Want your retirement savings to go further? Learn more about tax-efficient strategies

The order in which you withdraw from different retirement account types can potentially save you thousands in taxes and add years to the life of your portfolio.

If you’re approaching retirement or already there, you’re facing a shift that feels overwhelming for many people: moving from building your nest egg to actually spending it. Our research shows that preretirees and retirees consistently worry about two things: outliving their savings and how best to spend down their assets.

The good news? Taking time upfront to develop a smart plan can improve your results without having to take on more risk. Through strategic withdrawal planning, you can help your savings last longer while keeping more money in your pocket instead of spending it on taxes. Because these decisions can feel complex—especially when you’re transitioning from saving to spending—it may help to talk through your options with a financial professional.

The growth potential of tax efficiency

When you retire, you will likely have money spread across different types of accounts, each with a distinct tax treatment:

• Traditional 401(k)s and individual retirement accounts (IRAs): Withdrawals are fully taxable as ordinary income. Required minimum distributions (RMDs) begin at age 73.
• Roth accounts (401(k)s and IRAs): Qualified withdrawals¹ are tax-free since you have already paid taxes upfront. No RMDs are required.
• Taxable investment accounts: You control when to realize capital gains (often taxed at lower rates), though dividends and interest are taxed annually.

This diversity creates opportunity. Instead of the conventional approach—taking from taxable accounts first, then traditional accounts, then Roth—years of research on tax efficiency and withdrawal sequencing show that tailoring withdrawals to your circumstances can save thousands in taxes.

Selectively drawing from accounts—rather than fully draining them one at a time—can help you:

• Fill lower tax brackets efficiently
• Reduce future RMDs
• Preserve tax-free Roth growth
• Avoid income spikes that trigger Medicare surcharges or Social Security taxation

Stage-based withdrawal example (Fig. 1): Tom and Linda, both age 65, had $2 million split between traditional 401(k)s ($1 million), Roth IRAs ($200,000), and taxable accounts ($800,000). Instead of spending their taxable money first, they initially withdrew around $130,000 annually from the traditional account before claiming Social Security benefits. As part of a tax-efficient strategy, they take money from taxable accounts before RMDs, taking advantage of untaxed capital gains. Finally, they supplement their RMDs first with Roth distributions, then by withdrawing from traditional and taxable accounts. This kept them in or below the 10% tax bracket for eight years longer than the conventional approach, ultimately saving $35,000 in federal taxes and leaving $106,000 more to their children.

Even with smaller portfolios, the same principles apply and can meaningfully extend how long your savings last.

The power of Roth conversions

One of the most effective tools for managing retirement taxes—especially if you don’t have a lot of Roth assets—is converting some Traditional IRA or 401(k) money to a Roth account. You’ll pay taxes on the converted amount now, but that money will grow tax-free from then on.

Timing is everything

The key to successful Roth conversions is executing them when your income is temporarily lower than usual—such as during periods of unemployment, or specific phases of retirement. Here’s how timing plays out across different retirement stages:

• Early retirement (before Social Security): If your income drops after you stop working but before claiming Social Security, this might be the best time to execute conversions. This can fill up lower tax brackets that might otherwise go unused.
• Mid-retirement (after Social Security, before RMDs): People in the 10% to 22% brackets need to be cautious about conversions at this stage because they could make more Social Security benefits taxable. But for people at higher income levels who expect that the maximum 85% of their Social Security benefits will always be taxable, conversions could make sense. It depends on the details, including the potential tax impact of future RMDs.
• Late retirement (after RMDs begin): At this point, you have less flexibility, so conversions often are not beneficial. But again, it depends on the situation: Conversions could make sense if you expect that one spouse will outlive the other by many years or that your beneficiaries will be in a much higher tax bracket than yours.

Conversions work best when you can pay the conversion tax from a taxable investment account rather than using retirement funds. Also watch out for conversion income that might push you into a higher tax bracket or increase taxes when you begin taking Social Security benefits. Consulting with a financial advisor can help.

Roth conversion example (Fig. 2): Sarah, 66, had $450,000 in Traditional IRAs and was about to claim Social Security. Her financial advisor projected that without a proactive approach, over half of her lifetime Social Security benefits would be taxable. By converting $123,000 to a Roth IRA over three years before claiming benefits at age 70—and paying most of the $14,000 in incremental taxes from her taxable investment account—she reduced her future taxable income enough that only 24% of her Social Security became taxable. In turn, that enabled her to completely avoid federal income taxes for most of her retirement. This single strategy saved her $36,000 in lifetime taxes while preserving $22,000 more for her heirs.

Turning RMDs into opportunity

As previously mentioned, at age 73 (age 75 if you were born in 1960 or later), the IRS requires you to withdraw money from traditional retirement accounts annually, but thoughtful planning can turn this tax obligation into an opportunity. These RMDs may exceed what retirees actually need to spend, creating a planning challenge. However, once you reach your required beginning date, you still have options to manage the timing and potential tax consequences of RMDs.

Reinvest strategically

If you don’t need the full RMD for expenses, consider reinvesting it in a taxable brokerage account using tax-efficient ETFs. The RMD is taxable, but reinvested assets can continue compounding and future gains may be taxed at lower rates.

Give purposefully

If you’re charitably inclined and over age 70½, qualified charitable distributions (QCDs) allow you to donate up to $111,000 (2026 limit) directly from your IRA to a qualified charity. The amount counts toward your RMD but isn’t included in your taxable income. QCDs make the most sense for individuals who don’t plan to itemize their tax deductions.

