Tax-Efficient Withdrawal Sequencing for Retirees With $3M+ Portfolios

The goal is not to minimize this year's tax bill. It is to coordinate every account so more of the portfolio survives taxes over a lifetime and, when appropriate, into the next generation.

July 21, 2026

A $3 million portfolio can support a great retirement. It can also create a surprisingly complicated tax return. The reason is usually not the portfolio's size by itself. It is the way the assets are divided among taxable brokerage accounts, traditional IRAs and 401(k)s, Roth accounts, cash, and health savings accounts. Each account has a different tax treatment, and each withdrawal can change the cost of the next one.

Withdrawal sequencing is the process of deciding which account should fund spending, how much should come from it, and when another account should be tapped or converted. The familiar rule of thumb says to spend taxable assets first, tax-deferred accounts second, and Roth assets last. That rule can be directionally useful, but I do not believe it is a sufficient plan for a retiree with several million dollars and meaningful assets in more than one tax bucket.

The better question is not, "Which account comes first?" It is, "What combination of withdrawals produces the best after-tax result this year without creating a larger tax problem later?" That turns sequencing into a multi-year exercise. We are managing tax brackets, required minimum distributions, Medicare premiums, Social Security taxation, charitable giving, portfolio risk, survivor income, and the tax characteristics of what may eventually pass to heirs.

At its core, tax-efficient sequencing matches the source of each dollar with the tax capacity available in that year. Cash and money-market reserves can fund near-term expenses without realizing a gain. A taxable account can provide principal with only the embedded gain becoming taxable. A traditional IRA distribution is generally ordinary income, while a qualified Roth distribution is generally tax-free. An HSA can be tax-free when used for qualified medical expenses. The same $100,000 of spending can therefore create very different adjusted gross income depending on where it comes from.

This is why good sequencing is not the same as emptying one account before touching the next. A retiree might use cash and high-basis taxable lots for most living expenses, realize selected long-term gains, and still take a planned traditional IRA distribution or Roth conversion to fill a lower ordinary-income bracket. Later in the same year, a Roth withdrawal might fund a large purchase without pushing income through a Medicare threshold. Several accounts can be used at once, each for a different reason.

I think of the process like drawing water from several reservoirs. One is taxed when the water leaves, one has already paid most of its tax, and one can be tax-free. Draining the easiest reservoir first may look efficient today, but it can leave the most expensive reservoir overflowing later.

The traditional sequence defers ordinary income for as long as possible. That sounds attractive, but deferral is not automatically savings. A large traditional IRA can continue compounding until required minimum distributions begin. Under current law, traditional IRA owners generally start RMDs at age 73, with age 75 applying to later birth cohorts under the SECURE 2.0 schedule. Roth IRAs and designated Roth plan accounts do not require lifetime RMDs for the original owner.^1,2

RMDs are calculated by dividing the prior December 31 balance by an IRS life-expectancy factor. At age 73, the Uniform Lifetime Table factor is 26.5, which produces a first-year percentage of approximately 3.77%. At age 80 the factor is 20.2, or roughly 4.95%, and at age 90 it is 12.2, or approximately 8.20%.¹ Figure 1 shows how the percentage rises with age. The dollar withdrawal will depend on the account balance, but the increasing percentage makes a large tax-deferred balance progressively harder to control.

For example, a $2 million traditional IRA subject to a 3.77% distribution rate would generate an RMD of roughly $75,500 before considering any other pension, Social Security, interest, dividends, or capital gains. If the account grows faster than the early RMD percentage, the balance -- and the future taxable distribution -- can continue rising. Waiting may simply trade a known 22% or 24% bracket today for an uncertain and potentially higher marginal cost later.

The simple rule can also waste low-income years. Retirement often creates a window after wages stop but before Social Security and RMDs fully occupy the return. An unused tax bracket disappears at year-end. A partial Roth conversion during that window can move money from a future taxable account into a tax-free account at a deliberately chosen rate. The IRS allows conversion regardless of income, qualified Roth IRA distributions are not included in income, and the conversion itself is generally taxable in the year completed.³ Once an RMD is due, that year's RMD must be distributed and cannot be rolled into a Roth account.¹

Figure 1: The percentage of the prior December 31 balance that must be distributed rises as the retiree ages. Dollar RMDs also depend on the account balance.

The process begins with a projected tax return, not a withdrawal request. We estimate wages or consulting income, pensions, Social Security, interest, dividends, capital-gain distributions, realized gains and losses, deductions, charitable gifts, and any RMD. We then calculate how much additional ordinary income or capital gain fits inside the planning range we are willing to use.

