What to Review Before Retiring With a Mix of Taxable, Tax-Deferred, and Tax-Free Accounts

Most of the people I sit down with before retirement don’t have one big account. They have several, and each is taxed differently. The order you pull money out of them can matter almost as much as how much you managed to save.

Before you retire, it’s worth taking a careful look at what’s in each bucket and how the three interact.

Tax-deferred accounts come with a bill later

Money in a traditional 401(k) or IRA grows without being taxed each year. The taxes come due once you start withdrawing.

For 2026, you can put up to $24,500 into a 401(k), 403(b), governmental 457 plan, or the federal Thrift Savings Plan. If you’re 50 or older, you can add another $8,000 to that. If you turn 60, 61, 62, or 63 during the year, your catch-up is $11,250 instead.

One change to note: if you earned more than $150,000 from your employer last year, your catch-up must be contributed to a Roth account. You lose the deduction today, and in exchange that piece comes out tax-free later.

Once you retire, withdrawals from these accounts are taxed as ordinary income, and eventually become required. I’d much rather map out how big those future withdrawals will be, and what they’ll cost you, while there’s still time to do something about it.

It helps to look at your accounts individually instead of just the total. A large 401(k) paired with a small pension and a modest Social Security benefit behaves very differently in retirement than the same total split evenly across a 401(k), a taxable account, and a Roth IRA.

Withdrawals can raise your Medicare premium

A big withdrawal from a tax-deferred account can raise your Medicare premiums two years later.

Medicare looks at your modified adjusted gross income from two years back, so your 2026 premiums come from your 2024 return. If that income was above $109,000 filing single, or $218,000 filing jointly, you pay an income-related surcharge on top of your Part B and Part D premiums.

Before you retire, it’s worth checking whether a large withdrawal, a Roth conversion, or a home sale could push you over one of those limits during that two-year window.

The good news is that retiring counts as a life-changing event that Social Security will consider. If your income drops far enough to move you into a lower tier, you can ask Social Security to use your current year’s income instead of waiting two years for the older, higher figure to roll off on its own. Cutting back your hours counts too. You’ll need to show the drop, which can be an estimate of this year’s income along with a retirement letter or a statement from your employer.

Taxable accounts are taxed differently

When you sell an asset you’ve held more than a year in a regular brokerage account, the gain isn’t taxed like ordinary income. Long-term capital gains get their own rates for 2026: 0, 15, or 20 percent, depending on your taxable income. The 0 percent rate applies to taxable income up to $49,450 for single filers and $98,900 for married couples filing jointly.

That’s why a taxable account can sometimes be the most cost-effective place to draw from in a low-income year.

Cost basis matters here. Shares you bought years ago at a much lower price carry a bigger built-in gain. Shares you bought recently may carry almost none. Choosing which specific shares to sell, sometimes called tax-lot selection, can meaningfully change the tax bill on a single withdrawal.

Tax-free accounts deserve a second look before you retire

Qualified withdrawals from Roth IRAs and Roth 401(k)s come out tax-free in retirement. Not everyone can contribute directly to a Roth IRA, though. For 2026, that ability phases out between $153,000 and $168,000 for single filers and heads of household, and between $242,000 and $252,000 for married couples filing jointly. A Roth 401(k) has no income limit, which makes it a simpler route for many high earners who are still working.

If you’re above the Roth IRA limits and you still want tax-free growth, it’s worth checking whether a backdoor Roth contribution makes sense.

Roth accounts come with no required withdrawals during your lifetime. That has always been true of Roth IRAs, and since 2024 it’s true of Roth 401(k)s as well. Traditional IRAs and 401(k)s still have required minimum distributions. That makes a Roth a useful account to leave alone for a few extra years when your other buckets already cover the bills, so it keeps growing tax-free for longer.

Charitable giving can bridge all three buckets

If you give to charity and you’re facing required withdrawals, a qualified charitable distribution is one of the most useful tools you have. Once you’re 70 and a half, you can send money straight from your IRA to a qualified charity. It counts toward your required withdrawal, and it never lands on your return as taxable income. For 2026, you can send up to $111,000 per person this way.

That’s what makes it powerful. The money isn’t just deducted. It stays entirely outside your income, which keeps down the same income figure that drives those Medicare surcharges.

One catch worth knowing. This works with IRAs, not with a 401(k). If your money is still sitting in an old workplace plan, moving it to an IRA first becomes part of the conversation.

Looking at this before you retire, rather than after your first required withdrawal, gives you more room to plan which bucket to draw from and when to do so.
Your mix of taxable, tax-deferred, and tax-free accounts isn’t just a savings total. It’s three separate sets of tax rules that interact every time you take money out.