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A Kiplinger report says retirement withdrawal plans should account for taxes across multiple years, rather than rely on a fixed order for drawing from taxable, tax-deferred and Roth accounts. Required minimum distributions, Social Security taxation and Medicare income surcharges can change the cost of withdrawals; the right approach depends on each retiree’s circumstances.
Kiplinger’s retirement-planning report says retirees can face different tax bills depending on which accounts they draw from and when, making withdrawal order a central part of retirement planning. It outlines how required minimum distributions, Social Security taxation and Medicare surcharges may interact, while emphasizing that no single withdrawal sequence suits everyone.
The report compares three common account types: traditional IRAs, taxable brokerage accounts and Roth IRAs. Traditional IRA withdrawals generally count as ordinary income. In a taxable brokerage account, tax treatment depends on what is sold and whether gains qualify for long-term capital-gains rates. Qualified Roth withdrawals are generally tax-free when account and distribution rules are met. The report’s example of $100,000 in each account is illustrative, not a prediction of what any individual can spend.
A familiar rule of thumb is to spend taxable assets first, then tax-deferred savings, and Roth money last. Kiplinger cautions that following that order rigidly could leave some retirees with very little taxable income early in retirement, only for later withdrawals and required minimum distributions (RMDs) to push income into higher tax brackets. It describes an alternative approach: taking planned amounts from tax-deferred accounts to use lower brackets, while meeting other spending needs from taxable or Roth accounts.
The report says delaying withdrawals or Roth conversions solely to avoid taxes now can shift income into later years. Under the rules it describes, RMDs begin at age 73 for people born from 1951 through 1959 and at age 75 for people born in 1960 or later. The report also notes that a surviving spouse may face narrower single-filer tax brackets, while adult children inheriting traditional IRAs generally must empty them within 10 years. Tax outcomes depend on individual income, account details and applicable rules.
Withdrawal Choices Can Affect More Than Taxes
The choice of account can affect a retiree’s taxable income in the current year and influence later tax bills. A large tax-deferred balance may lead to substantial RMDs in later years; those distributions can overlap with pension income and Social Security. The report argues that a plan should be evaluated over multiple years rather than judged only by whether it reduces this year’s tax bill.
Income can also affect Medicare Part B and Part D premiums. The report says income-related monthly adjustment amounts, or IRMAA surcharges, are generally based on a tax return from two years earlier, and that a Roth conversion counts toward income for this purpose. A distribution for a major purchase may therefore have consequences beyond the tax return filed for that year. The size and timing of any effect depend on the person’s income and the relevant thresholds.
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Three Account Types, Different Tax Treatment
The report’s central distinction is between money that has already been taxed, money taxed when gains are realized, and money whose tax is generally deferred until withdrawal. A traditional IRA balance is not necessarily all available for spending: withdrawals are usually taxable as ordinary income. Brokerage assets may generate taxable gains when sold, while qualifying Roth distributions can be tax-free. These broad categories do not replace account-specific tax advice, and state taxes may also apply.
Kiplinger also connects withdrawal planning with Social Security claiming and benefit taxation. It says up to 85% of benefits can be taxable under federal rules, depending on income. The report’s point is that an IRA withdrawal can raise income and, in some cases, cause more Social Security benefits to be taxable. It therefore argues that a claiming decision should be considered alongside the rest of the retirement-income plan, not in isolation.
For people whose Medicare premium is temporarily reflecting income from a final working year, the report says they may be able to ask Social Security to use a more recent income estimate by filing Form SSA-44 and citing a work stoppage. Eligibility and the outcome depend on the person’s circumstances and the agency’s review.
“The number on your statement isn’t necessarily the number you can spend.”
— Kiplinger report
Individual Tax Outcomes Vary
The report does not provide a single withdrawal formula or quantify the tax savings a particular retiree might achieve. Optimal account order depends on individual circumstances, including account balances, other income, filing status, spending needs, state taxes and future tax rules. Its examples illustrate possible trade-offs; they do not establish outcomes for all retirees.
The supplied material also does not give the full set of income thresholds or detailed calculations for capital-gains taxes, Social Security taxation or IRMAA. It is therefore not possible from the report alone to determine whether a specific withdrawal or Roth conversion would reduce a household’s lifetime taxes or Medicare costs. Tax rules and thresholds can change, and readers should verify current rules before acting.
Review the Plan Before Withdrawals
The report points retirees toward comparing possible withdrawal strategies across several tax years, with attention to the period between retirement and the start of RMDs. A review can include expected Social Security and pension income, planned expenses, account balances, possible partial Roth conversions, future RMDs and the effects of income on Medicare premiums. Any calculation should use current rules and the household’s own figures.
For people already facing an IRMAA surcharge tied to income before retirement, the next step described in the report is to check whether the circumstances qualify for a request to use current income through Form SSA-44. The supplied material does not specify further agency guidance or a new rule change. The practical question remains how a household can meet its spending needs while balancing present taxes against possible future taxes and premiums.
Key Questions
What account should a retiree withdraw from first?
There is no universal order. The report says the common taxable-first, tax-deferred-second, Roth-last sequence can be costly if it is followed without considering tax brackets and future RMDs. The appropriate mix depends on a retiree’s full income and account situation.
Why might a retiree take money from a traditional IRA before required?
The report says planned withdrawals during lower-income years may help use lower tax brackets and reduce the chance that later RMDs add to other income. Whether that strategy lowers total taxes depends on the individual’s circumstances; withdrawing money can create a tax bill.
Can a Roth conversion raise Medicare premiums?
It can affect the income used to calculate Medicare surcharges. The report says Roth conversions count toward income and that IRMAA is generally based on a tax return from two years earlier. The effect depends on income and the applicable thresholds.
When do the RMD ages cited in the report apply?
The report states that RMDs begin at age 73 for people born from 1951 through 1959 and at age 75 for those born in 1960 or later. Readers should confirm current requirements for their accounts and circumstances.
Can a retiree ask Medicare to use a lower, more recent income?
The report says someone whose premium reflects income from a final working year may be able to request a reconsideration by filing Form SSA-44 and citing work stoppage. Eligibility and the agency’s decision are not guaranteed by the information provided.
Source: kiplinger.com
