Retire Ready Podcast: The 3 Accounts to Spend First in Your Go-Go Years: A Tax-Smart Withdrawal Strategy

The $200,000 Mistake Most Millionaire Retirees Make

Most retirees with over a million dollars saved are pulling from the wrong accounts first—and it's costing them six figures in unnecessary taxes during their best years of retirement.

If you've spent decades building wealth in your 401(k), IRA, Roth, and taxable accounts, you deserve to enjoy every dollar you've earned. But here's the hard truth: the order you withdraw from these accounts can make a $200,000 difference in what you actually get to spend in your go-go years.

The go-go years—typically your 60s to early 70s—are when you're healthy enough to travel, active enough to enjoy hobbies, and motivated to do all those things you put off during your working years. Research shows that spending naturally declines as we age into our late 70s and 80s, not because we run out of money, but because we naturally slow down (Charles Schwab). That's why getting your withdrawal strategy right during these early retirement years is so critical. You want maximum spending power when you'll actually use it.

Today, I'm breaking down the exact withdrawal sequence that helps self-made 401(k) and IRA millionaires keep more and pay less to Uncle Sam.

Why Withdrawal Order Matters More Than You Think

Let me start with something that surprises most people: When you've saved a million dollars or more, your biggest risk isn't running out of money. Your biggest risk is paying way too much in taxes and leaving hundreds of thousands on the table that you could have been spending during your healthiest, most active years.

Here's what I see all the time. Someone retires at 62 or 65 with $2 million saved. They immediately start pulling from their 401(k) or IRA because that's where most of their money sits. Fast forward to age 75, and now they're forced to take required minimum distributions (RMDs) on top of Social Security. Suddenly they're in the 24% or even 32% tax bracket, paying IRMAA surcharges on Medicare, and watching thousands of dollars every year go straight to the IRS.

The critical insight here is this: Your withdrawal strategy is just as important as your accumulation strategy. You can't control market returns, but you can absolutely control which accounts you tap and when. Getting this wrong can cost you more than a bad investment year ever would.

The Go-Go Years: Your Window of Maximum Opportunity

The go-go years deserve special attention in your financial plan. This is the period when:

You have the energy and health for ambitious travel and activities
You're young enough to enjoy physically demanding hobbies
You want to create lasting memories with family and friends
Your spending is naturally at its peak

Yet this is exactly when most retirees are paying the highest taxes because they're withdrawing inefficiently. The strategy I'm about to share helps you maximize your spending power during these precious years while minimizing what you send to Washington.

Account #1 to Spend First: Your Taxable Brokerage Account

The first account most million-dollar savers should tap is their taxable brokerage account. Now, I know what you're thinking: "Shouldn't I leave that money invested to keep growing?" Here's why that thinking can actually cost you money.

The Tax Advantage You're Probably Overlooking

Let's say you have $200,000 in a taxable brokerage account. When you sell investments you've held for more than a year, you pay long-term capital gains rates, not ordinary income tax rates. For 2025, if you're married filing jointly with taxable income up to $96,700, you pay zero percent on long-term capital gains (Bipartisan Policy). Zero.

Even if you're in the 15% capital gains bracket (which applies to incomes between $96,700 and $600,050 for married couples), that's still significantly lower than the 22% or 24% ordinary income rate you'd pay pulling from your traditional IRA.

The Strategic Trifecta

Here's the strategy: Use your taxable account to cover your living expenses in early retirement while keeping your overall taxable income low. This accomplishes three powerful things:

Preserves tax-deferred growth — Your IRA and 401(k) accounts continue compounding without distributions
Keeps you in lower tax brackets — Reduced ordinary income means lower marginal rates
Creates Roth conversion opportunities — Low-income years are golden for tax-efficient conversions

Real Numbers: Taxable vs. Traditional IRA Withdrawals

Let's walk through a hypothetical scenario. Imagine you need $80,000 per year to live on, and you have $300,000 in a taxable brokerage account. By pulling from this account first, you might only pay capital gains tax on your gains, not the entire balance.

If you have $100,000 in gains and $200,000 in cost basis, you're only paying tax on that $100,000 in gains—and depending on your income, potentially at 0% or 15% (Charles Schwab).

Compare that to pulling $80,000 from your traditional IRA:

Every single dollar is taxed as ordinary income
At the 22% bracket, that's $17,600 in taxes
Taxable account approach: $0 to $15,000 in taxes
Annual savings: $2,600 to $17,600

Over ten years in your go-go years, that difference compounds to real money you could be spending on travel, grandkids, or whatever brings you joy.

Account #2 to Spend From: Strategic Pre-Tax IRA and 401(k) Withdrawals

Now here's where it gets interesting. The second account to tap is your traditional IRA or 401(k), but you need to be strategic about it. This isn't about draining the account—it's about filling up lower tax brackets before Social Security kicks in and before RMDs force your hand.

The Critical Window: Retirement to Social Security

Let's say you retire at 62 and plan to delay Social Security until age 70 to maximize your benefit. During those eight years, you have no Social Security income. Your taxable income is lower than it's been in decades. This is your golden opportunity.

