Key Takeaways
- The old rule of “taxable first, Roth last” can create tax concentration later. Many high-net-worth plans use a blended approach to manage lifetime taxes and future required minimum distributions (RMDs).
- Withdrawing intentionally up to the top of a chosen tax bracket, often before RMDs begin, can reduce forced tax spikes later.
- For charitably inclined retirees, Qualified Charitable Distributions (QCDs) can satisfy RMDs without increasing adjusted gross income when done correctly. For 2026, the QCD limit is $111,000 per taxpayer.
- Higher income can trigger Medicare IRMAA surcharges, which are calculated using a two-year lookback.
Why high net worth withdrawal planning is different
When you have substantial retirement savings, the biggest risk is not always running out of money. Often, it’s losing flexibility because too much wealth sits in tax-deferred accounts like traditional IRAs and 401(k)s.
- Push you into higher tax brackets
- Increase the taxable portion of Social Security for many retirees
- Trigger higher Medicare premiums through IRMAA
- Reduce flexibility for charitable and legacy strategies later
Build a “tax map” of your accounts
Before you decide what to withdraw, list your accounts and group them into three buckets. This tax map becomes the foundation for every withdrawal decision.
1) Taxable (brokerage)
Taxes typically arise from dividends, interest, and realized capital gains, which often makes this bucket the most flexible from year to year.
2) Tax-deferred (traditional IRA, 401(k), SEP, SIMPLE)
Withdrawals are generally taxed as ordinary income, and RMD rules apply once you reach the required age, with special considerations for workplace plans and certain owners.
3) Tax-free (Roth)
Roth IRAs do not have lifetime RMDs for the original owner. SECURE 2.0 also eliminated lifetime RMDs for Roth employer plans starting in 2024.
Once you can view your accounts this way, it becomes much easier to plan withdrawals intentionally rather than guessing.
Plan year by year instead of using a flat percentage
For high-net-worth retirees, a flat rule such as “withdraw 4% every year” can create large tax swings. A more practical approach is tax smoothing, which starts by coordinating decisions annually rather than treating every year the same. This also usually means:
- Projecting all income sources for the year (Social Security, pensions, portfolio income, business income, and so on)
- Choosing a target bracket you want to stay within
- Pulling from the right mix of accounts to meet cash-flow needs without unnecessary bracket jumps
A simple annual planning rhythm
Because taxes reset each year, withdrawal planning becomes an annual process. Each year, review:
- Expected income, including dividends and capital gains
- RMD status, if applicable
- Medicare IRMAA thresholds
- Whether you’re in a “high-control” year or a “low-control” year
High-control years often occur when wages are lower and RMDs have not started yet, which typically provides more flexibility for planning decisions.
Fill income bands intentionally
The “tax valley” window
Many high-net-worth households have a valuable window after work income slows down but before RMDs begin. During that period, you often have greater control over how much taxable income you recognize each year.
RMDs generally start at age 73 for many people, with the starting age scheduled to increase to 75 under SECURE 2.0 based on birth year rules.
Why filling brackets can help
If you let tax-deferred accounts grow untouched during this window, the resulting RMDs may be larger later. That can push income into higher tax brackets and increase Medicare premiums.
Taking withdrawals earlier, sometimes even more than you “need” to spend, can reduce that future pressure by lowering the tax-deferred balance used in RMD calculations. Any excess cash can then be redirected intentionally according to the overall plan.
Roth conversion planning
Roth conversions can be especially useful for high-net-worth retirees because they can:
- Reduce future RMDs
- Increase tax-free assets
- Improve flexibility for a surviving spouse and heirs
The trade-off is that conversions increase taxable income in the year they occur, which can push you into a higher bracket or raise Medicare premiums due to a two-year IRMAA lookback.
As tax brackets and deductions change over time, conversion planning is typically handled as a coordinated year-by-year strategy rather than a one-time move.
Use QCDs to make RMDs more tax-efficient
If charitable giving is part of your plan, QCDs can complement that strategy. A QCD is an IRA-to-charity transfer that, when done correctly:
- Counts toward your RMD
- Generally does not increase adjusted gross income the way a normal RMD would
This can help manage both taxes and Medicare premium exposure. For 2026, the QCD limit is $111,000 per taxpayer.
Medicare IRMAA and why it matters for high-net-worth retirees
Many retirees carefully plan for tax brackets, then get surprised by Medicare premium jumps. For 2026, Medicare determines Part B premiums and IRMAA brackets using income from two years prior.
Planning implication: A large IRA withdrawal, a sizable Roth conversion, or a big capital gain can raise Medicare costs later. Because of this, it is often beneficial to spread income events across multiple years instead of concentrating them in one tax year.
FAQs
Sometimes, but not always. Using brokerage funds first can look tax-efficient in the short term, but it may allow tax-deferred accounts to grow into larger future RMDs and reduce flexibility later. Many high-net-worth plans instead use a blended approach to keep taxable income steadier over time.
Roth conversions are often most effective when your current marginal tax rate is lower than what you expect later, or lower than what your heirs may face, and when conversions can be done without triggering avoidable tax or Medicare premium increases. Medicare’s two-year lookback makes careful timing especially important.
A QCD can satisfy part or all of an RMD while avoiding additional taxable income when done correctly. For 2026, the QCD cap is $111,000 per taxpayer.
RMDs generally begin at age 73 for many account owners, with future increases to age 75 based on SECURE 2.0 rules and birth year timing.Certain workplace plans and owners may have special exceptions.
Build a tax-aware withdrawal plan before surprises hit
Approaching or already in retirement, a coordinated withdrawal strategy is critical. Bauman Wealth Advisors delivers experienced, fiduciary guidance, and a good next step is to schedule a complimentary consultation to map your accounts, build a year-by-year withdrawal plan, and preserve flexibility as taxes, markets, and rules change.