For 2026, married couples filing jointly remain in the 22% ordinary bracket through $211,400 of taxable income and in the 24% bracket through $403,550. The 0% long-term capital-gain rate applies through $98,900 of taxable income for joint filers, with qualified dividends and net long-term gains sharing that space.⁴ Those thresholds are based on taxable income. Other rules use modified adjusted gross income instead, which is why no single bracket tells us the complete answer.

Figure 2 puts several 2026 joint-filer planning thresholds on one page. The enhanced senior deduction begins phasing out above $150,000 of modified adjusted gross income for joint filers. The first Medicare IRMAA tier begins above $218,000 of joint MAGI. The 3.8% Net Investment Income Tax threshold is $250,000 of MAGI for joint filers.^5,6,7 These are different calculations, not interchangeable lines. The purpose of the comparison is to show why a conversion that appears to fit comfortably inside an ordinary bracket can still have a second-order cost.

After the projection is built, spending can be sourced deliberately. High-basis taxable lots may provide cash with modest gain recognition. Low-basis lots may be harvested when a capital-gain bracket is available, donated when charitable intent is present, or held when the estate plan makes a basis adjustment relevant. Traditional IRA withdrawals or Roth conversions can fill a chosen ordinary bracket. Roth assets can remain invested for later years or can be used tactically when additional taxable income would be unusually expensive.

The portfolio matters too. If rebalancing calls for reducing equities in a traditional IRA, that account may be the natural source for an upcoming distribution. If the taxable account contains a concentrated position, diversification may justify realizing gains even when the tax rate is not zero. Tax efficiency should improve the investment plan; it should not force the portfolio to carry a risk that no longer belongs there.

Figure 2: Selected 2026 thresholds for married couples filing jointly. The rules use different definitions of income and must be modeled separately.

The years between retirement and RMD age often provide the most control. Earned income may be lower, deductions may be meaningful, and the retiree can decide how much ordinary income to create. This is the classic setting for a multi-year Roth-conversion program, but the objective is not to convert as much as possible. It is to compare today's all-in marginal cost with the likely future cost.

That comparison includes more than the stated tax bracket. A conversion can cause more Social Security to become taxable. The Social Security formula uses adjusted gross income, tax-exempt interest, and one-half of benefits as "combined income"; up to 85% of benefits may be taxable when combined income exceeds $25,000 for an individual or $32,000 for a joint return.⁸ A conversion can also reduce the temporary enhanced senior deduction, trigger Medicare surcharges two years later, or push investment income into NIIT. Retirement-plan distributions are not themselves net investment income, but they do count toward the MAGI threshold that can expose interest, dividends, and gains to the 3.8% tax.⁷

The tax bill on a conversion should generally be paid from outside the IRA when practical. Using outside cash leaves more money in the Roth account and avoids shrinking the amount that receives future tax-free treatment. It also requires adequate liquidity and estimated-tax planning. A conversion completed after 2017 generally cannot be recharacterized, so year-end projections and a reasonable buffer matter.³

Medicare's income-related monthly adjustment amount, or IRMAA, is one of the most visible withdrawal-sequencing cliffs. For 2026, the standard Part B premium is $202.90 per month. Joint filers with MAGI above $218,000 enter the first surcharge tier, and higher tiers begin above $274,000, $342,000, $410,000, and $750,000.⁵ Part D has a separate income-related adjustment layered on top of the plan's regular premium.

Figure 3 combines the 2026 Part B and Part D income-related adjustments for two spouses. The first dollar above $218,000 can create approximately $2,297 of annual surcharges for the couple; the highest tier produces $13,872 of annual surcharges, excluding the standard Part B premiums and the plan-specific Part D premiums.⁵ Medicare generally uses tax information from two years earlier, so a 2026 conversion will ordinarily affect 2028 premiums rather than 2026 premiums.⁶

This does not mean every retiree should stay below IRMAA. Paying a surcharge can be rational if it enables a conversion that materially reduces lifetime taxes. The mistake is crossing a threshold accidentally for a small amount of income. If a household is already well into a tier, the surcharge may be a sunk cost for that year and the remaining bracket capacity can still be useful. If income is just below a tier, a Roth withdrawal or higher-basis taxable sale may fund extra spending without crossing it.

Figure 3: Annual 2026 Part B and Part D income-related adjustments for two spouses. Standard Part B and plan-specific Part D premiums are excluded.

Once RMDs begin, the order of operations changes. The RMD becomes part of the year's baseline income and must be satisfied before a Roth conversion can be completed with remaining eligible IRA dollars. Spending that the RMD already covers does not need to be pulled from another account. Any excess can be reinvested in a taxable account, but the ordinary income has already been recognized.

