Why sequencing retirement income matters

Sequence matters because the order you withdraw money affects taxable income, Medicare premiums, Social Security taxation, and how quickly tax-deferred balances are depleted. Small differences early in retirement can compound into large changes in lifetime taxes and portfolio longevity. In my work advising retirees, I commonly see 3–7 years of additional tax-efficient withdrawals produced simply by shifting the withdrawal order and using modest Roth conversions during low‑income years.

Key tax levers affected by sequencing:

  • Taxable income and marginal tax rates (federal and state)
  • Social Security taxation and provisional income thresholds (can push benefits into 50% or 85% taxable) (see Social Security rules: https://www.ssa.gov)
  • Medicare Part B and D premiums (IRMAA increases tied to reported income)
  • Required Minimum Distributions (RMDs) from tax‑deferred accounts (RMD age is 73 for most taxpayers as of 2025; see IRS guidance)

Authoritative sources: IRS pages on RMDs and Social Security taxation, FINRA and CFPB retirement resources provide useful planning context (linked below).

Typical withdrawal order and why it’s used

A common tax-efficient sequence many planners use is:

  1. Taxable accounts (taxed at capital gains/dividend rates)
  2. Tax‑deferred accounts (traditional IRAs/401(k)s) — with careful attention to RMDs and bracket management
  3. Tax‑free accounts (Roth IRAs/401(k)s)
  4. Social Security — timing based on breakeven analysis and spousal considerations

Why this order? Taxable accounts use favorable long‑term capital gains and step‑up basis rules, preserving tax‑deferred assets that would generate ordinary income when distributed. Roth accounts grow tax‑free and are often preserved for later years or estate planning because Roth owners are not subject to RMDs. Social Security timing is separate: delaying benefits increases the monthly check but can raise taxable income in later years if large distributions are taken from tax‑deferred accounts.

Note: This order is a starting rule, not a universal solution. Personal factors — healthcare needs, legacy goals, pension income, and state taxes — change the optimal sequence.

How sequencing interacts with taxes (specific mechanics)

  1. Marginal tax bracket management

Withdrawing heavily from a traditional IRA early can push you into a higher marginal tax bracket and increase taxes permanently on those distributions. Instead, using taxable accounts for early spending often keeps taxable income lower, leaving headroom to perform strategic Roth conversions in low-income years.

Example: Imagine a married couple with $60,000 in taxable income (pensions, part‑time work) and $200,000 in a traditional IRA. If they withdraw $30,000 from the IRA in year 1, their taxable income rises to $90,000 and may push them into a higher tax bracket, increasing the tax on the entire incremental distribution. If they instead withdraw $30,000 from a taxable account (long‑term capital gains or basis), the taxable income impact could be much smaller.

  1. Social Security taxation and provisional income

Social Security taxable portion depends on combined income (adjusted gross income + nontaxable interest + half of Social Security benefits). Hitting certain thresholds can make up to 85% of benefits taxable, increasing overall federal tax. Sequencing to keep provisional income low while Social Security is claimed can reduce early taxation of benefits (see SSA guidance: https://www.ssa.gov).

  1. Medicare IRMAA (Income Related Monthly Adjustment Amount)

Medicare Part B and D premiums rise when your reported income in the IRS return (two years prior) exceeds thresholds. A spike from large traditional IRA distributions or Roth conversions can trigger higher premiums for years to come — a sequencing and conversion plan should account for IRMAA implications (see Medicare/SSA resources).

  1. Required Minimum Distributions (RMDs)

Tax‑deferred accounts require RMDs beginning at age 73 for most taxpayers as of 2025, which can force sizable ordinary income later in retirement. Lowering tax‑deferred balances before RMD age via strategic Roth conversions or partial withdrawals in low‑income years reduces future RMD pain and improves tax flexibility (IRS RMD guidance: https://www.irs.gov/retirement-plans/retirement-plans-faqs-regarding-required-minimum-distributions).

