This article is for educational purposes and is based on my experience as a CFP helping clients evaluate retirement income and tax strategies as part of their overall financial planning.

Retirement changes the way you think about your money.

During your working years, the goal is usually straightforward: earn income, save consistently, and invest for the future. But as you get closer to retirement, the question changes.

Now you need to start thinking about where your retirement income will actually come from.

And in my experience as a financial planner, this is something many people start thinking about much too late.

I often see people begin focusing on Roth conversions just a few years before their required minimum distributions (RMDs) begin. By then, there may still be planning opportunities, but some of the most valuable years have already passed.

Ideally, I want my clients thinking about this five to ten years before retirement, if not earlier.

Why?

Because retirement income planning isn't just about deciding which account to withdraw from after you retire. It's also about making sure you have the right types of accounts available to withdraw from in the first place. This is sometimes referred to as your 'bucket strategy'.

Do you have enough money in taxable accounts?

How much of your retirement savings is sitting in tax-deferred IRAs and 401(k)s?

Do you have Roth assets that can eventually provide tax-free income?

If nearly all your retirement savings are in one tax bucket, you may have fewer choices later.

Plan while you still have choices. The years before retirement can be some of your most valuable tax-planning years.

This article is for educational purposes and is based on my experience as a CFP helping clients evaluate retirement income and tax strategies as part of their overall financial planning.

Retirement changes the way you think about your money.

During your working years, the goal is usually straightforward: earn income, save consistently, and invest for the future. But as you get closer to retirement, the question changes.

Now you need to start thinking about where your retirement income will actually come from.

And in my experience as a financial planner, this is something many people start thinking about much too late.

Ideally, I want my clients thinking about this five to ten years before retirement, if not earlier.

Why?

Do you have enough money in taxable accounts?

How much of your retirement savings is sitting in tax-deferred IRAs and 401(k)s?

Do you have Roth assets that can eventually provide tax-free income?

If nearly all your retirement savings are in one tax bucket, you may have fewer choices later.

Plan while you still have choices. The years before retirement can be some of your most valuable tax-planning years.

Key Takeaways

Start planning before retirement. Ideally, evaluate your tax buckets five to ten years before retirement, not just a few years before RMDs begin.
Build tax diversification. Having taxable, tax-deferred, and Roth assets gives you more choices when creating retirement income.
Use your early retirement years strategically. The years before Social Security and RMDs may provide valuable opportunities for IRA withdrawals and Roth conversions.
Think beyond this year's tax bill. Your decisions can affect future RMDs, Social Security taxation, Medicare premiums, and your lifetime taxes.
Review your strategy every year. The right withdrawal strategy can change as your income, spending, tax situation, and life change.

The Three Tax Buckets for Retirement Income

One of the ways I like to think about retirement savings is to divide your money into three general tax buckets.

1. Taxable Accounts

These include individual or joint brokerage accounts, along with adequate funds in checking and savings.

For brokerage accounts, you generally don't owe income tax simply because you withdraw money from the account. Instead, the tax consequences depend on what you sell, your cost basis, and whether the investment has a gain or loss.

Long-term capital gains may also receive more favorable federal tax treatment than ordinary income.

That can make taxable accounts an important source of retirement income, particularly during the first several years of retirement.

This is also why I don't want someone getting to retirement before asking, "Do I have enough money in this bucket?"

If most of your wealth is tied up in a traditional 401(k) or IRA, you may have accumulated a substantial retirement portfolio but still have relatively little tax flexibility.

That's something we can potentially work on before and during retirement rather than discovering it a few years before your RMDs begin.

2. Tax-Deferred Accounts

Traditional IRAs, traditional 401(k)s, and similar retirement accounts are generally tax-deferred.

You may have received a tax benefit when contributing, and the investments have been allowed to grow without current taxation. But withdrawals are generally taxable as ordinary income.

Eventually, the IRS requires most retirees to begin taking required minimum distributions (RMDs) from traditional retirement accounts.

For many retirees today, RMDs begin at age 73.

The problem isn't necessarily the RMD itself.

The concern is what can happen after decades of tax-deferred growth if you arrive at your 70s with a very large traditional IRA.

Those mandatory withdrawals could eventually create more taxable income than you actually need.

