—from sequencing and RMDs to Roth conversions— to help manage liabilities and support long-term goals.

How to Withdraw Retirement Savings Without a Huge Tax Hit

When you’ve spent decades building retirement savings, how and when you begin drawing down those assets matters—not just for your cash flow but for your tax exposure. For high-net-worth individuals, the tax implications of retirement withdrawals can be complex and may shift over time based on income levels, investment performance, and legacy planning goals.

While every situation is unique, these widely used strategies may help manage taxes in retirement:

• Consider the tax characteristics of each account before making withdrawals
• Sequence withdrawals to keep income within a targeted tax bracket
• Use Roth conversions during lower-income years to shift future tax exposure
• Leverage long-term capital gains and tax-loss harvesting
• Plan distributions with Medicare premiums and surtax thresholds in mind

Pre-Tax vs. After-Tax vs. Tax-Free Accounts

Most retirees draw from a mix of accounts with different tax treatments:

• Pre-tax accounts like Traditional IRAs and 401(k)s are taxed as ordinary income when withdrawn.
• After-tax accounts (taxable brokerage) may generate capital gains, dividends, or interest.
• Tax-free accounts such as Roth IRAs allow for tax-free qualified withdrawals.

The type of account you withdraw from—and the sequence of withdrawals—can influence your overall tax liability over time. Some retirees may benefit from withdrawing from taxable accounts early on, allowing tax-deferred accounts to grow longer. Others may find it helpful to draw strategically across multiple types to stay within a preferred tax bracket.

Strategic Withdrawal Sequencing

There’s no one-size-fits-all rule for which accounts to withdraw from first, but thoughtful sequencing can help manage tax brackets and extend the longevity of your assets.

Considerations may include:

1. Drawing from taxable accounts first to allow tax-deferred accounts more time to grow, while also leaving room for Roth conversions
2. Deferring pre-tax withdrawals until required or tax brackets shift
3. Supplementing income with Roth assets in years when taxable income is unusually high

This kind of sequencing can help spread your tax exposure across retirement rather than concentrating it into high-income years.

Managing Required Minimum Distributions (RMDs)

Once you reach age 73 (or 75 if born in 1960 or later), RMDs from Traditional IRAs and 401(k)s are mandatory. These distributions can trigger a substantial increase in taxable income if not planned for in advance, as they are subject to ordinary income tax rates.

Strategies to consider:

• Complete Roth conversions in early retirement years, while income is lower
• Use Qualified Charitable Distributions (QCDs) if you’re charitably inclined and over age 70½

• Coordinate with Social Security to manage the combined tax impact of income sources

• Consider making partial withdrawals before RMDs begin to “smooth out” taxable income

Roth Conversions as a Long-Term Strategy

Roth conversions allow you to shift pre-tax funds from a Traditional IRA to a Roth IRA, paying taxes on the conversion today in exchange for future tax-free withdrawals.

This approach may be useful in:

• Lower-income years (e.g., early retirement before RMDs or Social Security benefits begin)
• Filling up a lower tax bracket without triggering Medicare premium surcharges
• Reducing future RMDs and increasing flexibility later in retirement

While conversions generate taxable income in the year they’re executed, they may support broader tax diversification over time.

Utilizing Capital Gains and Tax-Loss Harvesting

Taxable accounts offer opportunities for more nuanced tax management. You may be able to:

• Realize long-term capital gains at favorable tax rates (0%, 15%, or 20%)
• Offset gains with harvested losses from other assets
• Manage your Adjusted Gross Income (AGI) to stay below key tax thresholds
• If charitably inclined, consider gifting highly appreciated stock to a charity or a charitable vehicle, such as a Donor Advised Fund (DAF), to receive a tax deduction.

For high-net-worth individuals with substantial taxable holdings, these strategies can be particularly useful in retirement.

Timing Withdrawals Around Life Events or Market Performance

Strategic timing can reduce the impact of withdrawals on both taxes and investment goals.

Examples include:

• Taking larger withdrawals in years with lower projected income
• Using down markets as a time to rebalance or convert to a Roth while values are lower
• Spreading large withdrawals across tax years to avoid bracket jumps

Planning Around Medicare and Surtaxes

Some retirees inadvertently trigger Medicare premium increases or surtaxes through their distribution decisions.

Key thresholds to watch:

• IRMAA (Income-Related Monthly Adjustment Amount) surcharges on Medicare begin if Modified Adjusted Gross Income (MAGI) exceeds certain limits
• Net Investment Income Tax (NIIT) adds a 3.8% surtax on certain income above $200,000 (single) or $250,000 (married filing jointly)

Managing withdrawals to stay below these limits, when possible, can help reduce overall tax drag.

Coordinating with Estate and Long-Term Goals

Withdrawal strategy isn’t only about your income needs, it’s also about the broader financial picture. Aligning withdrawals with estate planning may include:

• Leaving Roth assets for heirs due to tax-free distributions
• Leaving highly appreciated stock in taxable accounts for heirs due to step-up in basis
• Reducing the size of tax-deferred accounts that will pass to beneficiaries
• Timing gifts, charitable distributions, or trust funding alongside your personal income needs

This coordination is often done in partnership with estate attorneys to build a more consistent approach across generations.

Build a Plan That Works with Your Tax Picture

Your retirement withdrawal strategy should fit within your broader financial goals, including tax planning, lifestyle considerations, and long-term legacy planning.

To start a conversation about how your income streams, investment mix, and tax exposure work together, contact an EP Wealth retirement planning advisor. We help clients evaluate multi-year scenarios and consider how each piece connects to the broader strategy.

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• The tax information illustrated is limited to the dissemination of general information and is presented strictly for informational purposes only. All of the information depicted was obtained from publicly available sources. We believe the sources used to be reliable and that this document is accurate as of the date of dissemination. However, tax laws change frequently. For this reason, this document and the content contained here is subject to change without notice. No warranty or guarantee is made as to the accuracy or completeness of the information presented. The information presented should not be construed as tax advice. The information provided herein should not be used as a substitute for consultation with professional tax, accounting, legal, or other competent advisors. Before making any decision or taking any action, you should consult with a professional tax advisor who has been provided with all pertinent facts relevant to your situation.
• Asset allocation and diversification do not assure or guarantee better performance and cannot eliminate the risk of investment losses. All investment strategies have the potential for profit or loss. Changes in investment strategies, contributions or withdrawals, and economic conditions, may materially alter the performance of your portfolio. Different types of investments involve varying degrees of risk, and there can be no assurance that any specific investment or strategy will be suitable or profitable for a client’s portfolio. There is also no assurance that a portfolio will match or outperform any particular benchmark.
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• Information presented is general in nature and should not be viewed as a comprehensive analysis of the topics discussed. It is intended to serve as a tool containing general information that should assist you in the development of subsequent discussions. Content does not involve the rendering of personalized investment advice nor is it intended to supplement professional individualized advice.      
• EP Wealth Advisors (“EPWA”) makes no representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information presented. All expressions of option are subject to change without notice.
• All investment strategies have the potential for profit or loss. Different types of investments and investment strategies involve varying degrees of risk, and there can be no assurance that any specific investment strategy will be suitable or profitable for a client’s portfolio. The risk of loss can never be eliminated even if working with a professional.
• Laws vary by state. The information presented herein is intended to be general in nature and may not apply to your state of domicile. Please consult local legal counsel to determine the best practices for your state.
• Please consult with a CPA, tax professional, and/or attorney regarding your specific situation before implementing any of the strategies referenced directly or indirectly herein.