Most Americans spend decades feeding the federal tax machine. Fewer know that the order in which they pull money out of their retirement accounts can determine how much of their savings Washington takes back on the way out.
A retirement spending approach known as the "Take That, Uncle Sam" rule lays out a sequencing strategy for withdrawals from traditional IRAs, Roth IRAs, and taxable brokerage accounts, all aimed at shrinking the tax bite during the years when retirees can least afford it. The concept, detailed by Kiplinger, draws on expert guidance from Steve Parrish, a professor of practice in retirement planning at The American College of Financial Services, and Julie Williams, a wealth adviser at Wealthspire.
The core idea is simple: the government has built a web of tax triggers, income thresholds, surcharges, mandatory withdrawals, that can compound against retirees who don't plan ahead. The right withdrawal sequence can defuse many of those traps. The wrong one can push a retiree into a higher bracket, trigger Medicare surcharges, and inflate required minimum distributions for years to come.
Start with the Income-Related Monthly Adjustment Amount, better known as IRMAA. If a retiree's annual income exceeded $109,000 as a single filer, or $218,000 filing jointly, in 2024, Medicare tacks a surcharge onto premiums in 2026. That two-year look-back period means a single high-income year can cost you for years afterward, even if your income drops.
Then come required minimum distributions. Once a retiree hits age 73, or 75 if born after 1959, the IRS mandates annual withdrawals from traditional IRAs and 401(k)s. Those forced distributions count as taxable income, and if the account has grown large because the retiree avoided touching it, the RMDs can be substantial enough to shove them into a higher bracket.
As Parrish put it:
"It makes a big difference if you've got all these taxes like IRMAA and RMDs hitting you at different times."
That observation is the heart of the strategy. Timing matters. Sequence matters. And the federal tax code does not reward passivity.
The approach Parrish and Williams describe involves drawing from different account types at different stages of retirement, depending on spending patterns and income levels. Retirees who spend more in early retirement, travel, home projects, helping grandchildren, face different calculations than those who spend more later, when health-care costs tend to climb.
Withdrawals from a Roth IRA, for instance, don't count as taxable income. Money pulled from a brokerage account may be taxed at capital-gains rates rather than ordinary income rates. Traditional IRA distributions, by contrast, are taxed as ordinary income. Choosing which bucket to tap, and when, can keep a retiree below the IRMAA threshold or out of a higher bracket entirely.
For those who plan their taxes before the gains hit, the payoff can be significant over a 20- or 30-year retirement.
Parrish highlighted one benefit of drawing down a traditional IRA earlier than required:
"The nice part is you burn up some of your IRA when it comes time to take your RMDs."
A smaller IRA balance at 73 or 75 means smaller mandatory withdrawals, which means less taxable income forced onto your return each year. That's not a loophole. It's arithmetic, the kind Washington hopes you won't bother to do.
Williams was blunt about the risks of going it alone. Tax rules layer on top of one another, and a misstep in one year can create cascading costs.
"I don't recommend anyone DIY this unless they know taxes. Taxes layer on themselves."
She's right. A retiree who converts too much from a traditional IRA to a Roth in a single year, for example, could spike their income above the IRMAA threshold and trigger the Medicare surcharge, wiping out some of the tax benefit they were chasing. The two-year look-back means that mistake doesn't surface immediately, either. It arrives as a higher premium bill two years later, when the retiree may have forgotten the conversion that caused it.
Consider the case of a 45-year-old with $3.2 million who thought he'd outsmarted the tax man, the details of what gets missed in self-directed planning are instructive for retirees at any age.
Williams framed the broader goal plainly:
"It's about what you can do today to keep more money in your pocket for your entire family, the next generation and your lifetime."
That's not aggressive tax avoidance. It's responsible stewardship of money a family already earned and already paid income tax on during working years.
None of this exists in a vacuum. The federal government's appetite for revenue has only grown, and the political class has spent years debating how much more to extract from Americans who saved and invested responsibly. When President Obama pushed the so-called "Buffett Rule" to raise taxes on the wealthiest earners, Republicans countered with a measure allowing taxpayers to voluntarily donate to the Treasury for deficit reduction, a pointed reminder that Washington's spending problem is not a revenue problem.
Sen. John Thune put it this way at the time: "If individuals like Warren Buffett or President Obama are inclined to donate their own personal money toward paying down the federal government's debt, they ought to have that right to do so voluntarily." The Buffett Rule was defeated in the Senate, but the instinct behind it, treat private savings as a government resource waiting to be tapped, never really went away.
That instinct is precisely why strategies like the one Parrish and Williams describe matter. The tax code is not neutral. It is designed to collect, and it rewards those who understand its mechanics. Retirees who fail to plan their withdrawal sequence are, in effect, volunteering to pay more than the law requires.
For families thinking about estate planning strategies to reduce long-term tax exposure, the withdrawal sequence in retirement is the first domino. Get it wrong, and the compounding costs eat into what you leave behind.
The key variables are straightforward, even if the execution is not. Retirees need to track their modified adjusted gross income against IRMAA thresholds every year. They need to project RMD amounts based on current IRA balances and life expectancy tables. They need to understand the tax treatment of each account type, traditional, Roth, and taxable, and model different withdrawal sequences against their expected spending.
The IRMAA thresholds for 2024, $109,000 for single filers, $218,000 for joint filers, are not indexed to keep pace with the kind of modest portfolio growth that many retirees experience. That means more retirees get caught by the surcharge each year, even without dramatic income spikes.
Some retirees have gone further, relocating to states with no income tax to compound the benefit. The decision by former Starbucks CEO Howard Schultz to leave Washington State for Miami in retirement illustrated how seriously high-net-worth individuals take the state-level piece of the puzzle.
But you don't have to be a billionaire to benefit from sequencing withdrawals correctly. The math works at six figures, too. A married couple drawing $80,000 a year from a traditional IRA when they could have split that draw between a Roth and a brokerage account may be handing Washington thousands of dollars they didn't owe.
The "Take That, Uncle Sam" rule is not a gimmick. It is a recognition that the tax code punishes retirees who don't plan, and rewards those who do. IRMAA surcharges, RMD rules, and bracket creep are not accidents. They are features of a system designed to recapture as much of your savings as the law allows.
Parrish and Williams both emphasize that the strategy requires professional guidance. The interactions between income thresholds, surcharges, and mandatory distributions are complex enough that a well-meaning mistake can cost more than doing nothing.
But doing nothing is its own choice, and it's the one Washington is counting on.
You spent a career earning that money and paying taxes on it along the way. The least you can do is make the government work for whatever it takes on the back end.