3. Roth Accounts

Roth IRAs work differently.

Qualified Roth IRA withdrawals are generally tax-free, and Roth IRA owners aren't required to take RMDs during their lifetimes.

That makes Roth money an especially valuable source of tax flexibility.

Suppose you're retired and suddenly need an additional $20,000 for a major home repair.

If all your available money is in a traditional IRA, getting the $20,000 you need may also mean creating $20,000 of additional taxable income.

But if you have Roth assets, taxable savings, and traditional IRA assets, you have choices.

Maybe the IRA is the right place to take it from. Maybe the Roth is. Maybe you use a combination.

That's why I don't necessarily think of tax diversification as something we deal with once you retire. I want to start building those choices before retirement.

Should You Spend Taxable Money First in Retirement?

You've probably heard the traditional retirement withdrawal rule:

Spend taxable accounts first, tax-deferred accounts second, and Roth accounts last.

That approach can make sense in certain situations.

But I wouldn't want someone to follow that rule automatically.

Imagine retiring at 65 with a significant amount of money in a traditional IRA.

You spend the next eight years living primarily from your taxable brokerage account because you've been told to "leave the IRA alone."

Then you turn 73.

Your IRA has potentially continued growing for another eight years, and now RMDs begin.

You may have successfully kept your taxes low during your 60s only to create significantly more taxable income during your 70s and 80s.

That's why I think a better question is:

How much should I intentionally take from my IRA today to help manage my taxes over my entire retirement?

Don't Wait Until Retirement to Start Planning Your Tax Buckets

This is one of the most important things I want women approaching retirement to understand.

Your retirement withdrawal strategy really begins before you retire.

Five to ten years before retirement, I want you thinking about questions such as:

How much of my retirement savings is tax-deferred?
Do I have enough money in taxable accounts to help fund my early retirement years and to pay the taxes if I decide to do Roth conversions?
Do I have Roth assets?
Should I be increasing Roth contributions while I'm still working?
Are there opportunities for Roth conversions now or after retirement?
What might my tax situation look like once Social Security and RMDs begin?
If I'm married, what could my tax situation look like if I'm eventually filing as a single taxpayer?

You don't necessarily need equal amounts in all three buckets. But you definitely don't want 80 to 90% of your retirement savings in one bucket, which is something I often see when prospective clients first visit with me.

A Real Example of Why Tax Diversification Matters

I recently met with a prospective couple in their early 70s who had accumulated approximately $3 million. About 86% of their assets were in tax-deferred IRAs, 9% were in Roth accounts, 5% was in cash, and they had no taxable brokerage assets.

They had some tax diversification, which was good, but the majority of their retirement savings were still in one tax bucket. Had they started focusing on tax diversification five or ten years earlier, they may have had more opportunities to build their taxable and Roth buckets before RMDs began.

This is exactly why I want women thinking about their tax buckets years before retirement, not when RMDs are right around the corner.

The goal is tax diversification. You want different types of money available so you aren't forced to create taxable income every time you need additional cash.

If your tax buckets aren't diversified today, you may still have time to intentionally build them.

And time matters.

Your Early Retirement Years Can Be a Valuable Tax-Planning Window

The years immediately after retirement can provide another important planning opportunity.

Your salary has stopped, but you may not yet be receiving Social Security or taking RMDs.

That can create a temporary period when your taxable income is lower than it was during your working years and possibly lower than it will be later in retirement.

I sometimes think of this as having room left in your tax bracket.

Instead of automatically trying to report as little taxable income as possible, we may want to intentionally use some of that room.

That could mean taking distributions from a traditional IRA.

Or it could mean converting part of a traditional IRA to a Roth IRA.

You pay income tax on the taxable amount converted today, but future qualified Roth withdrawals can be tax-free.

Internal Link: Roth Conversion Strategies for Women Approaching Retirement

But here's the part I think is especially important:

Don't wait until two or three years before RMDs begin to start thinking about Roth conversions.

If you retire at 62 or 65 but wait until you're 70 to start planning, you may have wasted five to eight very valuable tax-planning years. This mistake can be amplified if you delay Social Security until age 70.

Why? Because those early retirement years may be when your income and your marginal tax bracket are at their lowest.