Charitably inclined retirees have another sequencing tool. A qualified charitable distribution sends money directly from an eligible IRA to a qualifying charity. The IRA owner must be at least age 70 1/2 when the distribution is made. A QCD can count toward the RMD and is generally excluded from income; it does not also produce a charitable deduction. The 2026 annual QCD limit is $111,000 per eligible individual.⁹

The exclusion from income can be more valuable than writing a personal check and claiming an itemized deduction. A lower AGI can reduce Medicare exposure, Social Security taxation, and other income-based phaseouts. The QCD must be executed correctly and documented, and not every charitable organization is eligible. It belongs in the annual sequence before an ordinary RMD check has already been taken.

A married couple may be comfortable in a joint bracket that becomes much narrower after the first spouse dies. The surviving spouse may have similar pension income, Social Security income, and RMDs but file as a single taxpayer. For 2026, the 24% ordinary bracket ends at $403,550 for joint filers and $201,775 for single filers.⁴ This is often called the widow's or widower's penalty. Partial conversions during the joint-filing years can be valuable even if the couple's current rate does not appear unusually low.

The heirs' tax profile matters as well. Many non-spouse beneficiaries must empty an inherited traditional or Roth IRA by the end of the tenth year after the owner's death, subject to exceptions and annual-distribution rules that depend on the facts.¹⁰ Traditional IRA withdrawals can arrive on top of the beneficiary's wages during peak earning years. Roth distributions are generally more favorable, although inherited Roth accounts are still subject to beneficiary distribution rules.

Taxable property follows a different regime. Inherited property generally receives a basis tied to fair market value at death, subject to important exceptions.¹¹ That can make "spend taxable first" exactly backward for an appreciated asset likely to be held until death. Conversely, a low-basis holding that creates concentration risk may still need to be sold. Estate tax, state law, charitable intent, and the need for liquidity all belong in the same decision.

The strongest candidates are retirees or near-retirees who have meaningful balances in at least two tax buckets and several years of flexibility before RMDs. A $3 million-plus household with a large traditional IRA, an appreciated taxable account, and a Roth account has more levers than a household whose entire net worth sits in one account type. The dollar value of coordinating those levers can also be larger because an avoidable bracket jump, IRMAA tier, or inherited-IRA problem applies to more income.

Planning is particularly valuable for early retirees with temporarily low income, married couples with unequal ages or a meaningful survivor-tax concern, charitably inclined IRA owners, households with concentrated appreciated positions, and families expecting to leave retirement accounts to children in high earning years. It is also useful when spending is uneven. A home purchase, family gift, major trip, or large medical expense may be funded from a different account than routine monthly spending.

Portfolio size is not a legal threshold, however. A $3 million portfolio invested almost entirely in a high-basis taxable account may have fewer sequencing opportunities than a $1.5 million portfolio concentrated in a traditional IRA. The work is driven by account composition, embedded gains, income sources, age, filing status, state of residence, charitable goals, and estate plan.

The framework is less valuable when income is already fixed well above the relevant thresholds, when nearly all assets have the same tax treatment, or when near-term spending will consume the portfolio before multi-year tax differences can compound. Even then, confirming that there is little room to improve the sequence is a planning conclusion, not a reason to default to a rule of thumb.

A sound withdrawal plan should be refreshed every year and revisited before any unusually large transaction. We start with the spending need, build a tax projection, identify the bracket and MAGI thresholds that matter, then coordinate taxable sales, IRA withdrawals, Roth conversions, QCDs, and Roth distributions. We also review tax withholding, estimated payments, portfolio rebalancing, and beneficiary designations.

The goal is tax-aware, not tax-driven. We may intentionally pay more tax this year to reduce a larger future liability. We may accept an IRMAA surcharge because a conversion has greater lifetime value. We may preserve an appreciated taxable asset for an eventual basis adjustment, or sell it because diversification matters more. The correct sequence is the one that supports the family's spending, portfolio, charitable, and legacy goals after all material taxes and costs are considered.

This is the framework; the specifics require coordination with your CPA, estate attorney, and Perissos. Tax rules change, account records can be incomplete, and the right conversion or gain amount cannot be determined from an account statement alone.

The takeaway is straightforward: tax-efficient withdrawal sequencing is not a fixed order. It is an annual process of using the right tax bucket at the right time while keeping the next ten or twenty years in view.

For retirees with $3 million or more, the benefit often comes from avoiding a series of small, permanent mistakes -- wasting low brackets, allowing RMDs to grow unchecked, crossing income thresholds unintentionally, using the wrong account for a large purchase, or leaving heirs the least efficient assets. None of those decisions will determine a retirement by itself. Together, they can meaningfully change how much of the portfolio remains available for the family and the causes they care about.

Our team will continue monitoring the rules and coordinating withdrawal decisions with each client's investment and estate plan. Plan first, product second. That is how a withdrawal strategy becomes a lifetime strategy.