Practical sequencing strategies

  • Use taxable accounts first in early retirement when capital gains treatment and tax basis reduce incremental taxable income.
  • In low‑income years (e.g., shortly after retiring before RMDs), convert modest amounts from traditional IRAs to Roth IRAs to take advantage of lower marginal tax rates and avoid larger RMDs later.
  • Delay Social Security if you can reasonably do so; delayed benefits grow ~8% per year past full retirement age and can hedge longevity risk. If delaying, use taxable or Roth funds to support spending needs while keeping taxable income low.
  • Coordinate withdrawals with charitable plans: Qualified Charitable Distributions (QCDs) from IRAs can satisfy RMDs and reduce taxable income if you meet QCD rules (see IRS QCD rules).
  • Monitor Medicare IRMAA risk: avoid large one‑year income spikes that could increase premiums for two future years.

In my practice, a balanced approach — spending some taxable assets, performing small Roth conversions during low‑income windows, and preserving some Roth for later — produces the most durable results for most households.

Example sequences with short scenarios

Scenario A: Early retirement, low living expenses

  • Age 63 retiree has Social Security deferred, $200k taxable basis investments, $500k traditional IRA, and $150k Roth. Taking from taxable investments for the first 7 years keeps ordinary income low. During years 2–5 perform $20k/year Roth conversions to use the 12% bracket efficiently and reduce future RMDs.

Scenario B: High pension + RMD risk

  • Spouse A has a pension that starts at 70 and will produce $60k/year. If they wait to withdraw IRA funds until after pension starts, RMDs could push them into higher brackets. A strategy could include partial Roth conversions before pension begins to spread taxable income across years.

These scenarios are illustrative and simplified; run numbers with a tax pro or planner before acting.

Common mistakes to avoid

  • Treating the withdrawal order as fixed: failing to retest sequencing when markets, tax laws, or household needs change.
  • Ignoring IRMAA and Social Security taxation: large, untimed conversions or distributions can increase Medicare premiums and Social Security taxable share.
  • Waiting too long to address RMDs: leaving very large tax‑deferred balances into your 70s can cause forced high‑tax years.
  • Not coordinating state taxes: some states tax retirement income differently; a sequence that looks efficient for federal taxes may be costly at the state level.

Tools and planning steps

  1. Run a multi‑year tax projection (10–30 years) showing taxable income, RMDs, and Medicare premiums under different withdrawal orders.
  2. Identify low‑income years where Roth conversion tax is minimal.
  3. Model Social Security claiming strategies with projected taxes and longevity scenarios.
  4. Coordinate charitable giving, QCDs, and gifting to reduce taxable estate and manage taxable income flows.

For deeper modeling, see our related guides on sequencing withdrawals and Roth conversion timing:

Frequently asked questions (concise)

Q: Is the taxable → tax‑deferred → Roth order always correct?
A: No. It’s a common starting point but personal factors (pensions, healthcare costs, estate plans, state taxes) can change the priority.

Q: When should I delay Social Security?
A: Delaying increases lifetime benefits and can be valuable if you expect to live longer than average or if current low taxable income lets you strengthen your financial floor. But early claiming may be right if you need cash or have limited life expectancy.

Q: Should I do Roth conversions every year?
A: Only when conversions keep you in a favorable marginal bracket or reduce future RMD pain. Small, consistent conversions in low‑income years are often preferable to large one‑time conversions.

Professional disclaimer

This article is educational and does not constitute individualized tax, investment, or legal advice. Rules change and individual situations differ; consult a certified financial planner or tax advisor (CPA or EA) before implementing sequences, conversions, or Social Security strategies. For official tax rules see the IRS and Social Security Administration sites referenced below.

Authoritative sources and further reading

Internal guides on FinHelp:

If you’d like a spreadsheet template or a modeled example using your numbers, consult a licensed planner or ask about our planning tools that can translate sequencing choices into multi‑year tax projections.