5 Tax-Efficient Withdrawal Strategies During Retirement

May 13, 20236 min read
5 Tax-Efficient Withdrawal Strategies During Retirement
Share on facebookShare on TwitterShare on Linkedin

Key Takeaways

  • The conventional strategy calls for making withdrawals in this order: taxable, tax-deferred, then Roth accounts where withdrawals are tax-free.
  • This Roth conversion strategy entails converting traditional IRAs to Roth IRAs during low-income years and paying regular income taxes on the converted sum.
  • To optimize withdrawals in retirement, individuals need a solid understanding of tax scenarios, their financial objectives, and how accounts are structured.

Key to retirement is maximizing savings and navigating post-work life with a sound financial plan. As part of that, it is important to time withdrawals from various retirement accounts just right, using methods that can benefit the retiree more than the IRS. So, here are five tax-efficient withdrawal strategies during retirement.  

Accounts Defined

It is first necessary to define a few key account terms and what they mean for the owner and the Internal Revenue Service. They are:

  • Tax-deferred accounts. With these accounts, taxes come due only when funds are withdrawn – not when contributions are made – allowing people time to invest for their retirement years.  An individual retirement account and 401(k) plan are examples of tax-deferred accounts.
  • Tax-free accounts. This type of account typically refers to permanent cash-value insurance policies that offer individuals tax benefits and risk protection. Similar to a Roth IRA, a TFRA is funded with after-tax dollars. 
  • Taxable accounts. These accounts, such as brokerage and savings, permit people to save and invest money beyond the contribution caps on IRAs and other retirement plans.

Different Types of Retirement Accounts and Their Tax Implications

Here are common retirement accounts and what they mean regarding taxes. Note that many individuals have multiple account types, as diversification is important in terms of cash flow, tax implications, and risk. In fact, it is in the same category as estate and legacy planning.

  • Traditional IRAs and 401(k)s. IRAs are opened by individuals through a bank or broker; 401(k)s are offered through employers. While individual retirement accounts usually have more investment options, 401(k)s permit higher yearly contributions. These accounts are subject to income taxes and potentially higher tax rates the more that is withdrawn. 
  • Roth IRAs and Roth 401(k)s. Roth accounts are not subject to withdrawal taxes. That is what sets them apart from traditional IRAs and 401(k)s.
  • Taxable investment accounts. Taxable accounts are liable for 0% long-term capital gains rate – if regular taxable income is within applicable ranges.

Basic Tax-Efficient Withdrawal Strategies

To optimize withdrawals in retirement, the retiree needs a solid understanding of tax scenarios, financial objectives, and how accounts are structured. With that in mind, these are fundamental tax-efficient withdrawal strategies:

  • The Conventional strategy. This essentially calls for withdrawals in this order: taxable, tax-deferred, then Roth accounts where withdrawals are tax-free. The aim is to permit tax-deferred assets the chance to grow over time.
  • The Roth Conversion strategy. This strategy entails converting traditional IRAs to Roth IRAs during low-income years and paying regular income taxes on the converted sum. Such a conversion may be most compelling when tax is paid on the converted amount at a comparatively depressed rate.
  • Proportional strategy. Here, withdrawals are proportionate to the sizes of various account types. In other words, after a target amount is established, an investor would withdraw from each account based on the account’s percentage of overall savings.

Advanced Tax-Efficient Withdrawal Strategies

Here are two more advanced ways to reduce one’s tax bill during retirement:

  • Bracket-topping strategy. This essentially means filling up one’s current tax bracket with tax-deferred account withdrawals.  In other words, the retiree will each year take sufficient IRA contributions to propel taxable income to the boundaries of the next tax bracket. The distributed funds can then be invested outside the IRA, for example, or to pay taxes. 
  • Capital gains strategy. This strategy calls for balancing tax brackets with capital gains rates. Retirees can lower their tax bill by taking capital gains when they are in the lower tax brackets. Single filers for the 2023 tax year with taxable income of less than $44,625 are in the lower tax brackets.

Specific Strategies for High-Income Earners

Tax planning is of utmost importance to individuals in this category since more options mean more decisions. Overall, tax-efficient investments and charitable donations are prime tax strategies for this demographic, as are Roth conversions during lower-income years.

While a retirement withdrawal strategy varies for each individual, it should start with establishing how all their assets are structured and the point at which payouts start. 

After all, for those who retired from corporate life, there could be pension or stock options, or deferred compensation. A retiree who recently sold their business may be getting payments, as part of the transaction, over several years. Then there is the person who bought an annuity decades ago and could soon be looking to activate that income stream. 

Thus, rather than assume withdrawals must be made the first day of retirement, some experts suggest constructing a five-year cash flow plan, which might include predictions about any consulting or part-time income the new retiree may earn early on. Then, a withdrawal plan can be put in place, striking a balance between taxable and tax-deferred account withdrawals.

Flexibility in Retirement Withdrawal Strategies

Underscoring the need for a financial planner or other tax professional, retirees may need to adjust their strategies based on changes to tax laws, which professionals keep track of, and to life changes.  

