After decades of saving and investing, the question most East Tennessee families face as retirement approaches is not just “How much do I have?” but “How do I make it last — and how do I keep as much of it as possible?”

The way you withdraw money in retirement has an enormous impact on how long your savings last and how much of your wealth ultimately reaches your family. A poorly structured withdrawal strategy can cost you tens of thousands of dollars in unnecessary taxes over a 25- or 30-year retirement. A thoughtful one can preserve your lifestyle, protect your legacy, and give you genuine peace of mind.

Here is what every East Tennessee family approaching retirement should understand about tax-efficient withdrawal strategies.

Tennessee’s tax advantage — and why it still isn’t enough on its own

Tennessee offers a meaningful advantage for retirees: the state has no income tax on wages or retirement income. Whether you are drawing from a 401(k), IRA, pension, or Social Security, the state of Tennessee will not take a share. For families relocating or considering where to retire, this is a significant benefit.

However, federal taxes are a different story. Distributions from traditional 401(k) and IRA accounts are taxed as ordinary income at the federal level. Depending on how much you withdraw and when, you could find yourself pushed into a higher tax bracket, facing increased Medicare premiums, or triggering taxes on a larger portion of your Social Security benefits than you expected.

A tax-efficient withdrawal strategy is not about avoiding taxes entirely — it is about controlling when and how you pay them.

Understanding your three buckets

Most retirees draw income from three types of accounts, each with different tax treatment. Understanding how they work is the foundation of any withdrawal strategy.

Taxable accounts

Brokerage accounts and savings you have already paid tax on. Growth is subject to capital gains tax, but the tax rate is typically lower than ordinary income rates. Withdrawals from these accounts in retirement are often the most tax-efficient.

Tax-deferred accounts

Traditional 401(k)s and traditional IRAs. You received a tax deduction when you contributed, so every dollar you withdraw in retirement is taxed as ordinary income. Required Minimum Distributions (RMDs) begin at age 73, whether you need the income or not.

Tax-free accounts

Roth IRAs and Roth 401(k)s. Contributions were made with after-tax dollars, so qualified withdrawals in retirement are completely tax-free — including growth. Roth accounts are not subject to RMDs during the account owner’s lifetime.

The goal of a smart withdrawal strategy is to draw from each bucket in an order and proportion that minimizes your total lifetime tax burden.

Conventional withdrawal order — and when to break from it

The traditional guidance is to draw down taxable accounts first, then tax-deferred accounts, then Roth accounts last. The logic: let your tax-advantaged accounts compound as long as possible.

This approach is reasonable but not always optimal. In many cases, a blended or customized sequence produces better outcomes. For example:

• If your tax-deferred accounts are large, drawing from them earlier at a lower rate — before RMDs force larger distributions at potentially higher rates — can reduce your lifetime tax burden significantly.
• If you retire before Social Security begins, the early years of retirement can represent a valuable low-income window. Strategic Roth conversions during this period allow you to move money from taxable to tax-free status at a lower rate than you would pay later.
• Holding taxable accounts for heirs can be advantageous because inherited assets receive a stepped-up cost basis at death, potentially eliminating capital gains taxes entirely for your beneficiaries.

The right sequence depends on your specific income, account balances, expected Social Security benefits, and legacy goals — which is why a personalized plan matters more than any general rule of thumb.

Roth conversions: a powerful tool for East Tennessee retirees

A Roth conversion involves moving money from a traditional IRA or 401(k) into a Roth IRA, paying income taxes on the converted amount in the year of the conversion. In exchange, all future growth and withdrawals from the Roth account are tax-free.

For East Tennessee families who retire in their early 60s before Social Security and RMDs begin, the window between retirement and age 73 can be an ideal time to execute partial Roth conversions. During those years, your taxable income may be lower than at any point in your working life — and lower than it may be once RMDs kick in.

The key is converting the right amount each year: enough to take advantage of lower brackets without pushing into higher ones or triggering IRMAA surcharges on Medicare premiums.

Social Security and the tax torpedo

Many retirees are surprised to learn that a portion of their Social Security benefits can be taxable at the federal level. Whether your benefits are taxed — and how much — depends on your “combined income,” which includes your adjusted gross income, non-taxable interest, and half of your Social Security benefits.

If combined income exceeds certain thresholds, up to 85% of your Social Security benefits become subject to federal income tax. Poorly timed withdrawals from tax-deferred accounts can push you over these thresholds and create what planners sometimes call the “tax torpedo” — a sudden spike in your effective tax rate.

Coordinating your withdrawal strategy with your Social Security claiming decision is essential. In some cases, delaying Social Security while drawing down tax-deferred accounts first produces a far better outcome over a 25- or 30-year retirement.

Required Minimum Distributions: plan ahead, not after

Beginning at age 73, the IRS requires you to withdraw a minimum amount from your traditional IRA and 401(k) accounts each year. These withdrawals are fully taxable, and the amounts increase as you age.

For retirees with large tax-deferred balances, RMDs can push annual income well beyond what they actually need — and into higher tax brackets, increased Medicare premiums, and higher taxes on Social Security. The solution is proactive planning in the years before RMDs begin.

Strategies to manage RMD exposure include Roth conversions during low-income years, qualified charitable distributions (QCDs) for charitably inclined retirees, and thoughtful account consolidation. None of these strategies are effective if you wait until age 73 to think about them.

The role of Health Savings Accounts

If you are still working and eligible for a high-deductible health plan, a Health Savings Account (HSA) is one of the most tax-advantaged vehicles available. Contributions are pre-tax, growth is tax-free, and withdrawals for qualified medical expenses are tax-free — a triple tax benefit.

In retirement, HSAs can be used to cover Medicare premiums, long-term care costs, and out-of-pocket medical expenses — all of which are among the largest and most unpredictable expenses retirees face. Preserving your HSA balance for healthcare costs can reduce the burden on your taxable retirement income.

Why this matters more than most people realize

Consider two families with identical retirement savings of $1.2 million. One draws from accounts in an uncoordinated way, triggering higher tax rates, increased Medicare premiums, and larger-than-necessary RMDs. The other works with a fee-only advisor to sequence withdrawals thoughtfully, execute strategic Roth conversions, and optimize Social Security timing.

Over a 30-year retirement, the difference can easily exceed $150,000 — money that either goes to taxes unnecessarily or stays in your family’s hands. The savings are not hypothetical. They are the result of deliberate, informed planning.