The 401(k) Bracket Smoothing Strategy That Keeps Retirees Out of the 22% Tax Bracket for Life

A 66-year-old single woman, retired, with $1.1 million in a traditional 401(k), $300,000 in a Roth IRA, and $200,000 in a taxable brokerage arrives at the same question every retiree faces: which account do I tap first? The standard answer (taxable first, tax-deferred next, Roth last) costs her roughly $74,000 in lifetime federal income tax. The fix is a withdrawal sequence almost no one volunteers.

Her spending target is $72,000 a year. Social Security begins at 67 at $30,000. Two sequences produce two very different tax bills.

Sequence A: The conventional drawdown

Sequence A spends the $200,000 brokerage from 66 through roughly 69, then turns to the 401(k). Social Security layers in at 67. By the time RMDs begin at 73, the 401(k) has compounded near or above its starting balance. The required distribution stacked on top of Social Security pushes her taxable income persistently into the 22% bracket and keeps it there through her 80s.

Modeled across ages 66 to 90, federal income tax under this path totals approximately $186,000. Up to up to 85% of her Social Security benefit is taxable in most of those years, and a single year of unusually large RMDs can clip the first IRMAA tier two years later.

Sequence B: Bracket smoothing before RMDs

Sequence B inverts the order during the early retirement window. From age 66 through 72, she draws $40,000 a year from the 401(k) plus $32,000 from the Roth IRA. The 401(k) withdrawal, combined with the single 65-and-older standard deduction of $16,550 for 2026, lands her taxable income comfortably inside the 12% bracket. The Roth fills the remainder of her $72,000 spending tax free.

The brokerage sits untouched. By 73, the 401(k) balance is materially smaller, so her RMD plus Social Security mostly stays in the 12% bracket for the rest of her life. Lifetime federal tax: approximately $112,000.

Why the brokerage stays parked

The $200,000 taxable account is the most valuable inheritance vehicle she owns because of step-up in basis at death. Heirs receive a cost-basis reset to the date-of-death value, and the embedded gains never get taxed. Spending it first to "let the 401(k) keep growing tax-deferred" forfeits that step-up while guaranteeing a larger taxable RMD pile later.

The IRMAA guardrail

Once Social Security begins, MAGI drives Medicare premiums. The first IRMAA threshold for a single filer in 2026 is $109,000 (verify on CMS.gov). Crossing it triggers Part B and Part D surcharges of roughly $70 to $400 per month (see CMS.gov for the current tier amounts) for two years on the lookback. Sequence B's $40,000 401(k) draw plus $30,000 Social Security keeps her well below that line. A heavier Roth conversion in the same window would not.

Why the math is friendlier in 2026

Bracket adjustments and a higher standard deduction expanded the 12% room this year. The 10-year Treasury at about 4.4% and the Fed funds upper bound at 3.75% support a moderate return assumption on the remaining 401(k) balance, so drawing it down earlier does not leave meaningful compounding on the table once the tax savings are netted out.

Three actions worth taking this month

1. Calculate the dollar ceiling of your 12% bracket using the $16,550 single 65-plus standard deduction. That number is your annual pre-RMD 401(k) target. Withdraw to fill it, no more.
2. Project the first year Social Security and RMDs overlap. Every pre-RMD year between today and that date is the cheapest window you will ever have to liquidate tax-deferred dollars at 12%. Skipping those years is the expensive choice.
3. Run your projected MAGI against the $109,000 IRMAA threshold. If a planned 401(k) draw or Roth conversion lands within $5,000 of that line, the two-year Medicare surcharge often eats the marginal tax savings. Reference IRS Publication 590-B for the RMD divisors and CMS.gov for current IRMAA tiers.