What Are The Worst Ways to Withdraw From Retirement Accounts?
- W. Scott Hurt, CFP®, CPA
- Dec 17, 2025
- 11 min read
Updated: Jan 21
If you’re wondering about the worst way to withdraw from retirement accounts, it usually isn’t one exotic tax trick gone wrong. It’s a series of seemingly reasonable decisions that slowly turn into higher taxes and Medicare costs.
Most affluent retirees have done a great job saving. The gap is usually in how they spend.
A large IRA withdrawal to remodel a home, turning on Social Security because “it’s there,” ignoring Required Minimum Distributions (RMDs) until a reminder letter appears, each choice feels small, but together, they may quietly erode after‑tax wealth.
Meanwhile, the rules have shifted. The SECURE 2.0 Act raised the RMD age to 73 (and eventually 75), adjusted penalties, and added new exceptions to the 10% early‑distribution tax.
At the same time, Medicare premiums and IRMAA surcharges are rising, and up to 85% of your Social Security benefits can still be taxable depending on your provisional income.
Let’s walk through what “the worst ways to withdraw” from retirement accounts actually look like for affluent retirees—and what a more intentional approach might entail.
Key Takeaways
Poorly timed, tax‑blind withdrawals can stack income taxes, RMD penalties, Social Security taxation, and Medicare IRMAA surcharges in the same year.
The worst way to withdraw from retirement accounts is to treat each account in isolation instead of coordinating across pre‑tax, Roth, and taxable assets.
Affluent retirees may benefit from a multi‑year distribution strategy that manages brackets, IRMAA thresholds, and legacy goals, not just this year’s cash need.
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What Are the Worst Ways to Withdraw From Retirement Accounts?
The worst ways to withdraw from retirement accounts are ad‑hoc, tax‑blind withdrawals that ignore age‑based penalties, Required Minimum Distributions (RMDs), Social Security taxation, and Medicare IRMAA thresholds. For affluent retirees, those patterns may trigger multiple taxes and surcharges at once, quietly shrinking long‑term after‑tax wealth.
1. Raiding Pre‑Tax Accounts Before 59½ Without a Plan
For most qualified plans and IRAs, withdrawals before age 59½ are “early distributions” and generally face a 10% additional tax on top of regular income tax, unless an exception applies.
That means a $100,000 early distribution could easily cost $35,000+ between federal income tax and the additional tax, depending on your bracket.
In many cases:
You lose future tax‑deferred growth.
You compress taxable income into a single year.
You may also push capital gains and other income into higher brackets.
There are exceptions, such as Internal Revenue Code Section 72(t) “substantially equal periodic payments” or new SECURE 2.0 Act exceptions for emergency personal expenses and domestic abuse—but each comes with strict rules and real trade‑offs. You can also access a group retirement plan account, such as a 401(k), if you retire between the ages of 55 - 59 ½.
As one of our lead advisors Adam Smith, CFP®, often warns clients, “Just because the tax code lets you access money doesn’t mean it’s wise. While it may appear that early distributions can solve a short‑term cash issue, doing so can create a long‑term tax and retirement‑income problem.”
2. Taking Big, One‑Time IRA Withdrawals in High‑Income Years
Another “worst way” is treating your IRA or 401(k) like an ATM for big projects in years when your income is already high.
A six‑figure lump‑sum withdrawal can:
Push you into a higher marginal tax bracket.
Increase your provisional income, making up to 85% of your Social Security benefits taxable.
Push your MAGI over Net Investment Income Tax (NIIT) thresholds, adding a 3.8% tax on investment income.
Trigger a higher Medicare Income-Related Monthly Adjustment Amount (IRMAA) bracket, raising Part B and Part D premiums for at least one year based on income reported two years earlier and potentially in later years if your MAGI stays above the applicable thresholds.
On paper, you’re “just” taking money out of an IRA. In practice, you may be stepping on several tax and healthcare landmines at the same time.
