The Optimal Order for Retirement Withdrawals (Avoid Taxes!)

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Welcome back to the One of a Kind Financial Show Daily with your host, Mike Milligan. It's hump day. It's a day that we are getting ready. And guys, one week from today, Christmas Eve, who's ready? Ho ho ho ho ho ho. Guys, uh, before we get there, right, uh, let's continue our year-end push to make you a more educated client for the firms you work with, including the firm that I have, or a more educated person when you're trying to put money around, uh, or put— trying to put sense around your money, right? Recently on the One of a Kind Financial Show, Gary and I tackled how to withdraw money from your retirement accounts when the time's there. It's not just take a little from here and a little from there, but the details are coming up in the segment because I just want you to know, any, many, money, mo', that's not a strategy, folks. And there is strategy behind when to take from a 401, IRA. There's a strategy on how to lessen those partnership distributions that come from your IRA and 401 in the form of required minimum distributions. The IRS and the federal government are your partner, of course, in those plans. And it's even, uh, some strategy on this next segment on what to do with your Roth IRA when it comes to, uh, taking money you need. So enjoy this segment. Again, you know me, and before we head to the segment, I always leave with one thing. And this time of year, it's the same. Be one of a kind. Hump day!

The order in which you take money from your retirement savings is critical. It can save you money in taxes, allow your accounts to continue to grow, and help you get the most out of your nest egg. Here's the first thing we're going to talk about: not starting with your investment income, Mike.

Yeah. So, when you're withdrawing from your investments first, it gives your, uh, uh, gives your retirement accounts more time to compound interest. So, if you dive straight into the 401 or IRA, You could cost yourself years' worth of income and retirement savings. Whether you have mutual funds, brokerage accounts, exchange-traded funds, stocks, or bonds, they're all taxable. So you'll have to pay capital gains taxes on the withdrawals. Some investments can require you to pay taxes on distributions each year, like some mutual funds. So we want you to, you know, if you're trying to decide of where you want it to go, we need to check your accounts and see what unforeseen taxes you have when you start withdrawing money and make You know, you know, make this income plan for you when it's, when it's time, when it's time, when it's time to go.

How about claiming Social Security at 62? That's awful early for a lot of people, but I guess maybe some people need it, huh?

It's a, you know, it's a one-of-a-kind situation, guys, right? If you, if you have a life expectancy of 71 years old, 62 is optimal, right? If you don't have other income that's going to offset it, uh, maybe if your longevity's 100, uh, taking Social Security a little bit later makes a lot of sense. According to the Social Security Administration website, as of 2025, your maximum Social Social Security retirement benefit is not available at age 62, 66, or even 67. Instead, the highest possible benefit comes at age 70. The Social Security Administration explains that if you claim before your full retirement age, your monthly benefit is permanently reduced. And for every year you delay benefits past your retirement age and all the way up to 70 years old, your benefit increases by approximately 8% per year. Through what Social Security calls delayed retirement credits. For anyone evaluating when to claim Social Security benefits, the Social Security Administration recommends looking at your earnings history, life expectancy, and other income sources. That's why it's important to work with someone like us who can help interpret what those online green statements now say and pick the right Social Security strategy for you. Speaking of those green statements, Gary, do you remember those when they used to come?

Oh yeah, used to come. The green checks used to come in the mail. Yes, not anymore.

I'm sure most people remember those green statements, and everybody's like, it's almost like Where's Waldo. Where do we find those now?

ssa.gov.

That's right. If you don't know where to find them, we know where to find them for you guys. We can find them. They're found at ssa.gov.

Yep, absolutely. Withdrawing from your 401 and IRA before RMDs kick in. What about that?

Well, according to the Internal Revenue Service, our friends, everybody, guys, I know they're your friends. You don't realize it, but the IRS loves you. They love you.

They're there. Absolutely.

They're your partner. They're your, uh, according to their guidance, who does not love guidance from the IRS?

Of course.

