Optimizing Your Withdrawal Sequence in Retirement

Retirement for high-net-worth individuals with $1M+ portfolios isn’t about scraping by—it’s about commanding your wealth with precision. The sequence in which you withdraw from taxable, tax-deferred, and tax-free accounts can profoundly impact your after-tax income, longevity of assets, and legacy.

A suboptimal withdrawal strategy can cost millions in taxes or deplete your portfolio prematurely. As Ron McCoy, a fiduciary advisor with over 40 years navigating market chaos from Black Monday to 2008, I’ve seen too many tycoons fumble this critical phase.

My Freedom Capital Playbook demands discipline: optimize your withdrawal sequence to dominate retirement, not just survive it. This article breaks down the science and strategy of withdrawal sequencing, offering actionable tactics to maximize your wealth while minimizing the IRS’s bite.

The Stakes of Withdrawal Sequencing

Withdrawal sequencing determines the order and timing of distributions from your accounts—brokerage (taxable), traditional IRAs/401(k)s (tax-deferred), and Roth IRAs (tax-free). Each account type has distinct tax implications:

• Taxable Accounts: Subject to capital gains taxes (15–20% for high earners), but basis is returned tax-free.
• Tax-Deferred Accounts: Fully taxable as ordinary income (up to 37% federal, plus state taxes).
• Roth Accounts: Tax-free withdrawals, including earnings, if rules are met (age 59½, 5-year holding).

For $1M+ investors, poor sequencing can trigger higher tax brackets, inflate Medicare Part B/D premiums, or erode principal faster than necessary. A 2023 Vanguard study found that optimized withdrawal strategies can extend portfolio longevity by 2–4 years and save 10–15% in lifetime taxes compared to naive approaches (e.g., proportional withdrawals). Ron’s approach, honed through decades of fiduciary precision, prioritizes tax efficiency and capital preservation, ensuring your wealth works as hard in retirement as you did to build it.

Case Study: The $5M Portfolio Pivot

Consider Jane, a 62-year-old entrepreneur who retired in 2022 with a $5M portfolio: $2M in a taxable brokerage, $2.5M in a traditional IRA, and $500K in a Roth IRA. Her advisor initially suggested withdrawing proportionally (40% brokerage, 50% IRA, 10% Roth) to meet her $200K annual need.

This pushed her into the 35% tax bracket, costing $70K in federal taxes annually, and triggered $10K in higher Medicare premiums due to IRMAA (Income-Related Monthly Adjustment Amount).

Ron intervened, auditing Jane’s portfolio like a detective.

He shifted her withdrawals to prioritize the taxable brokerage first, using low-basis stocks with long-term capital gains (15% tax rate). This kept her taxable income below the IRMAA threshold ($206K for married filing jointly in 2025) and delayed IRA distributions to age 73 (RMD start).

By year 10, Jane saved $450K in taxes and extended her portfolio’s life by 3 years. Her Roth grew tax-free, bolstering her legacy. This pivot showcases Ron’s mantra: “Never let taxes eat what discipline can save.”

Key Strategies for Optimizing Withdrawal Sequence

High-net-worth retirees must approach withdrawal sequencing with surgical precision. Here are five elite tactics to master your retirement income plan:

1. Prioritize Taxable Accounts Early: Withdraw from brokerage accounts first to leverage lower capital gains rates (15–20% vs. 37% ordinary income). Sell low-basis assets strategically to manage realized gains, preserving tax-deferred accounts for later.
   
2. Delay Tax-Deferred Withdrawals: Postpone IRA/401(k) distributions until RMDs (age 73 in 2025) to minimize taxable income in early retirement. This keeps you in lower brackets and avoids IRMAA surcharges.
   
3. Leverage Roth Accounts Last: Roth withdrawals are tax-free, making them ideal for late retirement or legacy planning. Let them compound as long as possible, especially in high-growth markets.
   
4. Manage Tax Brackets Annually: Use tax software (e.g., TurboTax projections) to withdraw just enough from tax-deferred accounts to stay below key thresholds (e.g., 24% bracket at $201,050 or IRMAA at $206,000 for 2025 MFJ). Fill the gap with taxable or Roth funds.
   
5. Integrate Charitable Giving: If over 70½, use Qualified Charitable Distributions (QCDs) from IRAs to satisfy RMDs tax-free, reducing taxable income while supporting causes. Ron’s clients often pair QCDs with donor-advised funds for flexibility.

Actionable Tips from Ron McCoy

• Audit Your Portfolio Yearly: Review account balances and tax brackets with a fiduciary advisor to adjust withdrawals. Ron’s 40+ years taught him: “If you don’t know your numbers, you’re gambling.”
  
• Stress-Test Your Plan: Model withdrawal scenarios using Monte Carlo simulations (available via tools like RightCapital). Test for tax spikes, market crashes, or longevity risks.
  
• Coordinate with Tax Professionals: Work with a CPA to align withdrawals with deductions (e.g., medical expenses) or credits. Ron’s mantra: “Taxes aren’t inevitable—strategy is.”
  
• Monitor Legislative Changes: Tax laws evolve (e.g., TCJA sunset in 2025). Stay ahead with advisors tracking IRS updates, like Ron’s Oxford Club network.
  
• Automate Low-Cost Sales: Use robo-advisors or brokerage tools to sell high-basis stocks first, minimizing capital gains. Ron avoids “lazy advisors who let fees eat your edge.”

Challenges and Considerations

Optimizing withdrawal sequences isn’t without hurdles. Market volatility can disrupt plans— a 2022 bear market cut portfolio values 20%, forcing some retirees to tap tax-deferred accounts early. Longevity risk (living past 90) requires conservative drawdowns, as a 4% withdrawal rate may fail over 30+ years (Bengen, 1994).

Tax bracket creep, especially with RMDs, can push you into the 37% bracket or trigger IRMAA. Ron mitigates these by stress-testing plans and using hedges like covered calls to generate income without liquidating principal. Health costs, averaging $315K for a retired couple (Fidelity, 2024), also demand liquidity planning. Ron’s approach: “Your wealth is a war machine—keep it lean and ready.”

Conclusion

For $1M+ investors, optimizing your withdrawal sequence in retirement is a high-stakes chess game. Ron McCoy’s fiduciary discipline—honed over 40 years crushing bubbles and scams—ensures your portfolio doesn’t just last but dominates.

By prioritizing taxable accounts, delaying tax-deferred withdrawals, and leveraging Roths, you can slash taxes and extend wealth. Jane’s $450K tax savings proves it: strategy trumps chaos. Don’t let the IRS or sloppy advisors bleed your empire. Book a free Strategy Call at freedomcapitaladvisors.com to craft your elite withdrawal plan. As Ron says, “Wealth without a plan is a fat wallet for crooks.”

Sources

1. Vanguard. (2023). How America Saves 2023. https://institutional.vanguard.com/content/dam/inst/iig-transformation/insights/pdf/Has_2023_spreads.pdf
2. Fidelity Investments. (2024). Retiree Health Care Cost Estimate. https://www.fidelity.com/bin-public/060_www_fidelity_com/documents/press-release/2024-retiree-healthcare-costs-05012024.pdf
3. IRS. (2025). Tax Brackets and IRMAA Thresholds. https://www.irs.gov
4. Bengen, W. P. (1994). Determining Withdrawal Rates Using Historical Data. Journal of Financial Planning. https://www.financialplanningassociation.org