Should You Really Save Your Roth IRA for Last? Expert Challenges Common Rule

For years, retirees have been told to follow a strict order when withdrawing money: first from regular investment accounts, then from 401(k)s and IRAs, and finally from Roth accounts. But this conventional wisdom might be costing you money.

A recent MarketWatch reader challenged this approach, asking why they should build up a large Roth IRA (a retirement account where you pay taxes upfront but withdrawals are tax-free) only to avoid using it strategically. The reader suggested that mixing withdrawals from different accounts could keep taxes lower.

Financial experts are increasingly agreeing with this view. Here's why the old rule might not work for everyone:

• Tax bracket management: By combining withdrawals from taxable accounts (where you pay taxes) and tax-free Roth accounts, you can stay in lower tax brackets • Required Minimum Distributions (RMDs): At age 73, you must withdraw specific amounts from traditional retirement accounts, which could push you into higher tax brackets • Medicare premiums: Higher income can trigger increased Medicare costs through something called IRMAA (income-related monthly adjustment amount)

The new approach suggests using Roth funds strategically for large purchases like travel or home repairs, while covering required withdrawals from traditional accounts. This mixed strategy can help manage your taxable income throughout retirement.

Experts also recommend converting traditional retirement accounts to Roth accounts during market downturns or when you're in a low tax bracket – typically between retirement and when RMDs begin.

The bottom line? There's no one-size-fits-all rule. Your withdrawal strategy should depend on your specific tax situation, not outdated conventional wisdom.

This is an AI-generated summary. Read the original article at: https://www.marketwatch.com/story/i-find-that-advice-questionable-is-it-time-to-rethink-the-myth-of-tapping-your-roth-last-before-your-401-k-and-ira-2975ac61?mod=mw_rss_topstories