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Retiring With $2 Million: Which Account Should You Withdraw From First? · Align Your Retirement

• 0:00
  Hey, welcome back to Align Your Retirement.
• 0:02
  I'm Hazel Seco, CFP and CDFA, founder of Aligned Financial Solutions.
• 0:07
  We're fee-only advisors and fiduciaries 100% of the time.
• 0:10
  Today's episode is about the first real decision of retirement.
• 0:14
  When the paycheck stops and you have$2 million across three kinds of accounts, which one do you draw from first, and why the standard answer can cost you later.
• 0:23
  Let's get into it.
• 0:24
  The first month of retirement has a decision in it that most people make without noticing.
• 0:29
  The paycheck stops, the bills don't, and money has to come from somewhere.
• 0:34
  So she picks an account, sets up a transfer, and moves on That first transfer tends to become the pattern for years, and there is a standard answer for which account to pick.
• 0:44
  Spend the taxable brokerage account first, then the 401or IRA, and leave the Roth alone as long as you can.
• 0:51
  It's in every article and most of the robo tools, and for some people it's right, but it was written for someone whose money is spread evenly across the three kinds of accounts.
• 1:01
  The women I work with are rarely spread evenly.
• 1:04
  Most of what they have is in a 401because that is where 30 years of saving went.
• 1:10
  For them, the standard order quietly sets up a tax problem that doesn't show up until their mid-70s.
• 1:16
  So today, I'm going to walk through one hypothetical woman, Teresa, who's retiring at 60 with two million dollars.
• 1:23
  I'll show you what happens if she follows the usual order, what her first withdrawal should look like instead, how her first three years play out, and the three things that decide the order for you.
• 1:34
  It is a decision, not a recipe, and by the end, you'll know which questions to bring to your own numbers.
• 1:40
  I'm Hazel Seco.
• 1:41
  I'm a certified financial planner, a CDFA, and a fee-only fiduciary.
• 1:45
  One note, I'm a financial advisor, but I'm not your financial advisor.
• 1:49
  This is education, not advice.
• 1:51
  Grab something to write on.
• 1:52
  Let me introduce you to Teresa.
• 1:54
  Her mix is the one I see most.
• 1:56
  Teresa is 60 and single, and she just retired from a long career in healthcare administration.
• 2:02
  She has two million dollars.
• 2:03
  About$1.5 million of it is in her 401and IRA, all pre-tax.
• 2:10
  She has a brokerage account she built over the last ten years and a small Roth.
• 2:14
  She needs$120,000 a year to live on, and she has retiree health coverage through her old employer, so health insurance is handled.
• 2:22
  Social Security is years away because she plans to wait.
• 2:26
  She read the standard advice, so her plan is to live on the brokerage account first.
• 2:31
  It is simple.
• 2:32
  It keeps her taxes low, and it leaves her retirement accounts to grow.
• 2:35
  That is a plan most people would make.
• 2:37
  Here is what the standard advice doesn't tell her.
• 2:40
  The problem isn't the account she spends, it's the account she leaves alone.
• 2:44
  If Teresa lives on the brokerage account, her taxable income may be low, depending on her interest, dividends, and the gains in what she sells.
• 2:52
  She could also have room in her low tax brackets that goes unused.
• 2:56
  That sounds like a win, and in the short run, it is.
• 2:59
  A large pre-tax balance can mean large required minimum distributions later.
• 3:04
  Under current law, Teresa's required withdrawals start at 75.
• 3:07
  For scale, a three million dollar balance at the end of the previous year would mean a required withdrawal of about$122,000 at 75 under today's table.
• 3:19
  Taxed as ordinary income.
• 3:20
  That would be on top of her Social Security and other income, and could also raise her Medicare premiums.
• 3:26
  That is an illustration of the rule, not a projection for Theresa.
• 3:29
  Her brokerage money would run down much sooner.
• 3:32
  Um, the question is how much to take from the IRA during her lower income years before she has to rely on it more heavily.
• 3:40
  That is the backfire.
• 3:41
  The standard order treats a 401as a thing to protect.
• 3:44
  For Theresa, it is a thing to start draining slowly, on purpose while her tax rate is low.
• 3:50
  So what should her first withdrawal look like?
• 3:52
  That's what we're going to look at next.
• 3:55
  Each year, Theresa takes just enough out of her 401to fill up her low tax bracket and takes the rest of what she needs from the brokerage account For 2026, a single person under 65 taking the standard deduction can have about$66,000 of ordinary income before reaching the 22% bracket, assuming no other adjustments.
• 4:16
  So Theresa pulls about$66,000 from her IRA, adjusted for her other income.
• 4:22
  Interest and non-qualified dividends use some of that ordinary income room.
• 4:26
  Qualified dividends and long-term gains need a separate check.
• 4:29
  The first part is wiped out by her deduction, and the rest is taxed at 10% and 12%.
• 4:35
  Those are rates she may never see again once Social Security and required withdrawals start.
• 4:40
  The other$54,000 come from the brokerage account before allowing for the tax bill.
• 4:45
  The original investment is not taxed again.
• 4:48
  The gain is how much tax she owes depends on her cost basis and how long she held what she sells.
• 4:54
  Filling the low ordinary income brackets can also use up the room she would otherwise have for gains taxed at 0%.
• 5:01
  Those two withdrawals total$120,000 before tax.
• 5:07
  If Theresa needs$120,000 to spend after tax, she needs to withdraw enough extra to cover the bill and include any tax on that extra withdrawal.
• 5:15
  The IRA may still grow, but she has less left in it than she took nothing out.