Those years between your last paycheck and the beginning of Social Security and RMDs can sometimes provide opportunities that won't exist later.

Think of those years as valuable space in your tax bucket. Once the year is gone, you can't go back and fill it.

Don't Look at This Year's Tax Bill in Isolation

One of the biggest mistakes I see in retirement tax planning is focusing too much on paying the least amount of tax this year.

Of course I don't want my clients paying unnecessary taxes.

But I also don't want to save someone $2,000 in taxes today if doing so could contribute to a much larger tax problem ten years from now.

Retirement can last 20 or 30 years.

Sometimes voluntarily recognizing additional income today can reduce taxes later.

For example, taking additional IRA income or completing a Roth conversion while you're in a relatively low tax bracket could reduce the size of your traditional IRA before RMDs begin.

The objective isn't necessarily to minimize this year's tax bill.

It's to manage your lifetime tax bill while preserving flexibility.

How Social Security and Medicare Affect Your Withdrawal Strategy

Taxes aren't the only consideration.

Additional taxable income can affect how much of your Social Security benefits are subject to federal income tax.

HYPERLINK: “Social Security benefits are subject to federal income tax” → official Social Security Administration taxation-of-benefits guidance.

For retirees on Medicare, higher income can also result in an Income-Related Monthly Adjustment Amount, commonly called IRMAA, which increases Medicare Part B and Part D premiums.

HYPERLINK: “Income-Related Monthly Adjustment Amount, commonly called IRMAA” → official Medicare IRMAA guidance.

That's why I don't believe a withdrawal decision should be made by looking at one account in isolation.

Before taking a large IRA distribution or completing a Roth conversion, I want to understand how that income interacts with the rest of your financial picture.

Why Women Must Plan for the "Single" Tax Bracket

For married women, retirement planning should account for a difficult reality: you may eventually be managing your household finances alone.

After a spouse dies, the surviving spouse generally moves from Married Filing Jointly to Single tax brackets. This can create what is commonly called the widow's penalty.

Here is why it can catch surviving spouses off guard:

Less Income, Potentially Higher Tax Rates: A surviving spouse may have less household income but reach higher tax brackets at lower income levels when filing Single.
Most of the Assets May Remain: The surviving spouse may still own much of the couple's retirement wealth even though the household has gone from two people to one.
The RMD Squeeze: Required minimum distributions from large tax-deferred accounts can create significant taxable income and potentially push the surviving spouse into higher tax brackets.

Take Control Now: Don't wait until this transition happens to address it. Building Roth assets, reducing an oversized tax-deferred balance when appropriate, and maintaining taxable savings can give you more choices if you eventually find yourself filing Single.

There Isn't One Correct Retirement Withdrawal Order

The most tax-efficient withdrawal strategy isn't simply:

Taxable → IRA → Roth

IRA → Taxable → Roth

In many cases, the better strategy may involve using money from more than one account during the same year.

For example, you might:

Use dividends, interest, and cash from a taxable account for regular expenses.
Take a measured IRA distribution to use available room within your tax bracket.
Complete a partial Roth conversion when appropriate.
Preserve Roth assets for future years when creating additional taxable income would be especially costly.

And next year, the answer may be different.

That's the point.

The goal is to give yourself enough flexibility to make those decisions intentionally each year.

Review Your Retirement Withdrawal Strategy Every Year

Tax and income planning is never a one-and-done event.

Investment income, spending, tax laws, and your personal circumstances can change. Each year, I believe you should review:

Expected spending
Social Security income
Pension income
IRA withdrawals and future RMDs
Capital gains and losses
Roth conversion opportunities
Medicare considerations
Charitable giving
Changes in tax law

A strategy that works at age 65 may look very different at age 67 and entirely different at age 73. Your financial plan should evolve as your life changes.

The Bottom Line: Plan While You Still Have Choices

The most tax-efficient retirement withdrawal strategy isn't about finding the "best" account to spend first.

It's about giving yourself choices.

And those choices often need to be created years before retirement.

If you're five or ten years from retirement, now is the time to look at where your savings are located, not just how much you've accumulated. Will your mix of taxable, tax-deferred, and Roth assets give you the flexibility you need?

Don't wait until RMDs are right around the corner to ask these questions.

