TL;DR
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A Kiplinger report outlines how retirees can coordinate withdrawals from taxable, tax-deferred and Roth accounts rather than relying on a fixed withdrawal order. The report says taxes, required minimum distributions, Social Security and Medicare surcharges can interact; the best approach depends on each person’s circumstances.
Kiplinger has published guidance on building a tax-aware retirement withdrawal plan, emphasizing that retirees should consider which account to draw from and when, not just how much to take out. The report says withdrawals can affect taxable income, required minimum distributions (RMDs), taxation of Social Security benefits and Medicare premiums, making a one-size-fits-all sequence unsuitable for every household.
The report compares three common account types: traditional tax-deferred accounts, taxable brokerage accounts and Roth accounts. Traditional IRA withdrawals are generally taxed as ordinary income. In the report’s example, a $100,000 traditional IRA balance would amount to about $78,000 after federal tax at a 22% bracket, before state taxes. A taxable brokerage account may incur tax when investment gains are realized, while qualified Roth withdrawals can be tax-free under applicable rules.
Kiplinger cautions against treating the often-cited order of spending taxable assets first, tax-deferred assets second and Roth assets last as a universal rule. Drawing taxable assets first may leave room in lower tax brackets unused in some early-retirement years, then concentrate taxable income later. The report describes an alternative: withdrawing enough from tax-deferred accounts to use part of a lower bracket and taking the remainder from taxable or Roth accounts, depending on the household’s situation.
The report also highlights how later-life income sources can overlap. RMDs, Social Security and pension income may raise taxable income, while Medicare Part B and Part D surcharges can rise at higher income levels. The report says those surcharges, known as IRMAA, generally use tax-return information from two years earlier. Roth conversions can also count toward income for this calculation.
How Withdrawal Timing Shapes Taxes
The choice of account can change how much of a retirement balance is available to spend and how income is taxed across multiple years. A withdrawal plan affects more than the current tax bill: it may also influence later RMD amounts, the taxable portion of Social Security and Medicare premiums. That makes it possible for a decision that appears tax-efficient in one year to have costs in a later year.
Kiplinger’s central point is to assess a strategy over a longer period rather than judging it by one year’s tax bill. For example, a retiree who avoids traditional IRA withdrawals early may preserve assets in the short term but face larger required distributions later. The report says the years after work ends and before RMDs begin can offer an opportunity to evaluate deliberate withdrawals or partial Roth conversions, but it does not present those steps as right for everyone.
These decisions can also affect surviving spouses and heirs. The report says a surviving spouse generally files as a single taxpayer, with narrower tax brackets, while RMDs may remain substantial. It also says inherited traditional IRAs left to adult children generally must be emptied within 10 years, potentially while heirs are earning income. Those future effects are part of the planning question, not a guarantee of a particular tax outcome.
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Three Accounts, Different Tax Rules
The article begins with a distinction between a portfolio’s stated balance and its potential after-tax spending value. A dollar in a traditional IRA does not necessarily have the same spendable value as a dollar in a Roth account, because the tax treatment differs. In a brokerage account, tax may depend on realized gains and the applicable rules and rates.
The report gives RMD starting ages as 73 for people born from 1951 through 1959 and 75 for people born in 1960 or later. It frames the period between retirement and those required distributions as a time to review income and withdrawal choices. The source does not provide a personalized calculation or say that one account sequence is best in every case.
Medicare income-related monthly adjustment amounts are another part of the picture. Kiplinger says Part B and Part D surcharges use tax information from two years earlier, but notes that people whose premiums reflect income from a work stoppage may ask Social Security to use current income by filing Form SSA-44 and citing the work stoppage.
“The number on your statement isn’t necessarily the number you can spend.”
— Kiplinger report
Personal Tax Effects Vary
The report does not establish a withdrawal sequence that will minimize taxes for every retiree. Outcomes depend on account balances, filing status, state taxes, investment gains, pension and Social Security income, Medicare eligibility and future tax rules. Its $100,000 account example uses a stated federal tax bracket and does not calculate a complete household tax bill.
The source also does not quantify the long-term savings, if any, from a particular withdrawal strategy or Roth conversion. Social Security taxation and Medicare surcharges depend on income thresholds and other circumstances, and the report’s discussion does not supply a full set of current thresholds. Its claims about possible future tax effects should be understood as planning considerations, not individual forecasts.
Review Income Before Withdrawals
The next step described by the report is to compare possible withdrawal patterns across several years, including the years before RMDs begin. That review can account for expected Social Security and pension income, taxable investment gains, potential Roth conversions and the possibility of Medicare surcharges. A change such as a large IRA distribution may have an effect beyond the year it is taken.
Retirees should also check how current rules apply to their birth year, account type and filing status. The report does not say that any particular strategy is assured to reduce total taxes, and the relevant tax and Medicare thresholds can change. The article’s guidance is general; a household’s figures and goals determine whether a proposed plan makes sense.
Key Questions
Is it always best to spend taxable accounts before retirement accounts?
No. Kiplinger says the taxable-first, tax-deferred-second, Roth-last rule is a rule of thumb, not a universal answer. In some cases, drawing part of a tax-deferred account earlier may make use of a lower tax bracket, but the result depends on the person’s full income and tax situation.
Why can a traditional IRA balance be worth less than its statement value?
Traditional IRA withdrawals are generally taxed as ordinary income. The amount available to spend therefore depends partly on the tax owed when money is withdrawn, along with any applicable state tax.
The report says income-related surcharges for Medicare Part B and Part D generally use tax-return information from two years earlier. Withdrawals and Roth conversions that raise income may affect the income measure used for those surcharges.
When do required minimum distributions begin?
According to the source, RMDs begin at age 73 for people born from 1951 through 1959 and at age 75 for people born in 1960 or later. Rules can depend on account details, so retirees should check which requirements apply to them.
Does the report recommend a specific withdrawal plan?
No. It recommends considering account source and timing across multiple years, but does not identify one sequence that suits every retiree. Individual income, taxes, account types and future needs affect the decision.
Source: kiplinger.com