• 5:21
  She leaves the Roth alone in this example, keeping it available for a year when a qualified tax-free withdrawal is more useful.
• 5:27
  Her own Roth IRA has no required withdrawals during her lifetime.
• 5:31
  One thing to say before anyone copies this, Theresa can do this because her health insurance is already covered.
• 5:37
  If she were buying coverage on the marketplace before 65 for a one-person tax household in most states,$66,000 of marketplace income is above the 2026 premium tax credit income limit.
• 5:50
  We would need to compare the extra tax and lost premium help before choosing the withdrawal mix.
• 5:55
  The same woman facing a different threshold or rule, health insurance, tax bracket, or Medicare premium can end up with a different answer for which account to draw from.
• 6:05
  The principle isn't just about who you are, but which line you're managing to in a given year.
• 6:10
  That's year one, not Let me show you what changes in years two and three because the answer doesn't stay still.
• 6:17
  Year one, age 60, fill the low brackets from the IRA, take the rest from the brokerage, leave the Roth.
• 6:23
  We just covered it.
• 6:24
  Year two, age 61, same shape, but she looks at the brokerage account before she sells.
• 6:30
  Which holdings have the biggest gains?
• 6:32
  Which ones have losses she can use?
• 6:34
  She picks what to sell with the tax return in mind, not just whatever is at the top of the statement.
• 6:40
  And if the market had a bad year, she leans more on cash and bonds in the brokerage account so she isn't selling stocks at the bottom.
• 6:47
  Year three, age 62, looks like year two.
• 6:50
  The year most people miss is the one after.
• 6:53
  Age 63, Medicare's income-related surcharges generally use income from two years earlier, so her income at 63 can affect her premiums at 65.
• 7:03
  From that year on, filing the 12% bracket may still be fine, and she checks the Medicare threshold too.
• 7:10
  Crossing one adds a cost to compare with the longer-term benefit.
• 7:14
  It's not an automatic reason to stop.
• 7:16
  A few years in, and the answer has shifted more than once.
• 7:21
  Her accounts stayed the same, so does she.
• 7:23
  But each year, the line she needed to pay attention to, tax brackets, Medicare threshold, or insurance limit changed, and that changed the answer.
• 7:31
  You might be thinking,"So should I take from my IRA first too?" Maybe.
• 7:36
  It depends on three things.
• 7:38
  They're the whole decision.
• 7:39
  First, how much of your money is pre-tax?
• 7:42
  Theresa is 75% pre-tax.
• 7:45
  Combined with her low current income, that gives her a reason to consider measured IRA withdrawals now.
• 7:51
  If your two million dollars were split evenly across the three kinds of accounts, the standard order might work fine, and I showed what that looks like in the$200,000 paycheck video linked below.
• 8:02
  The share tells you what to investigate.
• 8:05
  Your current and future tax rates help determine how much to draw.
• 8:09
  Second, what else counts as income in those years?
• 8:12
  A pension, deferred compensation paying out, a part-time consulting contract, or starting Social Security early.
• 8:19
  Those fill your low brackets before you take a dollar from the IRA.
• 8:23
  If Theresa had a fifty thousand dollars pension, there would be only about sixteen thousand dollars of room left in the twelve percent bracket, and most of her first withdrawal would flip back to the brokerage.
• 8:34
  Third, which income limits matter this year?
• 8:37
  Marketplace premium help can matter before sixty-five.
• 8:41
  From about sixty-three, Medicare's two-year lookback can matter too, so both may apply t- at once.
• 8:48
  Compare them alongside your tax brackets.
• 8:50
  Sometimes crossing a threshold is worth the cost.
• 8:53
  The point is to include that cost before choosing the withdrawal mix.
• 8:57
  Answer those three, and the order falls out.
• 9:00
  Get any of them wrong, and you're following someone else's plan.
• 9:03
  Let me pull this together.
• 9:04
  The standard order, taxable first, then pre-tax, then Roth, can work for some people, but Theresa needs to compare it with using some of her low tax brackets now before Social Security and required withdrawals add income later.
• 9:18
  For her, a measured IRA withdrawal alongside brokerage money is worth testing with enough set aside for the tax bill.
• 9:25
  If you're close to retirement with most of your savings pre-tax, here are three things to do this week.
• 9:31
  Write this down.
• 9:31
  One, add up your three kinds of accounts: pre-tax, taxable, and Roth, and work out what share is pre-tax.
• 9:38
  A large pre-tax share is a reason to compare withdrawal strategies, not a cutoff that decides the answer.
• 9:44
  Two, list everything else that will count as income in your first retirement years: pension, deferred comp, part-time work, Social Security if you start it early.
• 9:53
  That is what fills your low brackets before the IRA does.
• 9:57
  Three, identify the tax brackets and health insurance income limit that could have factored next year.
• 10:03
  Check where they overlap and compare the cost before sizing the IRA withdrawal.
• 10:07
  Before next week, pull your statement and add up your three kinds of account.
• 10:11
  The share that's pre-tax tells you more about your first withdrawal than any article does.
• 10:16
  If you want the full picture on withdrawals, conversions, and the Medicare bracket, my free guide, The Executive Women's Retirement Tax Playbook, is linked in the show notes.
• 10:24
  The link to book an Align Call is there too if you would like to talk through your own first three years.
• 10:30
  It's a 15-minute conversation.
• 10:31
  We are fee-only advisors.
• 10:33
  If you know a woman who is about to retire and has been told to spend her brokerage account first, send her this episode.
• 10:39
  I'm Hazel Seco.
• 10:40
  Talk to you next time.