All my best,

Brandon VanLandingham, CFA, CMT, CFP

Founder / CIO

Reducing Capital Gains on a Highly Appreciated Portfolio

Net Investment Income Tax (NIIT): What Triggers It and How to Plan

Section 453, the Installment Sale, and the "453 Trust"

[1] Internal Revenue Service, Publication 590-B (2025), Distributions from Individual Retirement Arrangements (IRAs) (RMD calculations, Uniform Lifetime Table, Roth conversions, and beneficiary rules; most recent final edition available as of July 16, 2026), https://www.irs.gov/publications/p590b.

[2] Internal Revenue Service, Retirement Topics -- Required Minimum Distributions (RMDs) (RMD age and lifetime RMD treatment of Roth IRAs and designated Roth plan accounts), updated in 2026, https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-required-minimum-distributions-rmds.

[3] Internal Revenue Service, Topic No. 309, Roth IRA Contributions (conversion eligibility, tax treatment of qualified Roth distributions, and prohibition on recharacterizing post-2017 conversions), updated May 8, 2026, https://www.irs.gov/taxtopics/tc309.

[4] Internal Revenue Service, Revenue Procedure 2025-32, Sections 4.01, 4.03, and 4.14, published in Internal Revenue Bulletin 2025-45 (2026 ordinary brackets, long-term capital-gain thresholds, and standard deductions), https://www.irs.gov/irb/2025-45_IRB.

[5] Centers for Medicare & Medicaid Services, 2026 Medicare Parts A & B Premiums and Deductibles (2026 Part B premiums and Part B and Part D income-related adjustment tiers), November 14, 2025, https://www.cms.gov/newsroom/fact-sheets/2026-medicare-parts-b-premiums-deductibles.

[6] Social Security Administration, POMS HI 01101.010 -- Modified Adjusted Gross Income (2026 IRMAA thresholds and general use of tax information from two years prior), revised December 2, 2025, https://secure.ssa.gov/poms.nsf/lnx/0601101010.

[7] Internal Revenue Service, Instructions for Form 8960 (2025) and final regulations under Section 1411 (3.8% NIIT thresholds and exclusion of qualified retirement-plan distributions from net investment income while including them in MAGI), https://www.irs.gov/pub/irs-pdf/i8960.pdf and https://www.irs.gov/irb/2013-51_IRB.

[8] Social Security Administration, Must I Pay Taxes on Social Security Benefits? (combined-income formula and benefit-taxation thresholds), June 30, 2025, https://www.ssa.gov/faqs/en/questions/KA-02471.html.

[9] Congressional Research Service, Qualified Charitable Distributions from Individual Retirement Accounts (IRAs) (QCD eligibility, income exclusion, RMD treatment, and 2026 limit), updated January 15, 2026, https://www.congress.gov/crs-product/IF11377.

[10] Internal Revenue Service, Retirement Topics -- Beneficiary (eligible designated beneficiaries and the 10-year rule for many non-spouse beneficiaries), updated in 2025, https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-beneficiary.

[11] Internal Revenue Service, Publication 551 (Rev. December 2025), Basis of Assets (basis of inherited property), https://www.irs.gov/pub/irs-pdf/p551.pdf.

This piece is educational. It is not legal, tax, or accounting advice and is not a recommendation to take or refrain from any specific action. Tax law is fact-specific and changes regularly. Please coordinate any decisions discussed here with your attorney, your CPA, and Perissos before acting.

Perissos Private Wealth Management is a Registered Investment Adviser ("RIA"). Registration as an investment adviser does not imply a certain level of skill or training, and the content of this communication has not been approved or verified by the United States Securities and Exchange Commission or by any state securities authority. Perissos Private Wealth Management renders individualized investment advice to persons in a particular state only after complying with the state's regulatory requirements, or pursuant to an applicable state exemption or exclusion. All investments carry risk, and no investment strategy can guarantee a profit or protect from loss of capital. Past performance is not indicative of future results.

The information contained in this newsletter is intended to provide general information about market themes. It is not intended to offer investment advice. Investment advice will only be given after a client engages our services by executing the appropriate investment services agreement. Information regarding investment products and services is given solely to provide education regarding our investment philosophy and our strategies. You should not rely on any information provided in making investment decisions.

Market data, articles and other content in this material are based on generally available information and are believed to be reliable. Perissos Private Wealth Management does not guarantee the accuracy of the information contained in this material.

Perissos Private Wealth Management will provide all prospective clients with a copy of our current Form ADV, Part 2A (Disclosure Brochure), Part 2B (Supplemental Brochures), and Part 3 (Client Relationship Summary) prior to commencing an advisory relationship. You can also view these documents at any time at adviserinfo.sec.gov or by contacting us requesting a copy.