According to their guidance, as of 2025, you can begin taking withdrawals from most 401 plans and traditional IRAs at the age of 59 and a half without early withdrawal penalty. And matter of fact, there's an age 55 withdrawal if you leave work, you separate from service, right? And the money's still in the 401. However, the IRS does not require required minimum distributions. They don't make you take anything out. They don't, they don't ask for any partnership distributions until the age 73, or under current law. Or 75 if you were born after 1971. That means funds in those accounts can continue to grow tax-deferred until partnership distributions must begin. You notice I don't, you know, RMDs, right? I'm calling them partnership distributions.

They are. Yeah, exactly.

Because although you have the— your name is on your IRA or your 401, there's a silent partner. that owns somewhere between 12% and 37% of that account.

Hmm.

Those are called partnership distributions. In an IRA, they're called required minimum distributions. It's something like, guys, we want to address those with you. And the younger you are, so if you're over 59, up to that RMD age, you're in the sweet spot to help deal with RMDs now. Because if you wait, it could be too late once you get over that age.

Right, absolutely. The show is the One of a Kind Financial Show with Mike Milligan. I'm Gerry Nolan, your consumer advocate. Let's get you on the calendar all set up with that one of a kind financial plan. That phone number is 800-748-1838, 800-748-1838, or text the word ideas to 600-700. Mike is standing by this weekend, gonna be answering your calls. Mike is with One Oak Financial. One more time on the phone number before we get back to the show. We got a couple of minutes left in this segment. 800-748-1838 or text the word ideas to 600-700. Tapping into your Roth before exhausting other options, Mike.

According to our good friends at the IRS again, and more specifically on a publication they write— wrote called 590-B, as of 2025, Roth IRA contributions are made with after-tax dollars, which means qualified withdrawals are tax-free. The IRS also states that Roth IRAs are not subject to partnership distributions or required minimum distributions during the owner's lifetime. And unlike tradition, that, that's different than those traditional IRAs and 401s. Because a Roth IRA can grow tax-free for as long as the account remains invested, many individuals choose to preserve these assets and tap into other accounts first, depending on their other income needs, tax situations, or goal. The IRS emphasized that understanding the order and Timing of withdrawals is an important part of planning for retirement.

You got a minute left, Mike. Tell us a little more about the One of a Kind Financial Plan before we wrap up this segment, please.

Guys, when you come in, you're going to come in, you're going to be offered a cup of coffee, maybe a bottle of water. We're going to take you into the conference room and we're going to have a session where we just find out all about you. Because at the end of the day, just like Voya says, 79% of people know how to pursue retiring their goals. 59% calculated their need, and 52% have a formal retirement investment plan. Our plan is called the One of a Kind Financial Plan. And after you come in, share a cup of coffee with us, right? We're going to go to work for you if it makes sense. And if it makes sense, we're going to build a one of a kind financial plan around taxes, retirement income, investments, long-term care, and legacy because you deserve it. Many people just have an investment plan. Some people have no idea what their taxes are. But if you come to us, we're going to help you. So Gary, give them, give them an idea how can get in contact so they can come get that free cup of coffee?

Sure, absolutely, Mike. No problem. Here's the phone number: 800-748-1838. 800-748-1838. Or text the word ideas to 600-700. The folks at One Oak Financial standing by this weekend. In fact, Mike's going to be manning the phones himself.

That was from the One of a Kind Financial Show Daily, and this has been Mike Milligan along with Gary Nolan sharing you that. I just want to leave today reminding you that Mike Milligan is an investor. Investment advisory representative with Advisory Alpha LLC, a registered investment advisory firm. Ideas by Mike, doing business as One Oak Financial and Mike Milligan, are unaffiliated outside business activities of Advisory Alpha LLC. Any opinions expressed by Mike and Gary on the One of a Kind Financial Show or this podcast are exclusively theirs. This is meant for educational content. Consult a licensed advisor. Or a financial professional or a tax advisor for making any changes to your portfolio. Until next time, this has been Mike.

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