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For most Americans, your tax bracket is largely out of your control during your working years. It's determined by your salary, and taxes are automatically withheld from each paycheck.

But in retirement, the script is flipped. You may have multiple income sources - like withdrawals from brokerage accounts, IRAs, and Social Security benefits - all taxed differently and often within your control.

Many retirees don't realize that withdrawing funds in the wrong order or at the wrong time can cost them tens of thousands of dollars in unnecessary taxes over time. A poorly timed move could push you into a higher tax bracket or trigger hidden penalties tied to programs like Medicare.

Here's why managing your retirement tax brackets can save you real money - and how to take advantage of this oft-overlooked strategy.

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The pitfalls of conventional withdrawal strategies

A common retirement withdrawal strategy is to draw from taxable accounts first, then tax-deferred accounts like traditional IRAs and 401(k)s, and save Roth accounts for last, according to T. Rowe Price. (1)

On paper, this seems smart: early in retirement, you're likely in a lower tax bracket, so withdrawals from taxable accounts are taxed at a favorable rate. However, this approach can backfire over time, potentially increasing your lifetime tax bill.

Consider Jane, who retires at 62 with $1.5 million: $1 million in a 401(k), $300,000 in a brokerage account, and $200,000 in Roth IRAs. If she delays tapping into her 401(k), it could grow to $1.6 million by age 73 - when required minimum distributions (RMDs) begin.

At that point, large (RMDs) may push Jane into a higher tax bracket, cause up to 85% of her Social Security benefits to become taxable (2), and trigger Medicare income-related monthly adjustment amount (IRMAA) surcharges.

Because of her wealth, Jane could also have additional tax burdens, including Net Investment Income Tax (NIIT), and, in rare cases, the Alternative Maximum Tax (AMT), depending on her income and deductions. (3)

In short, while the conventional withdrawal order may seem tax-efficient early on, it can lead to higher taxes and penalties later. The good news is that there is a more strategic approach.

Read more: How much cash do you plan to keep on hand after you retire? Here are 3 of the biggest reasons you'll need a substantial stash of savings in retirement

A simple trick to cut costs

Instead of relying on a traditional, one-size-fits-all withdrawal strategy, it's often smarter to customize your plan based on your age, income needs, and the size of your nest egg.

If you have savings spread across tax-deferred, taxable, and Roth accounts, you can strategically draw from these sources to reduce taxes - not just this year, but over your entire retirement.

For example, if you retire at 62 but delay Social Security until 67, you have a valuable window to implement tax-smart moves like tax gain harvesting and Roth conversions while you're in the lower bracket.

Don't automatically save your IRA for last. If you're close to triggering an IRMAA surcharge or jumping into a higher tax bracket, pulling a bit from your Roth IRA could keep your income below critical thresholds, and save you thousands in taxes.

You can also use tax-advantaged accounts like Health Savings Accounts (HSAs) to cover qualified medical expenses tax-free in retirement.

Of course, these strategies require careful planning. Yet, according to a 2025 Gallup poll, only 41% of U.S. adults use a financial advisor - and just 51% of those over 65 do. (4)

Hiring a financial planner to craft a personalized withdrawal strategy could be one of the simplest ways to reduce taxes and preserve more of your nest egg throughout retirement.

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Article sources

We rely only on vetted sources and credible third-party reporting. For details, see our editorial ethics and guidelines .

T. Rowe Price (1 ); Smart Asset (2 ); Fidelity (3 ); Gallup (4 ).

This article provides information only and should not be construed as advice. It is provided without warranty of any kind.

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