Some retirement planners say a more flexible withdrawal approach permits the retiree to withdraw funds based on their needs, with the proviso that they remain within certain guardrails – maintaining a certain dollar amount, for instance. For example, retirees could begin withdrawing at a higher rate and adjust that downward when necessary.

Ultimately, retirement is all about change, and there may be a need to adapt to personal life changes. Such changes could necessitate retirement withdrawal pivots.

Change can also mean revising the makeup of one’s investment holdings. A more modern portfolio is not merely limited to stocks and bonds but includes other assets that diversifies it. Diversification is key to successful long-term investing.

Rise above Volatility

Diversify beyond the stock market with Yieldstreet.

Alternative investments can be a good way to help accomplish this. Traditional portfolio asset allocation envisages a 60% public stock and 40% fixed income allocation. However, a more balanced 60/20/20 or 50/30/20 split, incorporating alternative assets, may make a portfolio less sensitive to public market short-term swings. 

Real estate, private equity, venture capital, digital assets, precious metals and collectibles are among the asset classes deemed “alternative investments.” Broadly speaking, such investments tend to be less connected to public equity, and thus offer potential for diversification. Of course, like traditional investments, it is important to remember that alternatives also entail a degree of risk. 

In some cases, this risk can be greater than that of traditional investments. This is why these asset classes were traditionally accessible only to an exclusive base of wealthy individuals and institutional investors buying in at very high minimums — often between $500,000 and $1 million.  These people were considered to be more capable of weathering losses of that magnitude, should the investments underperform.

However, Yieldstreet has opened a number of carefully curated alternative investment strategies to all investors. While the risk is still there, the company offers help in capitalizing on areas such as real estate, legal finance, art finance and structured notes — as well as a wide range of other unique alternative investments. 

Learn more about the ways Yieldstreet can help diversify and grow portfolios.


Of all the seasons of life, retirement is a time during which most people want to hold onto – if not generate — as much money as possible, rather than send it to Uncle Sam. Employing these tax-efficient withdrawal strategies can help. And do keep in mind the importance of a diversified investment portfolio and how to put one together. That also can help make for a better retirement.

We believe our 10 alternative asset classes, track record across 470+ investments, third party reviews, and history of innovation makes Yieldstreet “The leading platform for private market investing,” as compared to other private market investment platforms.

1 Past performance is no guarantee of future results. Any historical returns, expected returns, or probability projections may not reflect actual future performance. All securities involve risk and may result in significant losses.

3 "Annual interest," "Annualized Return" or "Target Returns" represents a projected annual target rate of interest or annualized target return, and not returns or interest actually obtained by fund investors. “Term" represents the estimated term of the investment; the term of the fund is generally at the discretion of the fund’s manager, and may exceed the estimated term by a significant amount of time. Unless otherwise specified on the fund's offering page, target interest or returns are based on an analysis performed by Yieldstreet of the potential inflows and outflows related to the transactions in which the strategy or fund has engaged and/or is anticipated to engage in over the estimated term of the fund. There is no guarantee that targeted interest or returns will be realized or achieved or that an investment will be successful. Actual performance may deviate from these expectations materially, including due to market or economic factors, portfolio management decisions, modelling error, or other reasons.

4 Reflects the annualized distribution rate that is calculated by taking the most recent quarterly distribution approved by the Fund's Board of Directors and dividing it by prior quarter-end NAV and annualizing it. The Fund’s distribution may exceed its earnings. Therefore, a portion of the Fund’s distribution may be a return of the money you originally invested and represent a return of capital to you for tax purposes.

5 Represents the sum of the interest accrued in the statement period plus the interest paid in the statement period.

6 The internal rate of return ("IRR") represents an average net realized IRR with respect to all matured investments, excluding our Short Term Notes program, weighted by the investment size of each individual investment, made by private investment vehicles managed by YieldStreet Management, LLC from July 1, 2015 through and including July 18th, 2022, after deduction of management fees and all other expenses charged to investments.

7 Investors should carefully consider the investment objectives, risks, charges and expenses of the Yieldstreet Alternative Income Fund before investing. The prospectus for the Yieldstreet Alternative Income Fund contains this and other information about the Fund and can be obtained by emailing [email protected] or by referring to www.yieldstreetalternativeincomefund.com. The prospectus should be read carefully before investing in the Fund. Investments in the Fund are not bank deposits (and thus not insured by the FDIC or by any other federal governmental agency) and are not guaranteed by Yieldstreet or any other party.

8 This tool is for informational purposes only. You should not construe any information provided here as investment advice or a recommendation, endorsement or solicitation to buy any securities offered on Yieldstreet. Yieldstreet is not a fiduciary by virtue of any person's use of or access to this tool. The information provided here is of a general nature and does not address the circumstances of any particular individual or entity. You alone assume the sole responsibility of evaluating the merits and risks associated with the use of this information before making any decisions based on such information.

