Introduction
When most retirees think about making withdrawals from their investments, the focus is usually on how much they need — not how much they’ll keep.
But the order and timing of your withdrawals can have a massive impact on your lifetime tax bill.
For retirees in Weston, Lexington, Wellesley — and really anywhere in Massachusetts, where the cost of living is among the highest in the country — smart withdrawal planning can mean the difference between leaving more money to heirs or to the IRS.
In this guide, we’ll break down strategies for pulling income in a way that minimizes taxes and extends the life of your portfolio.
Step 1: Understand Your Account Types — and Why They Matter
Different accounts are taxed differently, and knowing the rules is step one.
1. Taxable Accounts (Brokerage)
- Investments held outside retirement accounts
- Interest, dividends, and realized capital gains are taxed annually
- Qualified dividends and long-term capital gains usually taxed at lower rates
2. Tax-Deferred Accounts (Traditional IRA, 401(k), 403(b))
- Withdrawals are fully taxable as ordinary income
- Required Minimum Distributions (RMDs) start at age 73 (increasing to 75 for some retirees under SECURE Act 2.0)
3. Roth Accounts (Roth IRA, Roth 401(k))
- Withdrawals are tax-free if you meet the requirements
- No RMDs for Roth IRAs (Roth 401(k) RMDs go away if rolled to a Roth IRA
Why this matters:
Not all retirees have the same tax-planning opportunities. Identify what your opportunities and areas of strength are and then do what’s best for you.
Someone who retires with one large pre-tax 401(k) or IRA will have far fewer withdrawal options — all withdrawals are taxable, and while there may be some wiggle room for timing, there’s less strategy available.
By contrast, a retiree with the same total savings but spread across pre-tax IRAs, Roth IRAs, a taxable brokerage account, and bank savings can mix and match withdrawals to manage taxes much more effectively.
Step 2: The Priority Order — and Why It’s Not One-Size-Fits-All
A common starting framework for withdrawals looks like this:
- Taxable accounts first – Tap these to allow retirement accounts to grow tax-deferred or tax-free.
- Tax-deferred accounts next – Pull from IRAs/401(k)s once taxable accounts are drawn down, balancing against RMD rules.
- Roth accounts last – Preserve tax-free growth for as long as possible.
But here’s the key: This “rule” works for some, but not all.
Your optimal withdrawal order depends on factors like:
- Current vs. future tax rates
- Social Security start date
- Size of pre-tax accounts vs. Roth accounts
- Charitable giving plans
Step 3: The Pre-Social Security Low-Income Window
If you retire at 60–64 and delay Social Security until 67–70, you might have 6–10 years of relatively low taxable income.
This is one of the best opportunities in retirement planning — and many people miss it.
During this window, you can:
- Make low-tax withdrawals from pre-tax accounts to reduce future RMD size.
- Execute Roth conversions while in lower tax brackets, shifting funds into tax-free growth.
Example:
If your taxable income in this window is $50,000, and you can convert an extra $40,000 from your IRA to a Roth while still staying in the 12% federal bracket, you’ve potentially avoided paying 22%–32% tax rates on that money later.
For Massachusetts retirees in towns like Belmont or Winchester, where state taxes add another layer to consider, strategic use of this window can be a game-changer.
Step 4: Coordinating Withdrawals with Social Security
Once you start Social Security, part of your benefit may be taxable depending on your other income.
By managing withdrawals before Social Security starts, you can:
- Reduce the percentage of benefits subject to tax
- Stay in lower marginal tax brackets longer
Massachusetts note: While the state does not tax Social Security, it does tax most other forms of retirement income — another reason to time withdrawals carefully.
Step 5: Using Capital Gains Brackets to Your Advantage
If you’re in the 0% long-term capital gains bracket, you may be able to realize gains tax-free — a powerful tool in the years before RMDs start.
This can be paired with selling investments in taxable accounts to raise cash while keeping your overall tax bill low.
Step 6: Avoiding the RMD Tax Spike
Large tax-deferred balances can trigger large RMDs — and large tax bills — later in life.
Strategies to avoid this:
- Gradual pre-RMD withdrawals
- Roth conversions spread over multiple years
- Coordinating charitable giving with Qualified Charitable Distributions (QCDs) after age 70½
📊 Chart idea: Projected tax brackets with and without pre-RMD withdrawals.
Step 7: Balancing Taxes with Investment Growth
Looking Ahead: The “Big Beautiful Bill” and the Standard Deduction
One factor that could meaningfully shift withdrawal strategies is the proposed “Big Beautiful Bill” tax reform. Among its changes is a substantial increase to the standard deduction — to $30,000 for single filers and $60,000 for married couples filing jointly. That means a retiree could have that much income each year without owing any federal income tax. On the surface, that sounds like an across-the-board win — and for some, it will be. But there’s a flip side: raising the standard deduction can also compress the lower tax brackets, meaning that certain withdrawals which would have been taxed at today’s 12% rate might face a higher marginal rate in the future. For Massachusetts retirees, where state income tax applies to most retirement withdrawals, these federal changes could compound with state taxes to create a very different tax landscape in just a few years. Strategic planning now, especially during low-income years before Social Security begins, can help lock in today’s favorable tax treatment while it’s still available.
While tax efficiency is critical, don’t let it drive every decision.
The goal is to balance:
- Minimizing lifetime taxes
- Maintaining enough growth to keep pace with inflation
- Keeping a cash buffer for near-term spending
The Massachusetts Factor
Retirees here face unique considerations:
- State tax rates on most retirement income (except Social Security)
- Property tax implications for high-value homes in towns like Weston, Wellesley, Brookline, Reading. Let’s face it, all towns in Massachusetts have high property taxes!
- Opportunities for state-specific deductions and credits (e.g., Senior Circuit Breaker Tax Credit)
Conclusion
A thoughtful withdrawal strategy can be just as valuable as a well-built portfolio.
By taking advantage of the pre-Social Security low-income years, coordinating withdrawals with benefits, and avoiding RMD spikes, you can keep more of your retirement income in your pocket — and less in the government’s.
And if you have a mix of account types, the strategic possibilities are much greater than for someone with all their savings in one taxable bucket.
Next Step:
If you’re within five years of retirement and want to map out your own tax-efficient withdrawal plan, visit my Find Your Fit page to see if my approach aligns with your needs.