Plan while you can. Plan while you still have choices. The years leading up to retirement and the early years of retirement can be some of your most valuable tax-planning years. Don't let that window of opportunity pass you by.

Retirement Planning for Women in Fort Worth, Texas

Tax-efficient retirement income planning involves coordinating your taxes, investments, Social Security, Medicare, Roth conversion opportunities, and future RMDs.

Ready to see how your taxes, investments, and retirement income fit together? Book your intro call with Michelle to learn more.

Frequently Asked Questions About Tax-Efficient Retirement Withdrawals

Is there one best way to withdraw retirement income?

No. There isn't one withdrawal strategy that's best for everyone.

The traditional approach of spending taxable accounts first, tax-deferred accounts second, and Roth accounts last can work in some situations, but following it automatically could result in a larger traditional IRA and larger RMDs later.

The right approach depends on your tax situation, spending needs, Social Security, Medicare, future RMDs, and the types of accounts you have available. If you're not sure how to weigh all of those factors, we can help you understand your options and how they fit together.

How many years before retirement should I start tax planning?

Ideally, I want clients thinking about their retirement tax strategy five to ten years before retirement, if not earlier.

That gives you time to evaluate whether too much of your retirement wealth is concentrated in tax-deferred accounts and, when appropriate, build taxable and Roth assets before you need them.

Should I do Roth conversions before RMDs begin?

Possibly. The years after retirement but before RMDs begin can provide valuable Roth conversion opportunities, particularly if your taxable income and marginal tax rate are lower during that period.

The appropriate amount to convert depends on your individual tax situation. A Roth conversion should also be evaluated alongside Social Security, Medicare IRMAA, capital gains, available cash to pay the taxes, and your longer-term retirement income plan.

Why do I need a taxable brokerage account in retirement?

A taxable brokerage account can provide another source of retirement income without requiring every dollar you spend to come from a tax-deferred retirement account.

It can also provide funds for living expenses or potentially for paying the income taxes associated with Roth conversions. Having taxable assets alongside traditional retirement accounts and Roth accounts can increase your tax flexibility.

Why is retirement tax planning especially important for married women?

A married woman may eventually become the surviving spouse and file as a Single taxpayer while still owning much of the retirement wealth previously held by the couple.

That combination can result in higher tax rates at lower income levels and potentially significant taxable RMDs. Building taxable and Roth assets before that transition can provide more choices later.

Sources

Internal Revenue Service: Required Minimum Distributions (RMDs)
Social Security Administration: Taxes on Social Security Benefits
Medicare: Income-Related Monthly Adjustment Amount (IRMAA)

About Michelle Vargas, CFP®

Michelle Vargas, CFP®, is the founder of Waymaker Financial Planning, a fee-only financial planning firm serving women, retirees, and families in Fort Worth, Texas and beyond.

Michelle has been a CERTIFIED FINANCIAL PLANNER™ professional since 1998 and helps clients coordinate retirement income, investments, tax planning, Social Security, Medicare, estate considerations, and other financial decisions as they prepare for and move through retirement.

Her goal is to help clients understand how the different pieces of their financial lives work together so they can make informed decisions with greater confidence.

Waymaker Financial Planning is a fee-only fiduciary financial planning firm.

Ready to see how your taxes, investments, and retirement income fit together? Book your intro call with Michelle to learn more.

Disclosures and Important Information

This content is developed from sources believed to provide accurate information and is for educational purposes. It may not be used for the purpose of avoiding any federal tax penalties. Please consult your financial, legal, or tax professional for specific information regarding your individual situation. The opinions expressed and material provided are for general information and should not be considered a solicitation for the purchase or sale of any security.

Case Study Disclosure

The case studies presented are for illustrative and educational purposes only and do not represent the experience of all clients. These examples are based on specific financial situations and are not a guarantee of future performance or specific tax outcomes; individual results will vary. Roth conversions involve complex tax considerations, including potential impacts on Medicare premiums (IRMAA) and future tax brackets. This strategy may not be appropriate for everyone, and it is essential to perform an analysis of the potential tax savings for your specific situation. Tax laws are subject to change, and you should consult with a qualified tax professional before implementing any strategy. No compensation was provided for these stories, and they do not constitute a recommendation or a formal testimonial