2026 Tax-Efficient Retirement Withdrawals: How to Keep More of Your Money
A tax-efficient retirement withdrawal strategy focuses on minimizing taxes while creating consistent income throughout retirement. The order in which you withdraw from taxable, tax-deferred, and Roth accounts can significantly impact how long your money lasts. At Greenbush Financial Group, our analysis shows that strategic withdrawals can reduce lifetime taxes and increase net retirement income.
Understanding the Three Types of Retirement Accounts
Before building a withdrawal strategy, it is important to understand how different accounts are taxed.
1. Taxable Accounts (Brokerage Accounts)
Capital gains taxes apply when investments are sold
Long-term capital gains rates are often lower than income tax rates
Dividends may also be taxed annually
2. Tax-Deferred Accounts (Traditional IRA, 401(k))
Withdrawals are taxed as ordinary income
Required Minimum Distributions (RMDs) apply starting in your 70s
3. Tax-Free Accounts (Roth IRA, Roth 401(k))
Qualified withdrawals are tax-free
No RMDs for Roth IRAs
Provides flexibility for tax planning
At Greenbush Financial Group, we view these three “buckets” as the foundation of any tax-efficient withdrawal plan.
The Traditional Withdrawal Order Strategy
A common approach is to withdraw funds in a specific sequence to manage taxes over time.
Standard Withdrawal Order
Taxable accounts first
Tax-deferred accounts second
Roth accounts last
Why This Strategy Works
Allows tax-deferred accounts to continue growing
Delays ordinary income taxes
Preserves Roth accounts for later years or legacy planning
However, this strategy is not always optimal in every situation.
Why a Blended Withdrawal Strategy May Be Better
Strictly following the traditional order can sometimes lead to higher taxes later in retirement.
The Problem
If you delay withdrawals from tax-deferred accounts too long:
RMDs can become large
You may be pushed into higher tax brackets
Social Security may become more taxable
Medicare premiums (IRMAA) may increase
A More Strategic Approach
At Greenbush Financial Group, we often recommend a blended withdrawal strategy:
Withdraw from taxable accounts
Supplement with partial IRA withdrawals
Use Roth accounts strategically when needed
This helps smooth out taxable income over time rather than creating spikes later.
Roth Conversions: A Key Tax Planning Tool
One of the most powerful strategies in retirement is converting pre-tax money into Roth accounts.
How It Works
Move funds from a Traditional IRA to a Roth IRA
Pay taxes now at current rates
Future growth and withdrawals are tax-free
When It Makes Sense
Years with lower income (early retirement before Social Security)
Before RMDs begin
When tax rates are temporarily lower
Example
Convert $50,000 from IRA to Roth
Pay tax today at a lower rate
Reduce future RMDs and taxes
At Greenbush Financial Group, Roth conversion strategies are often a cornerstone of long-term tax planning.
Managing Your Tax Bracket Each Year
Instead of focusing only on which account to withdraw from, it is often more effective to focus on your tax bracket.
Strategy
Fill up lower tax brackets intentionally
Avoid jumping into higher brackets
Coordinate withdrawals with Social Security timing
Example
If the 12% tax bracket ends at a certain income level:
Withdraw just enough from IRA to stay within that bracket
Use Roth or taxable accounts for additional income needs
This approach allows for more control over lifetime taxes.
How Social Security Impacts Your Tax Strategy
Social Security income can change how your withdrawals are taxed.
Key Considerations
Up to 85% of Social Security benefits can be taxable
Additional income from IRA withdrawals can increase taxation
Timing Social Security can impact your tax plan
Planning Insight
Delaying Social Security while using IRA withdrawals or Roth conversions early in retirement can sometimes lead to better long-term outcomes.
Avoiding Common Retirement Tax Mistakes
Many retirees unintentionally increase their tax burden.
Common Mistakes
Waiting too long to withdraw from tax-deferred accounts
Ignoring Roth conversion opportunities
Triggering higher Medicare premiums (IRMAA)
Not coordinating withdrawals with tax brackets
Over-withdrawing in a single year
At Greenbush Financial Group, we often see that small adjustments can lead to significant tax savings over time.
A Simple Example of a Tax-Efficient Withdrawal Plan
Scenario
Age 62, retired
$1,000,000 in savings
$400,000 IRA
$300,000 Roth IRA
$300,000 brokerage
Strategy
Withdraw from brokerage for living expenses
Convert $30,000–$50,000 annually from IRA to Roth
Delay Social Security until later years
Use Roth funds strategically after RMD age
Result
Lower lifetime taxes
Reduced RMD impact
Greater flexibility in retirement
Final Thoughts
A tax-efficient withdrawal strategy is not about following a fixed rule. It is about coordinating income sources, tax brackets, and long-term planning.
At Greenbush Financial Group, our analysis shows that retirees who proactively manage taxes throughout retirement often keep significantly more of their income and reduce the risk of large tax surprises later in life.
Rob Mangold
About Rob……...
Hi, I’m Rob Mangold. I’m the Chief Operating Officer at Greenbush Financial Group and a contributor to the Money Smart Board blog. We created the blog to provide strategies that will help our readers personally, professionally, and financially. Our blog is meant to be a resource. If there are questions that you need answered, please feel free to join in on the discussion or contact me directly.
- What is the best order to withdraw retirement funds?Typically taxable accounts first, then tax-deferred, then Roth, but a blended strategy is often more effective.
- Are Roth withdrawals always tax-free?Yes, if the account meets the qualified distribution rules.
- What is a Roth conversion?It is when you move money from a pre-tax account to a Roth account and pay taxes now to avoid taxes later.
- How can I reduce taxes on retirement income?By managing tax brackets, using Roth conversions, and coordinating withdrawals across account types.
- Do Required Minimum Distributions increase taxes?Yes, RMDs are taxable and can push you into higher tax brackets if not planned for
