The Withdrawal Order Nobody Taught You (And How to Save 10% on Taxes Annually in Retirement)

Tyler Gardner (0:00)

Most retirement advice tells you to minimize your withdrawals. The actual move is to maximize the use of cheap brackets, which often means withdrawing more, not less, in your early retirement years. Yes, frugality is a virtue, but frugality at the wrong moment in the calendar is just an expensive form of virtue signaling, and the IRS is the audience that is clapping.

Hello, friends. This is Tyler Gardner, welcoming you to another episode of Your Money Guide on the Side, where it is my job to simplify what seems complex, add nuance to what seems simple, and learn from and alongside some of the brightest minds in money, finance, and investing. So let's get started and get you one step closer to where you need to be.

Quick note before we dive in. July's pre-order incentive for my book, Real Wealth, is live, and this one is for the investors who are ready to go beyond the basics. Pre-order this month. Tell me you did at tylergardner.com/book, and I'll send you Investing 2 Beyond the Foundation, a full hour video presentation on the five things every investor needs to know after they've mastered the fundamentals, yours to keep delivered to your inbox digitally in early August. And if you pre-order now, you're locked in for every monthly incentive through December 1st. tylergardner.com/book. Now let's get into it. There's a question I want you to sit with before we get into anything technical today. If you spent 40 years saving, and you have, let's just say, $1.5 million distributed across a traditional IRA, a Roth IRA, and a taxable brokerage, in what order should you spend it? Most retirement content gives you the same three-word response, taxable, traditional, Roth. Spend the taxable account first, then the traditional 401k, save the Roth for last. It's tidy, it's repeatable, I certainly can endorse it, and it fits on a single Instagram carousel. It is the financial advice equivalent of lather, rinse, repeat. A phrase that exists more because it's satisfying to say than because it is, on inspection, correct for everyone. It also can be, for you, completely wrong. Not because the logic is bad. The logic is actually quite reasonable. But because the question itself is bad. The question assumes the only thing that matters is minimizing the tax bill across your retirement. And the question forgets that a retirement goes beyond the math problem. A retirement is a 30-year compound experiment in your life. Your taxes, your health, your spouse, your heirs, your moods, your relationship to time itself. There's a passage in Wendell Berry, The Farmer and Essayist, one of the great American thinkers on the question of how a person should actually live, where he distinguishes between solving a problem and answering a question. A problem, Berry writes, can be solved once. A question must be answered continuously. In the daily practice of being alive, often without resolution, and sometimes without even progress. The technical part of retirement is the problem. The withdrawal order is the question. You will answer it every year for the rest of your life. And, I'm sorry, you will never solve it. So today we're going beyond the 1 of taxable traditional Roth, and we're going to the 2.0. And in my mind, we're doing something much, much better. Welcome to part 2 of the Decumulation series. Five parts. The series is a direct response to all of you who took the reader survey a few months back and told me almost in unison that the conversation everyone is having about retirement is the wrong conversation. You don't want more accumulation content. You want help with the part where you actually spend it. So today, the withdrawal order. The real one.

Part 1

Why the withdrawal order is not what you think it is.

I want to start with an idea that almost no creator in the personal finance space talks about because it sounds a little depressing and it doesn't sell courses. It's this. The optimal withdrawal order changes every single year. I know how much you hate me right now. It's not depends on your situation. It's not varies by individual. It actively, structurally changes year to year because the variables that determine the right answer, your taxable income, the tax brackets, the ACA subsidy cliffs, the IRMA thresholds, the market's performance, your projected longevity, your spouse's health, the political composition of Congress, and your own mortality table. None of those things hold still. A withdrawal order that was optimal in 2026 might be suboptimal in 2027 The decision is not made once in a vacuum. It is made every year for the rest of your life, and anyone telling you there's a fixed answer is selling you the illusion of certainty in a domain where certainty does not exist. Welcome to life. You know this by now.