3. Ignoring RMDs Until It’s Too Late
Under current IRS rules, you generally must begin RMDs at age 73, with the age increasing to 75 in 2033 under the SECURE 2.0 Act. Miss an RMD, and you may owe an excise tax of 25% of the amount not taken—reduced to 10% if corrected in a timely manner and reported, typically via IRS Form 5329.
The “worst way” here is:
Letting balances grow unchecked in pre‑tax accounts.
Delaying your first RMD to April 1 of the following year—then being forced to take two RMDs in the same year, potentially driving up both income tax and IRMAA. We recorded a video about avoiding two withdrawals in your first RMD year here.
Ignoring RMDs turns what could have been a controlled, multi‑year tax strategy into a rushed exercise with penalty risk.
4. Draining Roth Accounts Early and Losing Flexibility
From a behavioral standpoint, Roth money feels “free” because qualified withdrawals are tax‑free. Yet for affluent retirees, spending Roth assets first can be another worst‑way pattern:
You lose a powerful “tax‑free shock absorber” for later high‑tax years.
You limit your ability to manage brackets, NIIT, and IRMAA once RMDs start.
You may reduce the after‑tax value of what you leave to heirs, who often prefer Roth assets.
Roth dollars are often most valuable later, when other income sources are harder to control.
As CWA's own Mark Fonville, CFP®, puts it: “For many high‑net‑worth families, Roth accounts are the most flexible dollars they own. Spending them first may feel painless—but it can quietly reduce your future tax planning options.”
How Can Poor Withdrawal Timing Trigger Extra Taxes and Medicare IRMAA?
Poor withdrawal timing can push your income over key thresholds in a single year, increasing ordinary income tax, making more of your Social Security benefits taxable, triggering the 3.8% Net Investment Income Tax (NIIT), and bumping you into higher Medicare IRMAA brackets. The result may be thousands of dollars in cumulative, avoidable costs.
The Stack: Brackets, Provisional Income, NIIT, and IRMAA
For affluent retirees, the big risk is stacking multiple thresholds:
Ordinary income brackets: Large IRA distributions may bump you into higher federal and state brackets.
Long-term capital gains rates: Many people don't realize that ordinary income is counted first. It fills up the lower tax brackets, which can push your long-term capital gains from the 0% rate into the 15% or even 20% range.
Provisional income: Adding IRA withdrawals on top of portfolio income and Social Security can make up to 85% of your benefits taxable.
NIIT thresholds: At MAGI above $250,000 (married filing jointly) or $200,000 (single), the Net Investment Income Tax adds a 3.8% layer to investment income.
IRMAA brackets: Higher MAGI may trigger Medicare IRMAA surcharges on Part B and Part D premiums based on income from two years prior.
A single poorly timed Roth conversion or large IRA distribution can hit all four.
Example: IRMAA and Large Withdrawals
To show how this plays out, consider the 2026 Medicare Part B IRMAA brackets for a married couple filing jointly, based on 2024 MAGI:
2024 MAGI (MFJ) | 2026 Part B IRMAA (extra per person / month) | 2026 Total Part B Premium (per person / month) |
≤ $218,000 | $0.00 | $202.90 |
$218,001 – $274,000 | $81.20 | $284.10 |
$274,001 – $342,000 | $202.90 | $405.80 |
$342,001 – $410,000 | $324.60 | $527.50 |
$410,001 – $749,999 | $446.30 | $649.20 |
≥ $750,000 | $487.00 | $689.90 |
Imagine a couple with a projected MAGI of $210,000 who decides to take an extra $15,000 IRA distribution near year‑end to upgrade a vacation home. That extra withdrawal can push their MAGI over $218,000, increasing each spouse’s Part B premium by $81.20 per month—or about $1,948.80 per year combined, just from crossing a line.
Now layer in the income tax on the withdrawal itself, possible NIIT, and higher taxation of Social Security, and the “cost” of that home project looks very different.