The "Fill the Bracket" Strategy

Here's a hypothetical example. You're married filing jointly. The 12% bracket in 2025 goes up to $96,950 in taxable income (Jackson Hewitt). After your standard deduction of $31,500, you can have about $128,450 in gross income and still stay in the 12% bracket.

If you need $80,000 to live on and you're supplementing with $40,000 from your taxable account, you could pull another $47,000 from your traditional IRA and only pay 12% instead of the 22% or 24% you'd pay later when RMDs kick in.

What This Strategy Accomplishes

Reduces future RMDs — Smaller pre-tax account balance means smaller required distributions
Locks in known low rates — Pay 12% today instead of 22%+ tomorrow
Creates tax-free Roth money — Convert at low rates while you have the opportunity
Maximizes lifetime spending power — More money in your pocket, less to the IRS

The Healthcare Factor: ACA and IRMAA Considerations

One critical point about healthcare that too many retirees overlook:

Before age 65: If you retire before Medicare eligibility, managing your income is crucial for ACA subsidies. Too much income from IRA withdrawals can eliminate your healthcare subsidies, costing thousands per year.

After age 65: IRMAA kicks in. In 2025, if your modified adjusted gross income exceeds $212,000 as a married couple, you start paying IRMAA surcharges on Medicare Part B and D (NerdWallet). Those surcharges can add over $3,000 per year to your Medicare costs. Strategic withdrawals help you avoid these expensive traps.

Account #3: When to Tap Your Roth IRA (Hint: Usually Last)

The third account in the sequence, and typically the last one you should tap, is your Roth IRA. Why save it for last? Because it's your most powerful tax asset.

Why Your Roth is Financial Gold

Roth money has three unique advantages:

Grows tax-free — All gains are yours, not shared with Uncle Sam
Comes out tax-free — No taxes on qualified distributions
Doesn't count toward taxable income — No impact on IRMAA, Social Security taxation, or tax brackets

Unlike your traditional IRA, which forces you to take RMDs at age 73, your Roth IRA has no required distributions during your lifetime (IRS). That means you can let it grow as long as you want.

When to Use Your Roth Earlier Than Last

There are strategic times when tapping your Roth makes perfect sense:

Scenario 1: Big one-time expenses — Need a new car, home renovation, or special trip? Your Roth doesn't increase your taxable income, so you won't trigger IRMAA, cause more Social Security to be taxed, or bump into a higher bracket.

Scenario 2: Market volatility buffer — When the market is down, instead of selling traditional IRA assets at a loss, pull from Roth to let those depressed pre-tax accounts recover.

Scenario 3: High-income years — If you have an unusually high-income year (pension payout, real estate sale, etc.), using Roth instead of traditional IRA prevents piling ordinary income on top of ordinary income.

The Legacy and Longevity Advantage

A hypothetical scenario: You have $500,000 in a Roth IRA at age 65. You don't touch it for 20 years, letting it grow. At a 6% average return, that Roth could grow to over $1.6 million, all completely tax-free to you or your heirs.

Compare that to a traditional IRA where every dollar withdrawn is taxed as ordinary income. Because Roth accounts pass tax-free to heirs, they're an incredible wealth transfer tool. The Roth is simply too valuable to spend first unless you have a specific strategic reason.

Putting It All Together: The Real-World Example

Let me show you how this plays out in real life. This is a hypothetical scenario based on situations I see often.

Meet Your Hypothetical Retirement Profile

Age: 62, recently retired

Total Portfolio: $2 million

$200,000 in taxable brokerage account
$1.5 million in traditional IRAs and 401(k)s
$300,000 in Roth IRA

Income Need: $120,000 per year to live your best life

The Tax-Smart Strategy (Ages 62-70)

From your taxable brokerage account: Pull $50,000 per year

Because of your cost basis, you're only paying capital gains tax on maybe $20,000 of gains per year
At the 15% capital gains rate: $3,000 in taxes (Charles Schwab)

From your traditional IRA: Take $70,000 per year

This fills up the 12% tax bracket without pushing into 22%
Federal taxes on $70,000: approximately $8,400

Total annual tax bill: $11,400

Effective tax rate: 9.5%

Net spending power: $120,000 minus $11,400 = $108,600

The Typical (Costly) Approach

Now let's compare that to the typical approach where you immediately pull all $120,000 from your traditional IRA:

At the 22% bracket: $26,400 in taxes
More than double the tax bill
Over eight years before Social Security: $120,000 in unnecessary taxes

That's $120,000 you could have spent traveling, helping your kids, or simply enjoying your life (Morningstar).

At Age 70: The Strategy Shifts

At age 70, you claim Social Security, bringing in $45,000 per year. Now your traditional IRA withdrawals drop because Social Security covers part of your income. You continue supplementing from your taxable and traditional accounts as needed, and you leave your Roth untouched to keep growing tax-free.

