There are three general types of accounts available to most retirees: taxable accounts, such as checking, savings and regular brokerage accounts; tax-free accounts, such as Roth IRAs; and tax-deferred accounts, including a traditional IRA, 401(k), 403(b) and 457. Assuming your tax rates will be the same or lower in the future, the optimal order of distribution in retirement would be:

  1. Income you receive — such as a pension or Social Security, and your Required Minimum Distributions if you are over 70-1/2 years of age.
  2. Taxable securities — securities that you have held for longer than 12 months and which have a high cost basis relative to their current price.
  3. Tax-deferred accounts — preserve the Roth benefit by distributing from the tax-deferred accounts before your Roth IRAs
  4. Tax-free accounts — depending on how much income you earn in retirement, you might want to consider converting some of your tax-deferred assets into tax-free assets through a Roth conversion.

Read this article for more information. If this strategy is best for you, we can easily incorporate it into your financial plan.