Why This Matters for Affluent Investors
For investors with $1.5M+ and multiple income sources, the timing of withdrawals often matters more than the exact fund or ETF you use.
Poor timing might be manageable in one year, but repeated over several years, it can:
Raise lifetime taxes substantially.
Reduce flexibility to handle future health events or family needs.
Underfund legacy or charitable goals because more dollars go to taxes and premiums.
The key is to design withdrawals around your current tax bracket, IRMAA thresholds, and RMD schedule—not around whatever cash needs happen to pop up.
How Should Affluent Retirees Prioritize Which Accounts to Tap First?
There is no single “right” withdrawal order for everyone, but a common approach (and often incorrect) for affluent retirees is to draw from taxable accounts first, then a mix of tax‑deferred and Roth accounts while managing brackets, RMDs, and IRMAA. The goal is to flatten lifetime taxes, not just minimize this year’s bill.
Classic Rules of Thumb vs. Reality
Many rules of thumb suggest:
Spend taxable accounts first.
Then use tax‑deferred (traditional IRA/401(k)).
Leave Roth for last.
This sequence can be reasonable, but for high‑net‑worth households facing large future RMDs and potential IRMAA and NIIT exposure, blindly following it may create the very “worst ways” we just discussed.
Instead, sophisticated planning typically considers:
Current and projected marginal tax brackets.
Future RMD obligations under the SECURE 2.0 Act.
The value of preserving Roth assets for flexibility and heirs.
How withdrawals impact provisional income, NIIT, and IRMAA.
A More Nuanced Framework
Here’s a high‑level, non‑prescriptive sequence that many high-net-worth retirees we serve explore with their advisors here at Covenant Wealth Advisors:
Taxable Accounts (but smartly).
Use cash and high‑basis positions first to manage capital gains.
Harvest losses when available to offset gains.
Be mindful of generating extra investment income that could interact with NIIT.
Strategic Pre‑Tax Withdrawals Before RMD Age.
In lower‑income “gap years” between retirement and RMDs (or before Social Security), consider modest IRA/401(k) withdrawals or partial Roth conversions to shrink future RMDs. We often advise clients to withdraw from their IRA up to the 12% or 22% ordinary income tax brackets. But, every situation is different.
These withdrawals can be sized to “fill” lower tax brackets without pushing you over NIIT or IRMAA thresholds.
Roth Accounts as a Flexibility Tool.
Use Roth distributions to fund large one‑time expenses in years when additional taxable income would be especially costly (e.g., high medical expenses, sale of a business, large capital gains).
Consider Roth assets as a hedge against higher future tax rates and as a tax‑efficient legacy.
After RMDs Begin.
Take RMDs as required to avoid the excise tax and report them properly—often via IRS Form 5329 if there’s a shortfall or a reasonable‑cause waiver.
Coordinate additional withdrawals or conversions with IRMAA brackets and NIIT thresholds each year.
This framework involves real trade‑offs. Converting or withdrawing more now can increase near‑term taxes; waiting may increase future RMDs and IRMAA risk. Markets, life expectancy, and future tax law all add uncertainty.
At Covenant Wealth Advisors, we typically build multi‑decade cash‑flow and tax projections so clients can see these trade‑offs numerically—rather than guessing based on rules of thumb.
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Frequently Asked Questions
What is the 4% withdrawal rule?
There isn’t an official IRS “4% withdrawal rule.” In practice, people may be referring to a 4% withdrawal rule of thumb—the idea that you can withdraw about 4% of your portfolio annually in retirement. Research suggests that a greater than 4% initial withdrawal can be aggressive and may increase the risk of depleting assets, especially for long retirements or volatile safe withdrawal rate portfolios.
What is the best way to withdraw from retirement accounts?
