Withdrawal sequencing is the order in which you draw from taxable, tax-deferred, and Roth accounts each year, chosen to manage your tax bracket instead of draining accounts in a fixed, default order.
Why this matters two to eight years from retirement
Before RMDs start, you have the most control you will ever have over your taxable income. Every dollar you draw from a Roth account instead of a traditional one is a dollar that does not raise your provisional income or your Medicare premium. Every dollar you draw from a traditional account instead of leaving it to grow is a dollar that shrinks your future RMD. Sequencing well in this window changes both your tax bill this year and the size of the forced withdrawals waiting at 73, or 75 if you were born in 1960 or later.
What this looks like for one couple
A couple needs $120,000 a year to live on. One version of that couple draws the full amount from their traditional IRA. Another draws $70,000 from a taxable brokerage account, taxed at long-term capital gains rates, and $50,000 from Roth, taxed at nothing. Same spending, same year, a different tax bill, because the accounts funding it carry different tax character. The right mix changes year to year: a year in a low bracket calls for a conversion instead of a straight withdrawal. These figures are illustrative, meant to show the mechanism, not a projection.
Why the order changes from year to year
A sequence is not set once at retirement and left alone. A year with a large capital gain already realized calls for less taxable-account selling and more Roth. A year the market is down calls for drawing from cash or bonds instead of selling depreciated shares, which ties sequencing directly to sequence of returns risk. The account funding this year’s spending should answer to this year’s tax return and this year’s market, not a policy set once and left in place.
Related reading
If the decisions on this page are ahead of you, the two of you can work through them with Robert Boeck before any of them becomes permanent.
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