Tax-Smart Withdrawals: How To Keep More Of Your Retirement Savings

Retirement planning isn’t just about saving enough - it’s about how you take money out once you stop working. Making withdrawals without a tax-smart strategy can mean paying more than your fair share to Uncle Sam and possibly triggering higher Medicare premiums.

Here’s what every retiree and pre-retiree should know about withdrawing money wisely:

1. It’s About Timing and Taxes, Not Just Amounts

How much you withdraw matters, but when and from where you withdraw can make an even bigger difference. Different accounts are taxed differently, and mixing withdrawals smartly can reduce your tax bite.

2. Know Your Tax Brackets and Account Types

You likely have money in various buckets:

Tax-deferred accounts like traditional IRAs and 401(k)s - withdrawals count as ordinary income and are subject to age based penalties for early withdrawals.
Taxable accounts like brokerage accounts - withdrawals may be capital gains, which often get favorable rates.
Roth accounts - qualified withdrawals are tax-free, offering flexibility.

Understanding these helps you plan withdrawals to avoid pushing yourself into a higher tax bracket.

⭐️ 5-Star Tip: When it comes to retirement withdrawals, don’t treat your tax brackets like a buffet - just because you can take more doesn’t mean you should pile your plate high. Smart sequencing helps keep more money in your wallet, not the taxman’s. Plan wisely, withdraw smarter, and enjoy the fruits of your labor without the tax hangover.

3. Don’t Forget Required Minimum Distributions (RMDs)

Starting at age 73 (for many), you must take RMDs from traditional retirement accounts. Ignoring RMDs can result in hefty penalties. Planning withdrawals around RMDs helps smooth out your income and taxes over time.

4. Use Tax-Efficient Withdrawal Sequencing

A common approach by advisors is:

Spend from taxable accounts first (to let tax-advantaged accounts grow).
Use tax-deferred accounts next.
Finally, draw from Roth accounts last, preserving their tax-free growth.

⭐️ 5-Star Tip: the above sequencing isn’t a one-size-fits-all - your mileage may vary!

5. Remember State Taxes and Medicare IRMAA Impacts

State income taxes vary, so consider where you live in retirement. Plus, higher withdrawals can increase your Medicare Part B and D premiums through IRMAA surcharges, which are based on your reported income.

6. Plan Ahead and Stay Flexible

Tax laws change, markets move, and life happens. A tax-smart withdrawal strategy isn’t set-it-and-forget-it - regular reviews keep your plan optimized.

📬 Contact me if you’d like to find out how I can help you with income strategies, weighing the options - and the tax angles - to decide what’s right for you.

John Piershale, CFP®, AEP®

Fee-Only and Fiduciary Advisor

John Piershale Wealth Management, LLC is an Investment Adviser registered with the State of IL and in other jurisdictions where exempt from registration. All views, expressions, and opinions included in this communication are subject to change. This communication is not intended as an offer or solicitation to buy, hold or sell any financial instrument or investment advisory services. Any information provided has been obtained from sources considered reliable, but we do not guarantee the accuracy or the completeness of any description of securities, markets or developments mentioned. The information contained herein is intended to be used for educational purposes only and is not exhaustive. Diversification and/or any strategy that may be discussed does not guarantee against investment losses but are intended to help manage risk and return. If applicable, historical discussions and/or opinions are not predictive of future events. The content is presented in good faith and has been drawn from sources believed to be reliable. The content is not intended to be legal, tax or financial advice. Please consult a legal, tax or financial professional for information specific to your individual situation.