A 64-year-old couple sits on $1.5 million in a traditional 401(k), $500,000 in a Roth IRA with the five-year clock satisfied, and $400,000 in a brokerage account with a $250,000 cost basis. They spend $130,000 a year, plan to claim Social Security at 70 for a combined $58,000, and have nine years before required minimum distributions begin. The order in which they tap these three buckets between now and age 73 is worth roughly $187,000 in lifetime federal tax. That is the entire article.
Why the conventional rule of thumb fails
The textbook sequence (brokerage first, 401(k) next, Roth last) protects tax-free growth and looks clean on a spreadsheet. Run it across 30 years and it produces about $462,000 in lifetime federal tax. The reason is mechanical: the 401(k) sits untouched and compounds to roughly $3.4 million by age 73, at which point the first RMD arrives at around $130,000. Stacked on top of Social Security, that withdrawal pushes provisional income high enough to make 85% of benefits taxable and lands the couple in IRMAA Tier 3 or higher for the rest of their lives, where Medicare Part B and D surcharges run several thousand dollars per person, per year.
Spending the Roth first (Sequence B) trims lifetime tax to about $385,000 because the Roth bank that would have capped IRMAA exposure later is already gone when the RMD wall arrives. Better, but the structural problem (an oversized pre-tax account at 73) has not been solved.
The proportional bracket-fill, year by year
The strategy that wins treats the three accounts as one portfolio in three tax wrappers and drains the 401(k) every year to the top of the 12% bracket, whether the couple needs the cash or not. Under 2026 rules, the 12% MFJ bracket extends to $100,800 and the standard deduction is $32,200, with an additional age-65 amount on top. That creates room for roughly $66,950 of 401(k) withdrawals taxed inside the 12% bracket before a single dollar tips into 22%.
The remaining $63,050 of spending comes from the other two buckets:
- $33,000 from the brokerage. Most of that is return of basis. The embedded gain of roughly $12,000 fits inside the 0% long-term capital gains bracket, which extends to about $96,700 MFJ in 2026. Zero federal tax on the gain.
- $30,000 from the Roth. Tax-free, and critically, invisible to the Social Security taxation formula and the IRMAA income test.
- $66,950 from the 401(k). Taxed in the 10% and 12% layers only, producing the bulk of an annual federal bill of around $8,000.
Run that pattern for nine years and the 401(k) arrives at age 73 small enough that RMDs stay inside the 12% bracket. Lifetime federal tax across 30 years drops to roughly $275,000.
The second-order benefits
Two pieces of plumbing make Sequence C more durable than the headline tax savings suggest. The brokerage account retains enough long-held positions to receive a step-up in basis at the first spouse’s death, erasing decades of embedded gains. The Roth is intentionally not drained, leaving a reserve for the post-65 years when an unplanned expense (a roof, a car, a long-term-care premium) would otherwise force a 401(k) withdrawal that breaches an IRMAA threshold. With the 10-year Treasury near 4.5% and the Fed funds target at 3.75%, even the cash sleeve inside the Roth earns a usable real return while it waits.
What to do this week
- Project your 401(k) balance at age 73 using a conservative 6% return, then divide by 26.5 to estimate your first RMD. If that number lands above the top of the 12% bracket plus your standard deduction, you have a bracket-fill problem to solve this year.
- Calculate the exact dollar amount that fills the 12% bracket for your filing status in 2026, subtract expected Social Security and pension income, and convert or withdraw the difference from the 401(k) before December 31.
- Sell brokerage lots with embedded gains up to the 0% LTCG ceiling in the same year. The capacity expires every December and does not roll forward.
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