9 Statistics as of the most recent month end.

300 Park Avenue 15th Floor, New York, NY 10022


No communication by YieldStreet Inc. or any of its affiliates (collectively, “Yieldstreet™”), through this website or any other medium, should be construed or is intended to be a recommendation to purchase, sell or hold any security or otherwise to be investment, tax, financial, accounting, legal, regulatory or compliance advice, except for specific investment advice that may be provided by YieldStreet Management, LLC pursuant to a written advisory agreement between such entity and the recipient. Nothing on this website is intended as an offer to extend credit, an offer to purchase or sell securities or a solicitation of any securities transaction.

Any financial projections or returns shown on the website are estimated predictions of performance only, are hypothetical, are not based on actual investment results and are not guarantees of future results. Estimated projections do not represent or guarantee the actual results of any transaction, and no representation is made that any transaction will, or is likely to, achieve results or profits similar to those shown. In addition, other financial metrics and calculations shown on the website (including amounts of principal and interest repaid) have not been independently verified or audited and may differ from the actual financial metrics and calculations for any investment, which are contained in the investors’ portfolios. Any investment information contained herein has been secured from sources that Yieldstreet believes are reliable, but we make no representations or warranties as to the accuracy of such information and accept no liability therefore.

Private placement investments are NOT bank deposits (and thus NOT insured by the FDIC or by any other federal governmental agency), are NOT guaranteed by Yieldstreet or any other party, and MAY lose value. Neither the Securities and Exchange Commission nor any federal or state securities commission or regulatory authority has recommended or approved any investment or the accuracy or completeness of any of the information or materials provided by or through the website. Investors must be able to afford the loss of their entire investment.

Investments in private placements are speculative and involve a high degree of risk and those investors who cannot afford to lose their entire investment should not invest. Additionally, investors may receive illiquid and/or restricted securities that may be subject to holding period requirements and/or liquidity concerns. Investments in private placements are highly illiquid and those investors who cannot hold an investment for the long term (at least 5-7 years) should not invest.

Alternative investments should only be part of your overall investment portfolio. Further, the alternative investment portion of your portfolio should include a balanced portfolio of different alternative investments.

Articles or information from third-party media outside of this domain may discuss Yieldstreet or relate to information contained herein, but Yieldstreet does not approve and is not responsible for such content. Hyperlinks to third-party sites, or reproduction of third-party articles, do not constitute an approval or endorsement by Yieldstreet of the linked or reproduced content.

Investing in securities (the "Securities") listed on Yieldstreet™ pose risks, including but not limited to credit risk, interest rate risk, and the risk of losing some or all of the money you invest. Before investing you should: (1) conduct your own investigation and analysis; (2) carefully consider the investment and all related charges, expenses, uncertainties and risks, including all uncertainties and risks described in offering materials; and (3) consult with your own investment, tax, financial and legal advisors. Such Securities are only suitable for accredited investors who understand and are willing and able to accept the high risks associated with private investments.

Investing in private placements requires long-term commitments, the ability to afford to lose the entire investment, and low liquidity needs. This website provides preliminary and general information about the Securities and is intended for initial reference purposes only. It does not summarize or compile all the applicable information. This website does not constitute an offer to sell or buy any securities. No offer or sale of any Securities will occur without the delivery of confidential offering materials and related documents. This information contained herein is qualified by and subject to more detailed information in the applicable offering materials. Yieldstreet™ is not registered as a broker-dealer. Yieldstreet™ does not make any representation or warranty to any prospective investor regarding the legality of an investment in any Yieldstreet Securities.

YieldStreet Inc. is the direct owner of Yieldstreet Management, LLC, which is an SEC-registered investment adviser that manages the Yieldstreet funds and provides investment advice to the Yieldstreet funds, and in certain cases, to retail investors. RealCadre LLC is also indirectly owned by Yieldstreet Inc. RealCadre LLC is a broker-dealer registered with the Securities and Exchange Commission (“SEC”) and a member of the Financial Industry Regulatory Authority (“FINRA”) and the Securities Investor Protection Corporation (“SIPC”). Information on all FINRA registered broker-dealers can be found on FINRA’s BrokerCheck. Despite its affiliation with Yieldstreet Management, LLC, RealCadre LLC has no role in the investment advisory services received by YieldStreet clients or the management or distribution of the Yieldstreet funds or other securities offered on our through Yieldstreet and its personnel. RealCadre LLC does not solicit, sell, recommend, or place interests in the Yieldstreet funds.

Yieldstreet is not a bank. Certain services are offered through Plaid, Orum.io and Footprint and none of such entities is affiliated with Yieldstreet. By using the services offered by any of these entities you acknowledge and accept their respective disclosures and agreements, as applicable.

Investment advisory services are only provided to clients of YieldStreet Management, LLC, an investment advisor registered with the Securities and Exchange Commission, pursuant to a written advisory agreement.

Our site uses a third party service to match browser cookies to your mailing address. We then use another company to send special offers through the mail on our behalf. Our company never receives or stores any of this information and our third parties do not provide or sell this information to any other company or service.

Read full disclosure