Why sequencing matters

Retirement income sequencing affects how long your savings last and how much tax you pay over your lifetime. Withdrawals from tax‑deferred accounts like traditional IRAs and 401(k)s are taxed as ordinary income, can push you into higher tax brackets, and may increase Medicare Part B/D premiums and taxation of Social Security benefits. Roth accounts grow and withdraw tax‑free (when qualified), so preserving or building Roth balances through conversions can reduce future tax friction and required minimum distribution (RMD) pressure. (See IRS guidance on Roth IRAs and RMDs: https://www.irs.gov/retirement-plans.)

In my practice, a client who used small, planned Roth conversions in early retirement before RMDs began consistently paid less tax over the decade that followed. Strategic sequencing is not “one size fits all” — but a careful plan often gains hundreds of thousands in after‑tax value across long retirements.

The typical sequencing framework (starting point)

A widely used, tax‑efficient starting framework is:

  1. Taxable accounts first (capital gains and cost‑basis management)
  2. Tax‑deferred accounts second, with selective Roth conversions in low‑income years
  3. Roth accounts last, used to manage tax spikes or leave a tax‑free legacy
  4. Social Security timing layered on top — often delayed to age 70 if workable to maximize guaranteed income

This sequence is a guideline, not a rule. For example, drawing from taxable accounts first can keep taxable income and Medicare premiums lower while allowing tax‑deferred money to keep growing. But if a retiree is in a very low tax year (between jobs or early retirement), doing a Roth conversion that year can lock in low taxes now and avoid higher taxes once RMDs start.

How Roth conversions fit

Roth conversions move money from a tax‑deferred account into a Roth and are taxed as ordinary income in the conversion year. Since the Tax Cuts and Jobs Act eliminated recharacterizations in 2018, conversions are irrevocable — you cannot undo them later. (IRS: https://www.irs.gov/retirement-plans/roth-iras.)

When to convert:

  • Low‑income years before RMDs begin (often early retirement or a sabbatical)
  • Years with capital losses that offset ordinary income for tax planning
  • When expected future tax rates or required distributions will be materially higher

How much to convert:

  • Convert only enough to fill the gap between tax brackets (so you stay in a lower marginal bracket)
  • Run scenarios that include Medicare IRMAA thresholds, net investment income tax (NIIT), and how conversions affect Social Security taxation

For detailed Roth conversion mechanics and tax modeling, see our guide on Roth conversion strategies for retirement income tax management.

Social Security and pensions: sequencing with guaranteed income

Social Security timing is a separate but linked decision. Delaying benefits increases the monthly payment (up to age 70) and can let you use portfolio withdrawals for living costs. If you plan to delay Social Security, you’ll need consistent cash flow early — a reason many retirees draw taxable accounts first and use Roth conversions opportunistically.

Employer pensions with joint survivor options or cost‑of‑living adjustments should be integrated into your cash‑flow model: a pension reduces the need to withdraw as much from accounts early, which can preserve tax‑advantaged growth.

Practical examples (simplified)

  • Example A — Early retirement, low income: Age 62 retires, no Social Security until 70, low taxable income. Strategy: Withdraw from taxable and brokerage accounts for living costs. Do modest Roth conversions up to the top of a low tax bracket to lock in tax‑free growth.

  • Example B — Immediate high guaranteed income: Age 67 with pension and Social Security starting. Strategy: Use tax‑deferred and Roth accounts to manage taxable income and consider converting little or none if current taxes are high.

  • Example C — Legacy focus: Want to leave tax‑free assets to heirs. Strategy: Prioritize Roth conversions over time (paying tax now) to shift assets to Roth for heirs, while managing tax brackets carefully.

Tax and timing considerations to model

  • Marginal tax brackets: Conversions increase ordinary income; plan to avoid bumping into much higher brackets.
  • RMD timing and size: RMDs force taxable withdrawals; trimming tax‑deferred balances via conversions before RMDs start can lower future taxes. (Check current RMD rules on IRS.gov.)
  • Medicare IRMAA and Part B/D premiums: Higher reported income can raise premiums. Include these thresholds in conversion planning.
  • Net Investment Income Tax (NIIT): Additional 3.8% NIIT may apply depending on modified AGI and filing status.
  • State income taxes: Conversions create state taxable income; consider state rules and potential residency changes.

Practical retirement sequencing checklist

  • Map every source of retirement income: taxable accounts, IRAs/401(k)s, Roths, pensions, Social Security, HSAs.
  • Project income and taxes year‑by‑year for the first 10–15 years of retirement; run “what if” scenarios.
  • Identify low‑income years where Roth conversions are efficient.
  • Plan withdrawals from taxable accounts considering capital gains and loss harvesting opportunities.
  • Schedule Roth conversions to smooth taxable income and avoid Medicare/NIIT cliffs.
  • Revisit annually or after major life changes (job change, moving states, market swings).

Common mistakes and how to avoid them

  • Ignoring Medicare and IRMAA effects: A conversion that looks good ignoring Medicare can backfire. Model premium thresholds.
  • Converting without a plan: Large one‑time conversions can spike taxes and reduce benefits; spread conversions across low rate years.
  • Over‑reliance on rules of thumb: The order depends on individual variables — use a cash‑flow model and tax projections.

Tools and professional help

Tax software and retirement planning tools can simulate dozens of years of withdrawals and conversions. For step‑by‑step conversion sequencing, our article Sequencing withdrawals between taxable, tax‑deferred, and Roth accounts provides deeper scenarios and worksheets.

Work with a fee‑only planner or CPA when conversions approach thresholds that affect Medicare, NIIT, or estate planning. In my experience, coordinated planning with a tax pro prevents costly surprises.

Quick rules of thumb

  • Use taxable accounts first to preserve tax‑favored growth, unless doing a Roth conversion in a low‑income year is more valuable.
  • Convert small amounts to Roth in low income years to smooth future tax exposure and reduce RMDs.
  • Keep Roth accounts for late‑life tax‑free withdrawals and legacy transfer.

Disclaimer and final notes

This article is educational and not individualized financial or tax advice. Tax law and IRS rules change — always verify current RMD ages, Roth rules, and tax brackets with the IRS (https://www.irs.gov) or a qualified tax advisor. For consumer guidance on retirement planning issues, see the Consumer Financial Protection Bureau (https://www.consumerfinance.gov).

References

If you’d like, I can create a customized withdrawal-and-conversion scenario using your age, account balances, expected Social Security start date, and projected spending to show year‑by‑year tax and cash flows.