Presented by Bob Brown
Retirement in Las Vegas is filled with so many opportunities- great food, entertainment, and many outdoor recreational activities, but it may also bring new financial questions—especially when it comes to how to best use your retirement account to cover expenses.
Retirees often wonder about the best way to tap their retirement accounts for income. Fortunately, the answer is straightforward: All else being equal, it’s best to take a tax-efficient approach by withdrawing funds according to their tax status.
Here’s what that might look like in practice.
1. Start with your RMDs: Once you turn 73, you must take required minimum distributions (RMDs) from your tax-deferred retirement accounts each year—or face a penalty of up to 25% of the amount you failed to withdraw.
Because of the penalty, RMDs should be your first stop when tapping your retirement portfolio. Withdrawals will be taxed as ordinary income, assuming all contributions were made with pre-tax dollars.
2. Tap interest and dividends: Next, withdraw interest and dividends generated by investments in your taxable accounts. Interest generally is taxed as ordinary income, whereas dividends are often taxed at the lower long-term capital gains rates of 0%, 15%, or 20%, depending on income, how long you’ve held the asset, and other requirements.
Withdrawing just the interest and dividends allows you to keep your original investment for potential growth and future income payments.
3. Cash out maturing bonds and CDs: Next, you could withdraw the principal from a maturing bond or CD. Generally, you won’t owe taxes on the principal if you’ve held the bond or CD to maturity.
If you don’t need the money when your bond or CD matures, consider reinvesting the principal in another bond or CD to help generate regular income.
4. Sell other assets as needed: If you still need additional income, you’ll need to sell some assets—but which ones may depend on your tax situation:
• If you have modest tax-deferred savings and your RMDs aren’t likely to push you into a higher tax bracket later in retirement, turn to your taxable brokerage accounts. Consider selling investments that have lost value first, since you can use realized losses to offset realized gains; if you have more losses than gains, you can also offset up to $3,000 in ordinary income. Then, turn to investments you’ve held for more than one year to take advantage of long-term capital gains tax rates, which are lower than the income tax rates that apply to short-term capital gains.
• If you have significant tax-deferred savings and suspect RMDs could push you into a higher tax bracket later in retirement, consider withdrawing from your tax-deferred accounts once you reach age 59½ (rather than waiting until RMDs kick in).
5. Save your Roth accounts for last: If you have a Roth IRA or Roth 401(k), it’s generally best to wait as long as possible to tap these, since such accounts aren’t subject to RMDs and withdrawals are entirely tax-free starting at age 59½, assuming you’ve held the account for at least five years.
No matter your situation, it’s wise to work with a tax advisor who can help you make the most of your savings.
Bob Brown is an Independent Branch Leader and Financial Consultant at Charles Schwab with over 30 years of experience helping clients achieve their financial goals. We are here to help develop a personalized withdrawal strategy for you. Please contact us at 702-854-6140 to set up an appointment. Our address is 7910 W. Tropical Parkway #120, Las Vegas, NV 89149. Some content provided here has been compiled from previously published articles authored by various parties at Schwab.
This information is for educational purposes only and is not intended to be a substitute for specific individualized tax, legal, or investment planning advice. Where specific advice is necessary or appropriate, you should consult with a qualified tax advisor, CPA, Financial Planner, or Investment Manager.
Investing involves risk including the potential loss of principal.
©2025 Charles Schwab & Co., Inc. (“Schwab”). All rights reserved. Member SIPC. (1225-FT9F)