This approach gives you maximum flexibility, keeps taxes manageable, and preserves your most valuable asset—your Roth—for when you really need it or to pass to heirs.

The Annual Planning Calendar: When to Review Your Strategy

One of the biggest mistakes I see is treating withdrawal strategy like a set-it-and-forget-it decision. Your situation changes every year. Markets fluctuate, tax laws change, your spending needs evolve, and your health might shift.

That's why successful retirees review their withdrawal strategy at least annually.

Your November/December Checklist

Every November or December, before the year ends, sit down with your financial advisor and review:

✅ Income analysis — Where did your income come from this year? Did you stay in your target tax bracket, or did you overshoot?

✅ RMD projections — What are your RMDs going to look like in future years? Are they growing uncomfortably large?

✅ Roth conversion opportunities — Are there opportunities for Roth conversions before year-end?

✅ Next year's spending plan — What's your spending plan for next year? Any big purchases or travel planned?

Dynamic Adjustment Examples

Market run-up year: If the market has a big run-up and your traditional IRA grows significantly, that might be a year to accelerate conversions to Roth to keep future RMDs manageable.

High medical expense year: If you have unexpectedly high medical expenses, that higher spending might push you into a higher bracket temporarily. Pull more from your Roth to avoid compounding the tax hit.

Low spending year: If you spend less than planned, consider doing larger Roth conversions to take advantage of unused space in your current tax bracket.

The point is, withdrawal strategy isn't static—it's dynamic. The three-account sequence (taxable first, strategic traditional IRA second, and Roth last) is the foundation. But the exact amounts you pull from each account should flex based on your life and the tax environment.

Common Mistakes to Avoid with Withdrawal Sequencing

Before we wrap up, let me highlight common mistakes that can derail even the best withdrawal strategy:

Mistake #1: Pulling Too Much from Traditional Accounts Too Early

I get it—that's where most of your money is. But resist the urge to drain it fast. Spreading withdrawals over more years keeps you in lower brackets and reduces lifetime taxes.

Mistake #2: Ignoring Roth Conversions During Low-Income Years

The years between retirement and Social Security are golden for conversions. If you don't take advantage, you're leaving money on the table. Every dollar you convert at 12% instead of paying 22% later is a 10% return guaranteed by the IRS.

Mistake #3: Not Coordinating with Your Spouse

If one spouse has significantly more in retirement accounts, failing to coordinate can lead to massive tax bills for the surviving spouse later. Widows and widowers file as single, which means much narrower tax brackets.

Mistake #4: Forgetting About State Taxes

Some states don't tax retirement income, while others do. If you're considering a move in retirement, factor that into your withdrawal strategy. Moving from California (13.3% top rate) to Texas (0% state income tax) can save six figures over retirement.

Mistake #5: Failing to Adjust for Healthcare Costs and IRMAA

Managing income to avoid IRMAA surcharges can save thousands per year (Medicare Resources). Don't let poor planning force you to pay higher Medicare premiums unnecessarily.

Key Takeaways: Your Action Plan

If you're approaching or in your go-go years, here's your strategic withdrawal sequence:

1. Start with your taxable brokerage account — Take advantage of favorable long-term capital gains rates (potentially 0% or 15%) instead of ordinary income rates.

2. Make strategic traditional IRA/401(k) withdrawals — Fill up lower tax brackets (especially the 12% bracket) before Social Security and RMDs force you into higher brackets.

3. Preserve your Roth IRA as long as possible — This is your most valuable tax asset for flexibility, legacy planning, and tax-free growth.

4. Review annually — Your withdrawal strategy should be dynamic, adjusting for market conditions, tax law changes, and your evolving needs.

5. Coordinate with healthcare planning — Manage income to optimize ACA subsidies (pre-65) and avoid IRMAA surcharges (post-65).

The order you withdraw from your accounts can literally make a $100,000 to $200,000 difference in what you get to spend during your best years of retirement. Don't leave that money on the table.

Ready to Optimize Your Retirement Withdrawals?

If you're a self-made 401(k) or IRA millionaire and you want to make sure you're keeping more and paying less to Uncle Sam during your best years, let's talk.

At MOKAN Wealth, we specialize in helping million-dollar savers optimize every dollar through The Five Seed System—a comprehensive approach to tax-efficient retirement planning.

Next Steps:

Visit our website and click "See If We're A Fit"
Check out my book "Tax-Proof Your Retirement" for more strategies
Subscribe to my YouTube channel where I break down exactly how to avoid the seven hidden tax surprises in retirement

Your go-go years are too precious to waste on unnecessary taxes. Let's make sure you keep more of what you've earned.

Compliance Disclosure

MOKAN Wealth Management, LLC is a Registered Investment Adviser. Content may include topics related to tax planning and estate planning but should not be considered tax or legal advice. This material is for informational purposes only and not personalized advice. Investing involves risk. Past performance is not indicative of future results. Always consult your CPA, attorney, or financial planner before making financial decisions.

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The 3 Accounts to Spend First in Your Go-Go Years: A Tax-Smart Withdrawal Strategy