A tax-efficient withdrawal order in retirement, as Tolleson Wealth Management builds it, is shaped around each account's tax bill, Medicare thresholds and the years still open before required distributions begin. Those required distributions start at age 73, or at age 75 for anyone born in 1960 or later, so the years before then are the window for planning which accounts to draw from first.
For 2026, joint modified adjusted gross income up to $218,000 corresponds to the standard $202.90 monthly Medicare Part B premium, although Medicare generally uses income reported two tax years earlier. This applies to couples with traditional retirement accounts, a brokerage account and Roth money who need their savings to start paying the household bills.
Do nothing, and the default often becomes selling the easy account first while pretax balances keep growing in the background. Tolleson Wealth Management maps the account sources, expected income and spending range before setting withdrawals for its clients.
A $180K IRA withdrawal can look harmless when the household needs only $60K annually. The extra $120K still counts as ordinary income in the year it is withdrawn.
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Keep the sale proceeds and the taxable gain on separate lines. A $60K brokerage withdrawal may add only $18K of gain, and that difference changes the comparison.
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Why can taxable-first advice create a larger tax bill later?
Taxable-first advice can create a larger later tax bill when it leaves a large 401(k), IRA or pension rollover untouched until required distributions begin at age 73, or age 75 for people born in 1960 or later. Selling brokerage holdings may produce gains now, but preserving every pretax dollar can pile future ordinary income beside required minimum distributions and Medicare premium exposure.
Following generic taxable-first advice too literally can leave a $400K pension rollover and a large 401(k) untouched until later, when another $60K of ordinary income may land beside required distributions. That is not an argument for draining retirement accounts early. It is a reason to compare the tax cost in the years you actually have available.
Ten to 15 years before retirement, build tax diversity while earnings still give you choices. Check current workplace-plan and IRA catch-up limits after age 50, and decide how much goes to pretax, Roth and taxable savings. Once your last day of work is about five years out, the planning gets concrete: estimate household spending, pension elections, benefit dates and the income each spouse will still earn.
What account details should I put on one sheet before choosing an order?
Put every account and income source on one sheet before choosing a withdrawal order, because a $60K sale proceeds figure says little until you know its cost basis, taxes and purpose. Tolleson Wealth Management uses this inventory to separate money available for routine spending from money that may be better held for later years or sudden costs.
- Traditional IRA and workplace-account balances
- Roth balances and each account’s five-year status
- Brokerage value, cost basis and large unrealized gains
- Pension election terms and expected Social Security dates
- Annual household spending and each spouse’s earnings
Can a $400K pension buyout change the sequence?
An eligible $400K pension lump sum can change the sequence because a direct rollover to an IRA can avoid current federal income tax while adding $400K to an account that may later create ordinary income and required distributions. The pension’s distribution rules, monthly-payment terms and rollover eligibility need checking before anyone treats the buyout as ordinary IRA money.
A withdrawal order cannot decide whether a pension lump sum or monthly payment is better. It is not worth fixing an order until the pension terms, spending need and brokerage cost basis are known. A pension election is often irreversible, while the account source for next year’s spending may be adjusted later.
How would Darnell and Fatima cover a $60K annual gap three different ways?
A $60K annual gap can be filled in more than one way, and each choice creates a different income figure even when the couple receives the same cash. For illustration, hypothetical Darnell, 63, and Fatima, 61, have $1.5M after rolling an eligible $400K pension buyout directly into an IRA. Darnell’s $900K 401(k), the $400K IRA rollover, a $100K brokerage account and a $100K Roth account make up that total.
They spend $90K annually. Fatima earns $30K from part-time bookkeeping, so $90K minus $30K leaves a $60K gap. Their brokerage account is worth $60K, but its basis is $42K. Selling all $60K produces a gain of $60K minus $42K, or $18K, so assumed modified adjusted gross income is $30K of wages plus $18K of gain, or $48K.
The second approach takes $30K from an IRA and sells $30K of brokerage holdings with $21K of basis. The brokerage gain is $30K minus $21K, or $9K. Their assumed modified adjusted gross income becomes $30K of wages plus $30K of ordinary IRA income plus $9K of gain, or $69K. It uses a lower-income year for some ordinary income while preserving part of the brokerage account.
The third pattern draws $180K from the IRA at once to hold three years of spending cash. That produces $30K of wages plus $180K of ordinary income, or $210K of assumed modified adjusted gross income. The cash reserve may feel reassuring, but it consumes almost all the room beneath the first listed Medicare line before interest, dividends or an unexpected gain show up.
Hypothetical $90K spending and $30K wages; potential 2026 joint Part B tier using the stated modified adjusted gross income.
The table compares income added by the cash source, not the couple’s final tax due. It also borrows the 2026 tiers only as a yardstick. Income the couple realizes in 2026 sets their 2028 premiums, the year Darnell turns 65, and the 2028 thresholds will differ. If dividends, rental income, a realized gain or Fatima’s wages move, each total must move with it.
