401(k) Withdrawal Strategy in Retirement: The Sequence That Minimizes Taxes
A former CFP explains the tax-optimal withdrawal sequence across account types in retirement — and how SECURE 2.0 changed the calculation.
The Standard Sequence — and Why It Is Oversimplified
The conventional wisdom on retirement withdrawal sequencing: taxable accounts first, then traditional IRA/401k, then Roth last (preserving tax-free growth the longest).
This is directionally reasonable but misses two important nuances:
1. Traditional account distribution before RMDs. Voluntarily taking traditional IRA distributions before RMDs are required — while they are still modest relative to the bracket ceiling — can reduce the RMD burden later and extend Roth conversion windows. Waiting for the RMD to force large distributions often pushes income into higher brackets.
2. Roth conversion during the gap. The years between retirement and RMD start are the best window for filling lower brackets with Roth conversions — not necessarily the best time to spend down taxable accounts first.
The SECURE 2.0 Impact on Sequencing
SECURE 2.0 raised RMD ages to 73 (born 1951-1959) and 75 (born 1960+) and eliminated RMDs for Roth 401(k)s. These changes have two implications for withdrawal sequencing:
1. Longer pre-RMD window: A 60-year-old retiring in 2026 who was born in 1966 has a 15-year window before RMDs at 75. That's 15 years of potential Roth conversions at lower brackets before forced traditional distributions begin.
2. Roth 401(k) as estate vehicle: Without RMDs, Roth 401(k)s can compound indefinitely for heirs. This makes them more valuable as late-life and estate assets — they don't need to be tapped until other accounts are exhausted.
Withdrawal sequencing in 2026 is more favorable for tax management than under old RMD rules.
This article is for educational and informational purposes only. It does not constitute investment advice, financial planning advice, or a recommendation to buy or sell any security. AI Financial Plan is not a registered investment adviser, broker-dealer, or financial planner. You should consult with a qualified professional before making financial decisions. Past performance and projected outcomes are not guarantees of future results.
Get Your Personalized Analysis
See how these concepts apply to your specific financial situation with a comprehensive 8-module analysis.
Start Your Analysis