In this guide
How each account is taxed
- Traditional IRA / 401(k): every dollar withdrawn is ordinary income, taxed at your marginal rate. Nothing was taxed going in, so it's all taxed coming out.
- Roth IRA / Roth 401(k): qualified withdrawals (age 59½ and the five-year clock met) are completely tax-free, and don't count toward the income measures that drive IRMAA, NIIT, or Social Security taxation.
- Taxable brokerage: only the gain is taxed, at long-term capital-gains rates if held over a year — generally lower than ordinary rates. A stepped-up basis at death can erase the gain for heirs.
- HSA: tax-free for qualified medical expenses; after 65, non-medical withdrawals are taxed like a traditional IRA.
Because the three buckets are taxed so differently, which account you draw from first is one of the biggest levers you control in retirement.
The 10% early-withdrawal penalty
Withdraw from a traditional IRA or 401(k) before age 59½ and you generally owe a 10% penalty on top of ordinary income tax. Common exceptions include substantially equal periodic payments (72(t)), certain medical and first-home costs, disability, and — for 401(k)s — separation from service at 55 or later ("the rule of 55"). Roth contributions can always come out penalty-free; converted principal has its own five-year clock.
Required minimum distributions (RMDs)
Traditional accounts can't grow untaxed forever. Under SECURE 2.0, RMDs now begin at age 73 (rising to 75 in 2033). Each year you must withdraw a IRS-table percentage of the prior year-end balance — and it's taxed as ordinary income. Miss one and the penalty is 25% of the shortfall (reduced to 10% if corrected promptly).
Two points high earners care about: Roth IRAs have no RMDs for the owner, and Roth 401(k)s no longer require RMDs as of 2024. Converting before RMDs begin shrinks the future forced-income problem — sometimes dramatically.
How Social Security is taxed
Up to 85% of your Social Security benefit can be taxable, based on "provisional income" (roughly your other income plus half your benefit). The thresholds — $25,000/$34,000 single, $32,000/$44,000 married — are not indexed to inflation, so more retirees cross them every year. Traditional withdrawals raise provisional income and can make more of your benefit taxable; Roth withdrawals do not count.
IRMAA Medicare surcharges
Once you're on Medicare, higher income raises your Part B and Part D premiums through the Income-Related Monthly Adjustment Amount (IRMAA). For 2026, surcharges begin above roughly $109,000 (single) and $218,000 (married), in tiers. IRMAA runs on a two-year lookback — your 2026 income sets your 2028 premiums — and a large traditional withdrawal or conversion can push you into a higher tier. Roth withdrawals don't count toward the income that triggers it.
The Net Investment Income Tax
A 3.8% surtax applies to investment income once modified AGI exceeds $200,000 (single) or $250,000 (married). Retirement-account withdrawals aren't themselves "net investment income," but the higher income they create can pull your other investment income above the threshold. Roth withdrawals, again, stay out of the calculation.
Withdrawal sequencing
The conventional order — taxable first, then traditional, then Roth last — defers tax and lets the Roth compound longest. But for high earners it's rarely that simple: pulling only from traditional accounts late in retirement can spike RMDs, IRMAA, and Social Security taxation all at once. A blended approach — taking some traditional income in lower-bracket years, converting in gap years, and saving Roth for the highest-tax years — often beats any single rule. This is exactly what the calculator is built to compare.
The high-earner "tax torpedo"
Diligent savers can build traditional balances so large that RMDs in their 70s push them into a higher bracket than they were in while working — dragging Social Security taxation, IRMAA, and NIIT along with them. That compounding effect is the "tax torpedo." The defenses are built before it hits: convert during lower-income windows, shift the balance toward Roth, and use deduction-offset conversions to do it without a punishing up-front bill.
Charitable distributions (QCDs)
From age 70½, you can send up to an inflation-adjusted limit (about $108,000 for 2025, indexed) directly from an IRA to charity as a qualified charitable distribution. It satisfies your RMD, isn't included in income, and therefore doesn't inflate the measures that drive IRMAA and Social Security taxation — one of the cleanest tools for charitably inclined retirees.