The mixed draw is not a universal winner. It preserves some brokerage assets, leaves the Roth untouched and uses part of a lower-income year for ordinary income, but projected required distributions and future Medicare years still need testing. Tolleson Wealth Management would compare several years, not crown one withdrawal pattern after a single calculation.
| Withdrawal pattern | Cash source | Income added to MAGI | Monthly Part B |
|---|---|---|---|
| Brokerage first | $60K sale | $18K gain; $48K total | $202.90 |
| Mixed annual draw | $30K IRA, $30K sale | $39K; $69K total | $202.90 |
| IRA cash reserve | $180K IRA | $180K; $210K total | $202.90 |
What Medicare line should we avoid crossing?
For 2026, a couple should first watch the $218,000 joint modified adjusted gross income line because Medicare lists a $202.90 monthly Part B premium through that amount and $284.10 monthly through the next tier ending at $274,000. Medicare generally uses income from two years earlier, so a large distribution before enrollment can raise a premium after the cash is gone.
The hypothetical $210K IRA cash-reserve draw remains under the first listed joint threshold, but only by $8K. Dividends, bank interest, capital gains or a one-time payment could use that room quickly. Medicare IRMAA planning should test the applicable tax year and tier before a distribution is made, especially when a spouse will enroll soon.
A quick test: do not take several years of IRA withdrawals at once merely to create a cash reserve if that extra distribution would move an otherwise lower-income year across a Medicare premium threshold. Compare annual draws and a flexible spending amount first.
When can Roth-first or brokerage-first still be sensible?
Roth-first can be sensible when taxable income is already unusually high, while brokerage-first can fit when gains are small, losses offset gains or a surviving spouse may benefit from a stepped-up basis. Qualified Roth IRA withdrawals require age 59½ and the five-year requirement to be met, so the Roth bucket should not be treated as automatically tax-free without checking both conditions.
Inherited assets, concentrated stock and rental income can change the calculation. A Roth conversion strategy, Social Security claiming decision or 401(k) rollover to an IRA may also alter the available sources, but none should be used as a reason to ignore the annual income estimate.
How do flexible spending guardrails change the amount that comes from each account?
Flexible spending guardrails change the amount drawn by setting a starting monthly payment and a range for raises or trims, so a couple does not automatically sell an extra $60K after a poor market year just to keep a fixed paycheck. Tolleson Wealth Management chooses the account source only after the annual spending amount has passed that guardrail test.
Routine spending comes from scheduled withdrawals. Before increasing discretionary travel or gifts, the couple checks whether the current portfolio and spending guardrail support the increase. Then the approved amount is sourced from the taxable, traditional or Roth account that fits that year’s income estimate.
Account values can fall below the amount invested, and selling more after a decline may leave fewer shares to recover. That is why a guardrails withdrawal strategy for retirement sets your pay before tax choices determine where the payment comes from.
What can change after we settle on an order?
A withdrawal order should be retested after a market decline, a health-cost surprise or a tax-law change because each can alter the amount that needs to be withdrawn or the income it creates. Tolleson Wealth Management revisits the spending figure and tax estimate when one of those events makes the prior assumptions stale.
After a market decline, we trim spending before making large sales. A health-cost surprise gets a cash reserve and an insurance check, not a rushed IRA distribution. When tax law changes, we run a fresh tax and Medicare projection; last year's plan may no longer fit. And as the first required distribution approaches, at 73 or 75 depending on birth year, we rerun the numbers again.
The useful buffer is not merely cash. It is room in the spending range, room under a Medicare tier when practical, and enough account choices that one bad year does not force the same sale.
When should I bring this question to Tolleson Wealth Management?
Talk with Tolleson Wealth Management when your retirement date is about five years away, a pension election is pending or projected household assets exceed the $500K investable-asset minimum. Bring current account statements, brokerage cost-basis information, pension election paperwork, a recent tax return, expected Social Security amounts and a realistic annual spending estimate.
Tolleson Wealth Management can put the withdrawal assumptions in a playbook and explain how payment is structured before assets move. That gives you something concrete to test before the first retirement paycheck arrives.
Questions about a tax-efficient withdrawal order in retirement
What happens if our spending rises after we have set an annual withdrawal amount?
If my spouse dies first, does our withdrawal order need to change?
Why should we care about Medicare tiers if our income is nowhere near the highest tier?
Can an eligible pension lump sum go directly into an IRA without current federal income tax?
Do qualified Roth IRA withdrawals increase Medicare income?
Could our adult children receive a brokerage account with a different tax basis after we die?
Where the rules come from
This is general information, not personalized investment, tax, or legal advice. Investing involves risk, including possible loss of principal. Talk to a financial professional before making decisions about your money.