You did everything right. You maxed your 401(k), contributed to your IRA every year, stayed the course through every market downturn. The IRS didn't forget about you. Every dollar sitting in that traditional retirement account is pre-tax money — and the government has a claim on it. The question isn't whether you'll pay taxes on your savings. It's whether you'll pay them strategically or reactively.

The difference between a retiree who plans their withdrawals and one who doesn't can easily be $100,000–$300,000 in lifetime tax savings on a $1 million portfolio. Here's how to build a strategy that controls the timing, the rate, and the amount of tax you pay on money you spent decades accumulating.

Traditional vs. Roth — The Core Decision Framework

The fundamental question is: do you pay taxes now or later? Traditional accounts (401(k), traditional IRA, SEP-IRA) defer the tax — you deduct contributions today, pay tax on withdrawals in retirement. Roth accounts flip it — you pay tax now on contributions, then everything grows and withdraws tax-free.

The math favors traditional accounts when your tax rate now is higher than it will be in retirement. It favors Roth accounts when the opposite is true — or when you expect tax rates to rise in the future. For most people building wealth in their peak earning years, a mix of both provides the most flexibility. Tax diversification across account types is a strategy in itself.

The RMD Time Bomb: A retiree with $1.5 million in traditional IRA accounts at age 73 faces a required minimum distribution of roughly $57,000 in year one — fully taxable. Add Social Security, and 85% of those benefits may be taxable too. The combined income pushes the retiree into a higher bracket, potentially triggers Medicare IRMAA surcharges, and reduces flexibility. The solution — Roth conversions in the years before 73 — must be built years in advance to be effective.

RMD Planning — Starting at Age 73

Required minimum distributions (RMDs) begin at age 73 under current law (SECURE 2.0 Act). The IRS calculates your RMD each year by dividing your account balance (as of December 31 of the prior year) by your life expectancy factor from the IRS Uniform Lifetime Table. As your account grows and your life expectancy shortens, RMDs increase — forcing more income into taxable status whether you need it or not.

Missing an RMD carries a 25% penalty on the undistributed amount (reduced from the prior 50% penalty under SECURE 2.0). Planning for RMDs should start at least 10 years before they begin — using partial Roth conversions, strategic withdrawals, and qualified charitable distributions to reduce the traditional IRA balance before the mandatory clock starts ticking.

Qualified Charitable Distributions — Give from Your IRA Tax-Free

If you're 70½ or older and charitably inclined, the qualified charitable distribution (QCD) is one of the most tax-efficient moves available. A QCD allows you to transfer up to $105,000 per year (2026, indexed for inflation) directly from your IRA to a qualified charity. The distribution counts toward your RMD — but it is excluded from your taxable income entirely.

Compare this to the alternative: take the RMD as ordinary income, pay tax, then donate and claim a charitable deduction. Unless you're itemizing (which fewer taxpayers do post-TCJA), the deduction may not help you at all. The QCD bypasses taxable income entirely — it's the cleaner, more efficient path for IRA owners who give regularly.

Withdrawal Sequencing in Retirement — Order Matters

The conventional wisdom — take from taxable accounts first, then tax-deferred, then Roth last — is a reasonable starting point. The logic: let the Roth compound tax-free as long as possible. But this one-size rule doesn't fit every situation.

A more sophisticated approach matches withdrawals to the goal of keeping your income in the most favorable brackets across your retirement. In years where your bracket has room, draw down traditional accounts (or do Roth conversions). In higher-income years, pull from Roth accounts that generate no additional taxable income. This "bracket management" approach treats your different account types as tools to be used when the tax cost is lowest — rather than following a fixed sequence regardless of income levels.

For married couples, the death of the first spouse often dramatically shifts tax brackets — from married filing jointly to single status — creating a significant rate increase on the same income. This "widow's penalty" is one of the strongest arguments for pre-death Roth conversions and bracket management well before one spouse's health begins to decline.

More on Tax-Efficient Wealth

Roth Conversion Explained — Is Converting Your IRA Worth It? Charitable Giving as a Tax Strategy — Give More, Pay Less Your Tax Planning Calendar — What to Do Every Quarter → Complete Tax Strategy Guide

Stop Overpaying Taxes on the Wealth You Worked to Build

Kyle Ellison is a licensed financial professional in Texas, California, Nevada, Montana, Utah, and New Mexico. Schedule a strategy session to map out your tax efficiency opportunities.

Frequently Asked Questions

When do required minimum distributions begin under current law?
Under the SECURE 2.0 Act, RMDs begin at age 73 for individuals who turn 72 after December 31, 2022. The RMD age is scheduled to increase to 75 in 2033. RMDs apply to traditional IRAs, SEP-IRAs, SIMPLE IRAs, and most employer-sponsored retirement plans (401(k), 403(b), etc.). Roth IRAs are not subject to RMDs during the owner's lifetime. Always verify current rules with your CPA, as tax legislation changes frequently.
What happens if I miss an RMD?
Under SECURE 2.0, the penalty for missing or underpaying an RMD is 25% of the amount that should have been distributed. This can be reduced to 10% if corrected within two years. You can request a waiver in some circumstances, but it requires IRS approval. Set up automatic RMD distributions through your IRA custodian to avoid the risk entirely.
Can I do a qualified charitable distribution if I take the standard deduction?
Yes — and that's exactly why QCDs are so valuable. When you donate via a QCD, the amount is excluded from taxable income rather than treated as a charitable deduction. This means it benefits you even if you take the standard deduction and wouldn't receive any additional tax benefit from itemizing. For retirees who give regularly but don't itemize, the QCD is often more tax-efficient than writing a check from after-tax income.
Should I prioritize Roth or traditional contributions during my peak earning years?
During peak earning years — when your marginal rate is highest — traditional pre-tax contributions generally make more sense. The deduction today reduces a dollar of income taxed at 32% or 37%. In retirement, when income is lower, withdrawals may be taxed at 22% or less. That spread is the tax savings. Roth contributions make more sense in lower-income years: early career, transition years, or during temporary income dips. A blended approach in most years — some pre-tax, some Roth — provides the most flexibility. Consult your CPA to optimize the split based on your current and projected rates.