From the Retirement Tax Planning hub — Evergreen Wealth Management — proactive year-round tax planning for retirees: Roth conversions, withdrawal sequencing, and Medicare IRMAA strategy.
The three buckets and how they are taxed
Most retirees have money spread across three types of accounts, each with different tax treatment. Tax-deferred accounts include traditional IRAs, 401(k)s, 403(b)s, and similar retirement accounts. Contributions were made with pre-tax dollars, so every dollar withdrawn is taxed as ordinary income at your current tax rate. These accounts are also subject to required minimum distributions beginning at age 73. Taxable accounts include brokerage accounts, bank accounts, and any investments held outside of retirement accounts. The original contributions were made with after-tax dollars, so only the gains are taxed — and those gains receive preferential treatment. Long-term capital gains and qualified dividends are taxed at 0%, 15%, or 20% depending on your income level. For many retirees in the lower brackets, the long-term capital gains rate is 0%. Tax-free accounts include Roth IRAs and Roth 401(k)s. Contributions were made with after-tax dollars, and both the original contributions and all growth can be withdrawn completely tax-free — with no required minimum distributions for the account owner or surviving spouse. The sequence in which you draw from these three buckets determines your tax bracket each year, your eligibility for certain deductions and credits, your Medicare premium level, and your total lifetime tax obligation.Why the conventional wisdom is wrong
The traditional advice — spend taxable accounts first, then tax-deferred, then Roth last — is a reasonable starting point but is often suboptimal. It was developed in a simpler time when tax brackets were less nuanced, Medicare premiums were not income-dependent, and Roth accounts were less prevalent. The problem with rigidly following this sequence is that it leaves your tax-deferred accounts untouched for years, allowing them to grow — which sounds like a good thing until you realize that larger balances mean larger required minimum distributions starting at 73. Those RMDs can push you into higher tax brackets, trigger the net investment income tax surcharge, increase your Medicare Part B and Part D premiums through IRMAA, and reduce or eliminate your eligibility for certain deductions. A retiree who follows the conventional sequence and draws exclusively from taxable accounts from age 62 to 73 may find themselves facing RMDs of $60,000, $80,000, or more per year — on top of Social Security income — pushing them into the 24% or 32% bracket when they could have been managing withdrawals in the 12% or 22% bracket during their early retirement years.The tax-efficient approach: dynamic withdrawal sequencing
A tax-efficient withdrawal strategy does not follow a rigid order. Instead, it adjusts the mix of withdrawals from each bucket every year based on your actual tax situation. The goal is to keep your taxable income as low as possible in each year — while strategically “filling up” lower tax brackets with withdrawals from tax-deferred accounts or Roth conversions during years when your income is lower than usual. Here is how this works in practice. In early retirement (roughly 62 to 72, before RMDs begin), your earned income has dropped but Social Security may not have started yet. This is the lowest-income period most retirees will experience. During these years, a tax-efficient strategy draws from a combination of taxable accounts and tax-deferred accounts — enough from the traditional IRA to fill the 10%, 12%, and possibly 22% tax brackets, while avoiding the next bracket. Simultaneously, this is the ideal window for Roth conversions — moving additional IRA money into the Roth at these low rates. Once RMDs begin at 73, the strategy shifts. Your RMD creates a mandatory minimum withdrawal from tax-deferred accounts that you must take regardless of whether you need the income. The withdrawal strategy now focuses on supplementing the RMD with Roth withdrawals (tax-free) and taxable account withdrawals (often taxed at preferential capital gains rates), rather than adding more ordinary income on top of the RMD. In later retirement, if health care costs rise or unexpected expenses emerge, having a substantial Roth balance provides a tax-free source of funds that does not push you into higher brackets, trigger IRMAA surcharges, or create tax complications.The Medicare connection most people miss
One of the most commonly overlooked costs of poor withdrawal sequencing is the impact on Medicare premiums. Medicare Part B and Part D premiums are income-tested. If your modified adjusted gross income exceeds certain thresholds — $103,000 for single filers or $206,000 for married couples in 2025 — you pay higher premiums through IRMAA surcharges. These surcharges are not trivial. At the highest income levels, a married couple can pay an additional $7,000 or more per year in Medicare premiums. And the income used to determine IRMAA is based on your tax return from two years prior, which means a single year of excessive withdrawals or a poorly timed Roth conversion can trigger higher premiums for an entire year. A tax-efficient withdrawal strategy accounts for IRMAA thresholds and manages income to stay below them when possible — or at least makes the trade-off explicitly rather than accidentally.How to implement this
Tax-efficient withdrawal sequencing is not something you can set on autopilot. It requires annual analysis that accounts for your current-year income, your tax bracket, your projected RMDs, your Medicare premium thresholds, your capital gains situation, and any changes in tax law. At Evergreen, this analysis is built into every client’s annual planning process. We use eMoney to model withdrawal sequences across multiple scenarios, Holistiplan to analyze your tax return and identify bracket management opportunities, and coordination with your CPA to ensure the withdrawal strategy aligns with your overall tax plan. This is one of the core services included in the flat monthly fee — and it is one of the areas where proactive planning consistently saves clients more than the advisory fee itself. The key insight is this: tax-efficient withdrawal planning is not a one-time exercise. Your optimal withdrawal mix changes every year based on market performance, income changes, tax law updates, and life events. It requires an ongoing advisory relationship with someone who is analyzing your situation annually and making adjustments — not a static plan that sits in a drawer.The cost of getting it wrong
The difference between a tax-efficient withdrawal strategy and a default approach can easily amount to $5,000 to $15,000 per year in unnecessary taxes and Medicare surcharges. Over a 25-year retirement, that compounds to $125,000 to $375,000 in total lifetime cost. This is not a theoretical risk. It is the actual cost of withdrawing from the wrong accounts, in the wrong order, in the wrong amounts — a cost that accumulates silently because it shows up as slightly higher taxes each year rather than a single dramatic loss. If your current advisor has not presented you with a written withdrawal strategy that specifies which accounts to draw from, in what order, and why — and if that strategy is not updated annually based on your actual tax return — it is worth asking why. This is foundational retirement planning, and it should be a core part of any advisory relationship focused on retirement income. If you’re evaluating advisors, our guide on choosing the right financial advisor explains what to look for. For more on what comprehensive retirement planning should include, see our services page or explore our frequently asked questions.Withdrawal sequencing decides which account the money comes from. A cash reserve decides whether you are forced to sell into a downturn to fund that withdrawal at all — which is why the two decisions belong together. See how much cash to hold in retirement for how to size it.
Nick Stevens, CFP® is the founder of Evergreen Wealth Management, a flat-fee, fee-only fiduciary firm in Boston serving clients nationwide. Every client works directly with Nick — one advisor, one relationship, a flat monthly fee regardless of portfolio size.