Introduction — What you will learn and who this is for

This updated October 2026 guide shows retirement‑minded readers how to sequence withdrawals and Roth conversions during the pre‑RMD window to lower lifetime taxes, manage Medicare premium effects, and preserve tax‑free growth. It is written for early retirees and near‑retirees (roughly ages 57–67) who hold a mix of taxable brokerage accounts, employer plans (401(k)), traditional IRAs and Roth IRAs, and who plan to stop full‑time work before full Social Security or pension ages.

Why this matters now: since 2023 lawmakers and plan providers have continued to expand Roth options and in‑plan services, and retirees face larger year‑to‑year variability in taxable income from portfolios and side income. The core sequencing principles remain the same, but tactical details—timing conversions, protecting against Medicare IRMAA surcharges, and using taxable‑account lot selection—require current execution. This guide gives a step‑by‑step plan you can implement in October 2026, with actionable checks to keep the plan current.

Prerequisites & context

Before you apply the steps below, assemble these facts for your situation:

  • Current balances and tax character of each account: taxable (cost basis), 401(k) pre‑tax/Roth portion, traditional IRA, Roth IRA, pension options, and any deferred compensation.
  • A year‑by‑year spend plan for the next 10–15 years (include expected health insurance costs, planned Social Security claiming ages, and pension start dates).
  • Up‑to‑date tax bracket tables, standard deduction for your filing status, and current Medicare IRMAA thresholds—use IRS.gov and SSA.gov for the latest 2026 figures before you act.
  • At least 12–36 months of liquid cash set aside (see Step 1). This is especially important if you plan Roth conversions so you can pay conversion tax from non‑retirement funds.

Step 1 — Build a realistic cash buffer and estimate year‑by‑year needs

  1. Calculate your emergency liquidity (6–12 months) plus a bridge fund (12–36 months) to cover income until predictable sources (pension, Social Security) begin.
  2. Fund the bridge from taxable holdings that are easy to liquidate (short‑term bond funds, money market funds, cash). Keep these separate from long‑term taxable lot holdings to avoid forced sales of appreciated lots in down markets.
  3. Model annual spending needs for at least a decade. Include premiums for COBRA or ACA coverage if you will be pre‑Medicare, and estimate Medicare Part B/D premiums plus potential IRMAA surcharges that attach to MAGI reported two years prior.

Why: A dedicated cash buffer prevents having to sell appreciated taxable lots or to take large pre‑tax distributions in high‑tax years (both actions can raise taxable income and trigger IRMAA).

Step 2 — Identify account buckets and their tax attributes

  1. List each account with balance and taxable status: taxable (basis and unrealized gains), 401(k) (pre‑tax vs Roth component), traditional IRA, Roth IRA, pension (annuity vs lump sum), deferred compensation.
  2. For taxable accounts, inventory lots by purchase date and basis so you can use cost‑basis harvesting (sell low‑gain lots first; target long‑term gains for favorable rates).
  3. Confirm whether your 401(k) allows in‑plan Roth conversions or loans; these features change sequencing options.

Why: Different accounts create different types of taxable events. Taxable account sales are taxed as capital gains (long‑term vs short‑term). Traditional retirement accounts create ordinary income. Roth accounts are tax‑free if distributions are qualified.

Step 3 — The default sequencing starter plan (updated)

For many early retirees the sensible starting sequence remains:

  1. Spend from cash and low‑gain taxable lots first (preserve long‑term gains and tax loss harvesting opportunities).
  2. Use tax‑efficient taxable account withdrawals next—target long‑term gains and municipal bond income (if tax‑efficient in your state).
  3. Use small, strategic distributions from pre‑tax 401(k)/IRA only to fill bracket slots or to fund Roth conversions; avoid large, unplanned withdrawals that spike ordinary income.
  4. Leave Roth IRAs for tax‑free growth and flexibility; use Roth only for unplanned, urgent needs or to keep taxable income low during a market downturn if you have no other options.

Why: This generally keeps ordinary income low while you exploit low‑income windows for Roth conversions and avoid pushing into Medicare surcharge thresholds.