There is no single “best” way that fits everyone. We often find that filling the lower tax brackets with tax-deferred account withdrawals (e.g. IRAs, 401(k)s) and then tap taxable accounts for mid to higher tier tax brackets. Use Roth IRAs strategically for one off purchases to help manage tax bracket creep from year to year.
Make strategic withdrawals or Roth conversions from pre‑tax accounts before RMD age.
Use taxable accounts and realized gains intentionally.
Preserve Roth assets for flexibility and legacy,
Remember to continuously monitor tax brackets, RMD requirements, NIIT thresholds, and IRMAA brackets. The optimal strategy depends on your income, health, goals, and time horizon.
What is the biggest retirement withdrawal mistake?
The biggest mistake affluent retirees make is treating each year in isolation—taking withdrawals only when cash is needed, without looking at the long‑term tax and healthcare picture. That often leads to:
Large, unplanned IRA distributions in high‑income years,
Missed RMDs and potential excise taxes, and
Higher Social Security taxation and Medicare premiums than necessary.
A multi‑year withdrawal plan, revisited annually, may reduce the risk of those compounding mistakes.
How do I avoid paying taxes on retirement withdrawals?
You generally cannot avoid taxes entirely, but you may manage them:
Use Roth accounts for qualified withdrawals, subject to 5‑year and age rules.
Coordinate withdrawals to stay within targeted tax brackets.
Consider Qualified Charitable Distributions (QCDs) at eligible ages to satisfy RMDs while sending funds directly to charity.
Be mindful of how withdrawals affect provisional income, NIIT, and IRMAA.
Because strategies can backfire if misapplied, it’s important to coordinate with a tax professional before making large moves.
Conclusion
The real “worst way” to withdraw from retirement accounts isn’t a single misstep—it’s drifting year after year without a coordinated plan. For affluent households with seven‑figure portfolios, the stakes are higher: you’re dealing with multiple tax codes, evolving RMD rules, Net Investment Income Tax, and rising Medicare IRMAA surcharges, all at once.
Done thoughtfully, your withdrawal strategy can support lifestyle, manage risk, and align with the legacy you want to leave. Done reactively, it may quietly funnel more of your hard‑earned savings toward taxes and premiums than you intended.
If you’d rather not build all of this alone, you’re not required to. At Covenant Wealth Advisors, our CFP® professionals regularly help clients analyze withdrawal options over decades, in coordination with their CPAs and estate attorneys.
Would you like our team to just do your retirement income and tax planning for you? Contact us today for a complimentary retirement roadmap experience.
About the author:
Senior Financial Advisor
Scott is a Financial Advisor for Covenant Wealth Advisors, a CERTIFIED FINANCIAL PLANNER™ practitioner and a Certified Public Accountant (CPA). He has over 17 years of experience in the financial services industry in the areas of financial planning, tax planning, and investment management.
Disclosures: Covenant Wealth Advisors is a registered investment advisor with offices in Richmond, Reston, and Williamsburg, VA. Registration of an investment advisor does not imply a certain level of skill or training. Past performance is no guarantee of future returns. Investing involves risk and possible loss of principal capital. The views and opinions expressed in this content are as of the date of the posting, are subject to change based on market and other conditions. This content contains certain statements that may be deemed forward-looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected. Please note that nothing in this content should be construed as an offer to sell or the solicitation of an offer to purchase an interest in any security or separate account. Nothing is intended to be, and you should not consider anything to be, investment, accounting, tax, or legal advice. If you would like accounting, tax, or legal advice, you should consult with your own accountants or attorneys regarding your individual circumstances and needs. This article was written and edited by a CERTIFIED FINANCIAL PLANNER™ professional with the assistance of AI. No advice may be rendered by Covenant Wealth Advisors unless a client service agreement is in place. Hypothetical examples are fictitious and are only used to illustrate a specific point of view. Diversification does not guarantee against risk of loss. While this guide attempts to be as comprehensive as possible, no article can cover all aspects of retirement planning. Be sure to consult an advisor for comprehensive advice.