A bad market year is recoverable. A withdrawal from the wrong account is not, and it rarely prompts a phone call.
A 15% decline is a temporary number on a statement. A $60,000 withdrawal from the wrong account is a permanent number on a tax return. Clients call about the first. The second usually arrives as a routine request, such as money for a renovation, a car, or a daughter's down payment. It feels like moving money the family already owns.
The same kitchen, two different withdrawals
In a composite example, a retired couple in their late sixties had an established distribution plan. Their regular IRA withdrawals kept their taxable income right at the top of the 12% federal bracket. One November, they needed $60,000 for a kitchen renovation. The IRA held more than enough, but they called before requesting the money.
That call changed where the money came from.
Had the couple taken the extra $60,000 from their traditional IRA, all of it would have landed in the 22% bracket. That alone would have added about $13,200 in federal income tax. The withdrawal also would have reduced their enhanced deduction for taxpayers 65 and older, raising the cost further.
Instead, they sold $60,000 of investments from their taxable account. The shares they chose carried $15,000 of long-term gain. At a 15% capital gains rate, the sale cost about $2,250, plus a much smaller trim to the same deduction.
The difference was more than $11,000 in that year's federal tax.
What they actually kept
The IRA money will still be taxed when it comes out, so what the couple saved wasn't the tax. It was the choice of when to pay it and at what rate. Those dollars can now come out in a year with room in a lower bracket, go to charity through qualified charitable distributions, or be planned around for their children. Taking them for the kitchen would have spent that choice at 22% without anyone ever deciding to.
What made the choice work
Their income projection showed exactly where another IRA dollar would land. A review of their taxable holdings found shares with relatively little gain, and selling them also trimmed a position that had grown larger than intended. Their IRA withdrawals for the following year were adjusted so the renovation wouldn't leave the taxable account below the cash reserve their plan called for.
One more thing was checked. Medicare premiums are set using income from two years earlier, and the IRA route would have put them uncomfortably close to the first surcharge tier. The taxable route left plenty of room. We'll come back to that two-year lookback in October.
The call took a few minutes. Nothing about the kitchen changed.
When "taxable first" gets it wrong
The conventional order is to spend the taxable account first, then the IRA, then the Roth. It is right often enough to be dangerous.
The most expensive exception is selling the wrong shares. Investments held until death generally receive a new cost basis, which erases the gain that built up over the owner's lifetime. A family that sells its most appreciated stock to fund a car pays capital gains tax that never needed to be paid. That is why the couple's advisor chose shares with little gain and left the large-gain positions alone. Those shares were worth more to their children untouched.
The order also flips in the quiet years between the last paycheck and required distributions, the years we wrote about in August. There, the IRA dollar is often the cheapest dollar available. And when an expense can straddle December and January, splitting it across two tax years can beat taking it all at once.
None of this makes a renovation, a car, a wedding, or help with a child's first home a problem. The risk is letting a one-time expense sit outside the distribution plan.
The numbers to check
For 2026, the 12% federal bracket for married couples filing jointly ends at $100,800 of taxable income. The 0% rate on long-term capital gains ends slightly lower, at $98,900. A couple just under that line can sometimes sell appreciated shares for little or no federal tax.
Before requesting the money, three questions are worth answering:
- Where will this year's taxable income land after the withdrawal, and how close will it come to the next bracket or threshold?
- What would each source cost this year? That includes the IRA, the taxable account, the Roth, and cash.
- What job does each account have in the plan, and does spending from it now take it away from that job?
The third question is the one that rarely gets asked. The Roth may be the money meant to last longest. The most appreciated shares may be meant for the children. The IRA may be the dollars set aside for charity. The cheapest withdrawal this year can still be the wrong one.
The kitchen was finished in March. The tax return that followed looked like every other year's, and two years from now, so will the Medicare premium notice. Nobody will remember that either could have looked different.
- The Canty Wealth Management Team