Step 4 — Use selective Roth conversions to shape later taxes (practical October 2026 guidance)

  1. Target conversion amounts that fill, but do not exceed, your desired marginal tax bracket in a given year. Use current year IRS tax brackets (indexed annually) to set specific dollar targets.
  2. Pay conversion tax from non‑retirement funds (taxable cash) when possible — that preserves Roth principal to compound tax‑free.
  3. Be mindful of the Medicare IRMAA timing: large conversions increase MAGI in the year of conversion and can affect Part B/D premiums two years later. If an IRMAA impact is expected, consider splitting conversions across multiple years or timing conversions before a year you expect higher MAGI from other sources.
  4. Leverage low‑income years: early retiree years when Social Security and pensions are deferred are ideal conversion windows. Run scenarios to see whether converting modest amounts for several years reduces cumulative taxes vs leaving balances to be taxed later as RMDs.

Why: Converting in measured amounts now reduces the taxable base on which future RMDs will be calculated, smoothing future taxable spikes and reducing the chance that RMDs push you into higher brackets or IRMAA penalties.

Step 5 — Coordinate Social Security and pension choices

  1. Delay Social Security if your cash buffer and spouse’s situation allow — delaying often creates a larger, more secure benefit and keeps taxable income low during conversion windows.
  2. Model pension options carefully. If a lump‑sum payout will be rolled into a rollover IRA, remember that increases the pre‑tax IRA base and can raise future RMDs; taking an annuity may spread taxable income over time.
  3. Use sensitivity testing: project outcomes under different claiming ages (e.g., 62, FRA, 70) combined with a modest Roth conversion schedule to see which path minimizes lifetime tax and maximizes durable spending.

Step 6 — Watch interactions with Medicare (IRMAA) and Social Security taxation

Important operational detail: Medicare Part B and Part D premium surcharges are determined by your modified adjusted gross income (MAGI) reported to SSA two years prior. That means a Roth conversion in 2026 potentially increases Part B premiums in 2028. Always run a two‑year lookahead for IRMAA effects when planning conversion amounts.

Also remember that Social Security taxation depends on combined income thresholds; Roth conversions and IRA distributions can push you to taxable portions of Social Security. Coordinate withdrawals and conversions so that temporary income spikes do not permanently increase taxable Social Security percentages.

Step 7 — When to use 401(k) vs IRA distributions

  • Keep funds in a 401(k) if the plan provides superior investment options, lower fees, or stronger creditor protection. Consider in‑plan Roth conversion options if available and inexpensive.
  • IRA balances give you more conversion flexibility, but rolling employer plans into an IRA can accelerate the need for RMD planning and may limit in‑plan Roth features. Don’t auto‑roll without modeling tax consequences.
  • If you need liquidity but want to avoid taxable events, check whether your 401(k) offers loans (only as a last resort and after careful planning). Loans create repayment risk and are not tax‑efficient for many retirees.

Step 8 — A concrete, current example (hypothetical) — couple retiring in 2026

Scenario assumptions (example only): Couple ages 62 and 63 in October 2026 retiring from full‑time work. Balances: Taxable $300,000 (basis $120,000), Pre‑tax 401(k)/IRA $950,000, Roth IRA $150,000. Pension $10,000/year starting at age 66. Social Security deferred to 70 for a projected combined benefit of $45,000/year. They want predictable after‑tax income and to minimize long‑term RMD spikes.

  1. Year 1–2 (ages 62–64): Use taxable cash and low‑gain lots to fund spending. Build a 24‑month bridge (from the taxable account and part‑time consulting). Keep MAGI low to enable Roth conversion room later.
  2. Year 3–5 (ages 64–67): Convert $20k–$40k/year from pre‑tax IRA to Roth, sized to fit inside the couple’s chosen marginal bracket after accounting for the standard deduction and pension start. Pay conversion taxes from taxable cash, not from the conversion itself.
  3. Year 6 (age 67): Pension begins; re‑run the calculator to see whether to continue small conversions or pause to avoid IRMAA. If pension plus conversions would trigger IRMAA surcharges two years out, pause and resume conversions in a later lower‑income year or split across additional years.
  4. Year 8–10 (age 70+): Social Security claimed. Pre‑tax balance is reduced from earlier conversions, lowering RMDs when they begin and smoothing later taxable income.

Outcome: By sequencing taxable withdrawals first, staging Roth conversions in modest annual amounts, and coordinating pension and Social Security timing, the couple reduces the taxable RMD base and avoids abrupt income spikes that would raise Medicare premiums.