Strategic planning for legacy and longevity

While RMDs are mandatory, proactive planning before they begin can help you optimize outcomes for both your own long-term security and your beneficiaries’ inheritance. RMDs tend to increase over time as account balances and life expectancy factors change, making early strategic decisions increasingly valuable. Annual check-ins with a financial professional—such as a T. Rowe Price advisor—can help you rebalance accounts, explore small Roth conversions, and use charitable or tax-loss strategies to manage taxable income. This kind of ongoing review can be especially helpful as tax rules, markets, or spending needs change.

Maximizing inheritance value example (Fig. 3): Robert and Susan, both age 65, had $2.5 million in retirement savings, with $1.0 million in Traditional IRAs. They expect to leave a sizable amount to their beneficiaries, who will likely be in a higher tax bracket. Therefore, instead of just letting their IRAs grow, they drew from a combination of accounts—from taxable and tax-deferred accounts first and then adding Roth to the mix upon claiming Social Security. Later in life, they aimed to deplete the tax-deferred accounts, since they would pay a lower tax rate on them than their beneficiaries would.

This approach did not save them much in taxes during their lifetime compared with the conventional approach.

However, their heirs ultimately received $169,000 more in after-tax inheritance value. That’s because the beneficiaries received tax-free Roth accounts and taxable investments with the benefit of the step-up in basis.

Protecting against longevity risk

You can use up to $210,000 (in 2025 and 2026) over your lifetime from an IRA or workplace plan to purchase a qualified longevity annuity contract (QLAC). This converts part of your retirement account into guaranteed future income starting by age 85, while reducing the balance subject to RMDs before then. QLACs work best for those expecting longer-than-average lifespans—and married couples should consider the longevity of both spouses when making this decision. QLACs with survivor benefits are also available, making them a natural complement to delayed Social Security strategies for those concerned about maintaining income throughout retirement.

Professional guidance and the confidence to move forward

The examples in this article show potential savings of tens of thousands of dollars over the course of retirement. However, the specific strategies that work best depend on your unique situation: your account balances, income needs, tax bracket, and family goals.

Transitioning from saver to spender means entering a new, more strategic phase that requires coordinating withdrawals, conversions, and reinvestment decisions. A financial professional such as a T. Rowe Price advisor can help you model different scenarios; create a withdrawal plan that is tailored to your circumstances; and navigate the complex interactions between retirement withdrawals, Social Security benefits, and Medicare premiums.

With thoughtful planning, you can transform RMDs from an unwanted obligation into a meaningful tool for reinvestment, generosity, and family legacy. Your years of disciplined saving have earned you flexibility and options; with the right strategy and professional guidance, you can help ensure that your money keeps working as hard for you in retirement as it did before retirement.

Putting tax efficiency into action

Tax-efficient retirement income isn’t a one-size-fits-all strategy—your priorities and opportunities shift as you move through different phases of retirement. Whether you’re approaching retirement, newly retired, or managing required minimum distributions, each stage offers specific tactics to minimize your tax burden and maximize your financial flexibility. Consider how to tailor your approach based on where you are in your retirement journey.

For preretirees (ages 50–65):

• Review the mix of 401(k), IRA, and taxable accounts
• Consider Roth conversions if you have years when your income is lower
• Build your tax-free “Roth bucket,” particularly if your income forces you to make catch-up contributions in Roth

For new retirees (ages 65–73):

• Combine withdrawals across account types to manage your tax bracket
• Delay Social Security to give more room for Roth conversions
• Project your first RMD and plan ahead for reinvestment

For established retirees (ages 73+):

• Automate RMD withdrawals to avoid penalties
• Reinvest unneeded RMDs in tax-efficient investments
• Use QCDs for charitable gifts
• Revisit your legacy plan each year to align with tax changes

Appendix

Assumptions
(Unless otherwise noted)

• All accounts earn the same 6% constant nominal rate of return before taxes.
• Inflation is 3% annually.
• All amounts are expressed in today’s dollars. Therefore, while Social Security benefits in the analysis appropriately reflect cost-of-living adjustments (COLAs) equal to inflation, the benefits at FRA stated in this paper do not include any COLAs. Tax brackets are assumed to adjust with inflation. However, Social Security taxability thresholds do correctly reflect the fact that those are not indexed to inflation.
• Taxes are based on rates effective January 1, 2025, as well as the tax law enacted in July 2025.
• The household uses the standard deduction.
• While there are other potentially tax‑exempt sources, such as Health Savings Accounts and municipal bond interest, our analysis only considers Roth distributions (which are assumed to be qualified).
• State taxes and federal estate tax are not considered.
• All taxable investment account earnings are either qualified dividends or long‑term capital gains. Taxable investments pay a 1.5% qualified dividend yield annually as part of the return, which is reinvested.
• Gains upon liquidation of taxable investments are based on the average cost basis for the account.
• Spending requirements, including Medicare premiums before any income‑related adjustments, remain constant (in today’s dollars) throughout retirement.
• The couple has no additional sources of income beyond Social Security and investments.
• All RMDs are fulfilled, and any RMDs not needed for spending are invested in the taxable account. RMDs are based on the Uniform Lifetime Table effective beginning in 2022. Based on the assumed ages, all people in the scenarios begin RMDs at either age 73 or 75.
• Scenarios were intended to reflect reasonable Social Security benefits relative to assets and spending needs.