‘You’re Thinking About This the Right Way’: Wes Moss to Retiree Draining Her IRA First

A retiree in Washington state, identified on air as Curious Kathy, asked Wes Moss whether she should switch the standard withdrawal order. Her plan was to pull from her traditional IRA first and keep withdrawals low enough to stay in the 12% bracket. That way, more of her stock would pass to her heirs with a stepped-up basis. Moss is a certified financial planner and chief investment strategist at Capital Investment Advisors. On the Nov. 3 Ask An Advisor segment, he told her: “Kathy, you’re thinking about this the right way, and I guess the conventional wisdom is this order: brokerage, IRA, then Roth.”

A lot of money rides on the order you choose. If you have a large brokerage account and follow the default order, you may spend the assets your kids would inherit tax free. Meanwhile, you keep the account they will owe income tax on.

Kathy Has It Right, and the Tax Code Shows Why

Kathy’s instinct is correct for anyone who expects to leave money behind. Moss called the established order “the starting point,” adding that “in practice or real life there’s usually a combination happening of all three.”

The reason comes down to how each account is taxed when it passes to an heir. Stock in a taxable account gets a fresh cost basis at death. Federal law sets the heir’s basis at the fair market value of the property at the date of the decedent’s death. Decades of unrealized gains disappear for tax purposes.

Traditional IRA dollars never get that reset. Any IRA distribution shall be included in gross income, and that includes inherited ones. Most non-spouse heirs must empty the account by December 31 of the year containing the 10th anniversary of the owner’s death. For many heirs, those 10 years land in their peak earning years.

What the Swap Is Worth on a $1.5 Million Estate

Picture an example married couple. They have a $1 million brokerage account carrying $600,000 of unrealized gains, plus a $500,000 traditional IRA.

Say they spend the brokerage first and leave the IRA behind. A child in the 24% bracket would owe roughly $120,000 in income tax on it.

If the couple instead draws the IRA down at 12%, the bill is about $60,000. The family keeps $60,000 more.

The brokerage stock then passes with its $600,000 gain erased. At an example 15% capital gains rate, selling that stock during life would have cost $90,000.

How much room does the 12% bracket leave? For 2026, it covers married couples’ taxable income up to $100,800, and the standard deduction is $32,200.

Together, that allows about $133,000 of gross income, although part of your Social Security counts toward it.

Moss’s own example was “2k a month from the IRA” plus “another 1,000, 2,000 from the brokerage account.” That works out to $24,000 a year from the IRA, well under the limit.

Plenty of retirees are in Kathy’s position. Baby Boomer households hold $35.2 trillion in stocks and funds outside workplace retirement plans. That compares with $7.6 trillion inside 401(k)-style accounts.

IRS estate tax returns filed in 2024 tell a similar story: publicly traded stock was the largest asset category, at $71.3 billion of $248.9 billion.

Your Heirs’ Tax Bracket Decides Who Wins

Whether the swap pays off depends on one number: the gap between your marginal rate and your heirs’. In the example above, a 12-point gap is worth $60,000.

Shrink that gap and the IRA savings go with it. If your only heir also sits in the 12% bracket, the IRA tax comes out roughly even, and the step-up is the main gain left. Watch the 10-year rule here, though. Emptying a $500,000 IRA in 10 years can add enough income to push a 12% heir into a higher bracket. Draining the IRA in those low-tax years before required withdrawals start is the whole point of our free guide on defusing the first-year tax bomb.

Your own income can work against you too. Joint income above $218,000 raises each spouse’s Medicare Part B premium from $203 to $284 a month. Moss, who takes listener questions at wesmoss.com/ask, lays out his retirement framework in The Retire Sooner Method.

Run Kathy’s Math Before Your Next Withdrawal

1. Find your bracket headroom. Pull last year’s return and compare your taxable income with $100,800 if you file jointly, or $50,400 if you file single. The difference is roughly how much more IRA money you can withdraw at 12%.
2. Request an unrealized gains report. Your brokerage can show the gain on each holding. Stock with the biggest gains benefits most from the step-up, so lower-gain stock is typically the first place to look when you need cash.
3. Estimate your heirs’ brackets. Use their current incomes and add one-tenth of your IRA balance to model the 10-year rule. If the result is at 22% or higher, drawing the IRA first likely saves your family money.
4. Map the Medicare thresholds. Keep your total modified income, including IRA withdrawals, below the $218,000 joint threshold unless the tax savings clearly exceed the higher premiums.

If you plan to leave money behind, spend the money your heirs would pay tax on and leave them the stock that gets a stepped-up basis.

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