Step 9 — Practical execution checklist

  1. Run year‑by‑year cashflow and tax modeling for at least 10 years, including RMD years and IRMAA two‑year lookback effects.
  2. Identify specific calendar years that are low‑income candidates for Roth conversions (years with deferred Social Security and before pension start dates).
  3. Set up a dedicated bridge cash fund (12–36 months) to fund both living expenses and conversion tax bills if you plan conversions.
  4. Use lot‑level tracking in taxable accounts: sell low‑gain lots first; capture long‑term capital gains when necessary to stay in a targeted capital gains tax bracket.
  5. Document pension lump‑sum vs annuity modeling and coordinate with your CPA or tax preparer.
  6. Revisit the plan annually or after material life changes (market shocks, health events, marriage/divorce, inheritance).

Common mistakes and how to avoid them

  • Converting too much in a single year: One large conversion can push you into a higher ordinary bracket and boost IRMAA; stage conversions across years.
  • Using Roth funds to pay conversion tax: This reduces the compounding benefit. Pay conversion taxes from outside retirement accounts when possible.
  • Not modeling IRMAA timing: Remember the two‑year lag—plan conversions and income spikes with that lag in mind.
  • Ignoring state taxes: State income taxes vary on conversions and pensions. For multistate retirees, model state effects—moving states after conversions can have unintended results.
  • Rolling into an IRA without modeling: Rolling a 401(k) into an IRA before conversion can eliminate in‑plan Roth opportunities and change creditor protection; model both before acting.

Pro tips

  • Automate modest annual Roth conversions timed with tax‑loss harvesting opportunities in taxable accounts to offset some conversion tax burden in high‑volatility years.
  • If you expect a large one‑time taxable event (inheritance, sale), consider small pre‑emptive conversions in earlier low‑income years to use spare bracket room.
  • Consider Qualified Charitable Distributions (QCDs) once you meet the age requirement for QCDs—QCDs can satisfy charitable goals while reducing taxable IRA balances and RMD pressure. Confirm eligibility and current age thresholds with your tax advisor.
  • Work with a CPA or fiduciary advisor that can run scenario testing rather than relying on static rules of thumb. Interactive tax modeling is now more widely available and can highlight IRMAA and Social Security interactions.

Tools and professionals to involve

  • Cashflow & tax‑projection software that models RMDs, Roth conversions and IRMAA (ask prospective advisors which software they use).
  • CPA or tax preparer experienced with retirement tax planning and Medicare IRMAA rules.
  • Fiduciary financial advisor for asset location and sequence decisions, and for modeling pension lump sum vs annuity options.
  • 401(k) plan administrator to understand in‑plan Roth conversion and loan rules.

Bottom line

Sequencing withdrawals remains a flexible framework, not a single rule. In October 2026 the same core principles apply: preserve taxable account flexibility for early years, use measured Roth conversions in low‑income windows, coordinate Social Security and pensions to create conversion room, and model two‑year IRMAA effects. The practical differences today are operational—more plans offer in‑plan Roth options, more tax‑projection tools exist, and many advisors use automated conversion ladders. Your next step: run a current, year‑by‑year model with today’s IRS brackets and SSA thresholds, identify two candidate low‑income years for modest conversions, and build the cash to pay conversion taxes from non‑retirement funds.

FAQ

How do I find the current tax brackets and Medicare IRMAA thresholds for 2026?

Use IRS.gov for federal tax brackets and the Social Security Administration (SSA.gov) for Medicare Part B/D premium and IRMAA guidance. State tax thresholds are published on your state revenue department website. Always pull the current year figures before deciding conversion dollar amounts.

Will a Roth conversion always reduce my lifetime tax bill?

No. Whether conversions reduce lifetime taxes depends on future tax rates, your expected RMDs, state taxes and the timing of other income (pensions, Social Security). Conversions are most effective when done in genuinely low‑income years and when conversion tax is paid from outside retirement funds.

How do conversions affect Medicare premiums?

Conversions increase MAGI in the year you convert. Medicare Part B/D surcharges (IRMAA) are assessed based on MAGI reported to SSA two years earlier. Plan conversions with that two‑year lag in mind—large conversions can increase premiums later.

Should I roll my 401(k) into an IRA to make conversions easier?

Not automatically. Rolling a 401(k) into an IRA may give you more conversion flexibility but can remove in‑plan Roth options, change creditor protection, and increase the IRA tax base for future RMDs. Model both paths before rolling.

When should I revisit this withdrawal sequence?

Revisit annually and after material events: large market moves, health changes, marriage/divorce, inheritance, change in Social Security or pension elections, or new tax law guidance. Regular re‑runs of year‑by‑year cashflow models keep the plan aligned with reality.