Tax season is here! Let’s talk taxes and retirement distributions.

Between 401k’s, TSP’s, IRA’s, Roth IRA’s, and more, is there a “right” place to start when it comes to drawing down your savings?

Since every retiree’s financial life looks a little different, that’s a question best addressed with a Phase 2 fiduciary retirement planner. Phase 1, accumulation-based investment and wealth advisory focused firms typically do not specialize in retirement income, distributions, protection and preservation. Do-it-yourself investors may be great at growing and accumulating, but the Phase 2 distribution phase of retirement is totally different. However, with this in mind, there are a few considerations you can make on your own to get going in the right direction.

First, place your accounts into two categories: those made with pre-tax and post-tax contributions.

In general, qualified withdrawals from your post-tax accounts (such as Roth IRA’s) are tax-free retirement income, which can be great tools for reducing your taxable income. Alternatively, most withdrawals made from pre-tax accounts (401k’s, 403B’s, TSP’s or Traditional IRA’s) will increase your tax liability since withdrawals are treated as ordinary taxable income. Most Americans early in their careers bought into perhaps one of the biggest retirement planning myths that when you retire, you’ll be in a lower tax bracket because you’re not working anymore. True for some, but not true for most retirees, especially those in the DC Metro area that have Social Security, pensions, and typically $1M-$5M saved. Often times, we see MORE income in retirement than in working years with FEWER deductions. Primary homes are usually paid off and we’re not maxing out retirement plans anymore because we’re retired, so we’ve lost those deductions, and our kids are out of the home (hopefully). All of these deductions that we once had during our working years, we no longer have in retirement. And then, what if the tax code simply changes? It’s scheduled to revert back to the prior tax code in less than two years. The existing 12% bracket will be the 15% bracket, the current 22% bracket will be 25%, and the current 24% bracket will become 28%. 

Ask yourself these long-term planning questions about your retirement income:Do you have a plan for the income you’ll receive from your required minimum distributions (RMD’s) from your qualified retirement accounts as required?When should you start taking Social Security benefits?Will you have any other forms of income in retirement that will count towards your overall taxable income?Do you have a plan to lower taxes on your TSP’s, 401K’s and IRA’s? 

Understanding what your income sources will look like over the years should help determine your future tax obligations and will also influence the withdrawal strategy you put into action.
Because most Americans have most of their life’s savings in pre-taxed accounts, and with taxes scheduled to go back up on 1/1/2026, many are concerned they are accumulating a potential ticking tax time bomb and more revenue for the government instead of themselves.

One key to help you optimize your distributions in retirement is diversification: multiple account types with differing tax features within a withdrawal strategy, built with tax optimization in mind. The more savings we have in post-tax buckets – Roth IRA’s, Roth 401K’s, TSP Roth, and permanent life insurance (whole life, universal life) – the better. These accounts are highly tax-advantaged.

Determining how to lower and mitigate taxes on your life’s savings, which accounts to tap, and how much to take from each account can feel like a significant burden to undertake, but you don’t have to address it on your own.

Let’s work together to find a balance between pre- and post-tax accounts and create a tax strategy and retirement withdrawal strategy that’s personalized to your specific situation.  Click the links below to schedule a time to speak with us. If you are an existing client and would like to discuss withdrawal and tax strategy further, click this link to schedule. If you are not an Abich Financial client and would like to meet with one of our advisory team members to discuss withdrawal further, click this link to schedule a time to speak with us. 

We look forward to hearing from you soon. 
As always, any and all questions are welcome. We are here for you. 
To preserving your retirement savings,

Abe Abich & the Abich Financial Team