Most Retirees Are Making This 401(k) Mistake: Draining Taxable Accounts First

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Danielle Liverance

Wed, May 27, 2026 astatine 11:32 AM CDT 5 min read

On a caller occurrence of Thoughtful Money with Adam Taggart, fiscal planner Julia Lembcke described what she sees crossed astir retiree equilibrium sheets: "What I spot astir of the clip is that the pre-tax accounts, whether they're 401(k)s oregon IRAs, self-employment status accounts, that they're the dominating stock of the taxation type." Her emblematic lawsuit breakdown is 60-70% successful pre-tax accounts, 20% successful after-tax, and 10% oregon little successful Roth accounts. In the worst cases, "the pretax is 90% oregon much of a person's nett worth, and that's going to make a large issue, particularly if you're possibly a higher spender and particularly erstwhile RMDs are due."

The stakes are concrete. Every dollar successful a accepted 401(k) oregon IRA is taxed arsenic mean income connected withdrawal. Pull excessively overmuch successful a azygous twelvemonth and you propulsion yourself into a higher bracket, trigger Medicare IRMAA surcharges, suffer the 0% superior gains complaint connected brokerage assets, and perchance beryllium the 3.8% Net Investment Income Tax. Lembcke is right, and the mathematics is uglier than astir retirees realize.

Quick Read

Most retirees clasp 60-70% of assets successful pre-tax accounts similar 401(k)s and IRAs, which creates a taxation clip weaponry astatine required minimum organisation property erstwhile concentrated withdrawals trigger higher brackets, IRMAA Medicare surcharges, and imaginable Net Investment Income Tax.
Strategic withdrawal sequencing that blends IRA and brokerage withdrawals portion executing Roth conversions earlier property 63 tin prevention six figures successful beingness taxes by keeping RMDs manageable and avoiding the two-year Medicare lookback penalty.
A caller survey identified 1 azygous wont that doubled Americans’ status savings and moved status from dream, to reality. Read much here.

Sequencing is the full crippled

Lembcke's assertion that "the mode that they retreat those funds, the series with which they retreat the funds, has a immense interaction connected their full beingness taxes" is arithmetic, plain and simple.

Read: Data Shows One Habit Doubles American’s Savings And Boosts Retirement

Most Americans drastically underestimate however overmuch they request to discontinue and overestimate however prepared they are. But information shows that people with 1 habit person much than treble the savings of those who don’t.

Consider a 62-year-old mates with $2 cardinal divided 80/15/5 crossed accepted IRA, brokerage, and Roth. They request $100,000 a twelvemonth to live. The accepted regularisation says drain taxable first, past traditional, past Roth. Following that order, they walk down the brokerage successful astir 3 years connected superior gains taxed astatine 0% oregon 15%. Then astatine 65, they commencement pulling $100,000 a twelvemonth from the IRA. That full magnitude is mean income, connected apical of Social Security.

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