Why Your Withdrawal Strategy in Retirement Matters
Dustin A. Husarik, CFP®
Executive Vice President – Financial Advisor
Magnan Family Wealth Management
So, let’s break down why liquidation strategy matters and how the sequence of withdrawals can change your entire retirement picture.
When you retire, you’re no longer contributing – you’re withdrawing. And those withdrawals don’t all get taxed the same way. Your retirement assets will likely fall into one of the account categories below:
Every family has a uniquely different situation, but a common strategy looks something like this:
Executive Vice President – Financial Advisor
Magnan Family Wealth Management
Most people spend decades asking questions centered around how they save for retirement, and very little time considering how to take money out once that time comes. Believe it or not, the order in which you withdraw from your accounts (Your Liquidation Strategy) can have a significant impact on your retirement. Get it right, and you could save thousands in taxes and stretch your nest egg longer. Get it wrong, and Uncle Sam gets a bigger slice of your pie than he otherwise should.
So, let’s break down why liquidation strategy matters and how the sequence of withdrawals can change your entire retirement picture.
When you retire, you’re no longer contributing – you’re withdrawing. And those withdrawals don’t all get taxed the same way. Your retirement assets will likely fall into one of the account categories below:
- Taxable Accounts- Brokerage accounts that are generally taxed at capital gains rates.*
- Tax-Deferred Accounts – Accounts like 401(k) and Traditional IRAs, where withdrawals are taxed as ordinary income.
- Roth Accounts – Where qualified withdrawals are tax-free
The order in which you tap these buckets determines your tax bill every single year. If you just pull randomly, you could accidentally push yourself into higher tax brackets, pay more in taxes, and trigger bigger Medicare premiums. The outcome is less money in your pocket.
Every family has a uniquely different situation, but a common strategy looks something like this:
- Start with Taxable Accounts – Since these accounts generally have preferential tax treatment, we like to start here. Long-term capital gains and qualified dividends are typically taxed at lower rates than ordinary income. By carefully managing which securities you sell (such as harvesting losses or selling positions with smaller gains) you can further reduce your tax liability. This not only gives you increased flexibility, but it also allows you to leave your tax-advantaged accounts untouched and potentially continue compounding tax-deferred or tax-free, which may improve your long-term wealth.**
- Tap into Tax-Deferred Accounts Next – Once your taxable accounts have been drawn down, we recommend taking distributions from your tax-deferred accounts. These accounts are typically subject to Required Minimum Distributions (RMDs) at age 73 (or 75 for those born in 1960 or later, per SECURE 2.0 Act). Pulling from these accounts next allows you to manage the impact of future RMDs. If your tax-deferred accounts are too large by that time, your RMDs may push you into a higher tax bracket and affect things like Medicare premiums or Social Security Taxation. Drawing from these accounts within a controlled strategy can help reduce those future RMD requirements. Tax-deferred accounts also allow you to manage your tax bracket. That is, taking distributions to the extent that you “fill up” lower tax brackets by taking moderate withdrawals in years where your income is lower (Think before Social Security begins). These accounts are also great places to send charitable donations out of through the Qualified Charitable Distribution strategy. If you are age 70.5, you can make direct donations to a qualified charity out of this account, and it does not get included as income. Also satisfies RMD obligations you may have in the calendar year!
- Save Roth Accounts for Last – Roth accounts are powerful tools to have in retirement. By preserving them for as long as possible, you give yourself ultimate flexibility. Not only are qualified distributions out of these accounts tax-free, there is also no RMD requirement. As you transition into later stages of retirement, you may begin thinking about leaving a legacy, and Roth accounts can be a great asset to leave as an inheritance. The new SECURE Act law allows beneficiaries to continue growing these accounts for 10yrs beyond your death, and remove the entire balance in the 10th year entirely tax-free. Due to the flexibility these accounts provide you, we typically recommend leaving them untouched until they are needed, or your situation is unique in such a way that withdrawals are beneficial.
*The tax treatment of investments in brokerage accounts is dependent upon the length of time the assets has been owned.
**Source: Wells Fargo Advisors Lifescapes “Your withdrawal sequence can help you maximize wealth in retirement” 9/2/2025
Wells Fargo Advisors Financial Network is not a legal or tax advisor.
Income tax will apply to Traditional IRA distributions that you have to include in gross income. Qualified Roth IRA distributions are federally tax-free provided it has been more than five years since the Roth IRA was funded AND the owner is at least age 59 ½ or disabled, or using the first-time homebuyer exception, or taken by their beneficiaries due to their death. Qualified Roth IRA distributions are not subject to state and local taxation in most states. Distributions from Traditional and Roth IRAs may be subject to an IRS 10% additional tax if distributions are taken prior to age 59 ½.
**Source: Wells Fargo Advisors Lifescapes “Your withdrawal sequence can help you maximize wealth in retirement” 9/2/2025
Wells Fargo Advisors Financial Network is not a legal or tax advisor.
Income tax will apply to Traditional IRA distributions that you have to include in gross income. Qualified Roth IRA distributions are federally tax-free provided it has been more than five years since the Roth IRA was funded AND the owner is at least age 59 ½ or disabled, or using the first-time homebuyer exception, or taken by their beneficiaries due to their death. Qualified Roth IRA distributions are not subject to state and local taxation in most states. Distributions from Traditional and Roth IRAs may be subject to an IRS 10% additional tax if distributions are taken prior to age 59 ½.