Structured Withdrawal Strategy
Configure withdrawal rates across account types (taxable, tax-deferred, tax-free) and retirement periods (early, mid, late) to control the tax character of retirement income year by year. Manual rules add fixed draws, each able to count toward the income target or add to it, and to name a specific cost basis on taxable accounts.
How it works
The Structured Withdrawals strategy overrides the default flat withdrawal rate with a configurable grid of nine rates: three account types (taxable, tax-deferred, tax-free) × three retirement periods (early, mid, late). This allows advisors to sequence withdrawals strategically — for example, drawing heavily from taxable accounts early in retirement while capital gains rates are low, then shifting to tax-deferred accounts, and preserving Roth accounts for late retirement or heirs. Advisors can also enter manual withdrawals: specific dollar amounts from specific accounts in specific years.
1. Define Retirement Periods
Retirement is divided into three periods based on the client's retirement year and life expectancy. The advisor sets the year boundaries for early, mid, and late retirement phases.
Example: Retirement age 65, life expectancy 90 → Early: 65–72, Mid: 73–80, Late: 81–902. Set Withdrawal Rates by Account Type and Period
For each of the nine combinations (3 account types × 3 periods), the advisor enters an annual withdrawal rate. These rates replace the default retirement withdrawal rate for accounts in the matching category and period.
Annual Withdrawal = Account Balance at Retirement × Rate × (1 + Inflation)^Years Since Retirement
Example: Taxable: 6% early / 3% mid / 0% late. Tax-Deferred: 2% early / 5% mid / 4% late. Tax-Free: 0% early / 0% mid / 3% late.3. Apply RMD Override
Required Minimum Distributions from tax-deferred accounts (starting at age 73) are always honored regardless of the configured rate. When the RMD exceeds the formula-based withdrawal for a given year, the RMD takes precedence.
Actual Tax-Deferred Withdrawal = Max(Formula Withdrawal, RMD)
Example: 2% rate on $800k IRA = $16k formula withdrawal. RMD at age 78 = $31k → $31k is used instead.4. Optional: Manual Withdrawals
Enter a specific dollar amount to draw from a specific account type over a year range. Each rule carries two further controls. Coordination decides whether the draw counts toward the income target — sizing the calculated withdrawal down to cover only the remainder — or is spending on top of it. Cost Basis (taxable accounts only) names the basis of the shares sold instead of taking the account's proportional basis.
Example: $50,000 from taxable accounts in 2028 for a home purchase, set to draw in addition to the target.5. Coordination: Counts Toward Target vs. In Addition
Only meaningful in auto mode, where the strategy sizes a draw to fill the gap between the income target and everything else the household receives. 'Counts toward the target' treats the rule as a sourcing directive — the money satisfies part of the target, so the calculated draw shrinks and total income is unchanged. 'In addition' treats it as extra spending on top. What counts against the gap is the gross amount withdrawn, not the taxable portion: a $40,000 Roth draw covers $40,000 of the target while adding nothing to taxable income. Rate mode sizes nothing against a target, so the control does not apply there.
Gap = Income Target − Other Income − RMDs − (manual draws marked 'counts toward target')
Example: Target $120,000, other income $60,000. A $40,000 Roth rule set to 'counts toward target' leaves a $20,000 gap for the calculated draw — total income stays $120,000. Set to 'in addition', the calculated draw stays $60,000 and total income becomes $160,000.6. Cost Basis: Specific-Lot Identification
By default a taxable withdrawal carries the account's average basis, so its taxable gain is proportional. Naming a cost basis models selling particular lots (Treas. Reg. §1.1012-1(c)) — typically the high-basis shares an advisor would choose to sell first. The gain reported is the withdrawal minus the basis you name. Basis grows with the rule's index rate alongside the amount, so a multi-year rule keeps the proportion you stated. Available on taxable accounts only: proportional recovery is mandatory for tax-deferred accounts under IRC §72(b), and Roth distributions follow ordering rules the advisor does not choose.
Taxable Gain = Withdrawal − Named Basis (capped at the basis on hand)
Example: $100,000 withdrawal naming $80,000 of basis reports a $20,000 gain, regardless of the account's overall basis ratio. Leaving it blank on an account at 40% basis would report $60,000.
Real-world context
Why Sequence Matters
Drawing from taxable accounts in early retirement (while capital gains rates may be 0–15%) allows tax-deferred accounts more time to grow. Drawing from tax-deferred accounts in mid-retirement can fill lower brackets before RMDs begin. Preserving Roth accounts until late retirement maximizes tax-free growth and provides a tax-free legacy for heirs.
RMDs Change the Equation
Once RMDs begin at age 73, the IRS mandates a minimum withdrawal from tax-deferred accounts regardless of income needs. Strategic withdrawals before RMD age — or Roth conversions that reduce the IRA balance — can reduce the size of future forced withdrawals and smooth lifetime tax exposure.
Modeling 72(t)/SEPP Distributions
For clients taking Substantially Equal Periodic Payments (SEPP) under IRC §72(t) before age 59½, use manual withdrawal rules — not auto-mode tiers. Auto-mode only runs from the first retirement year forward; SEPP is a pre-retirement strategy, so auto-mode will not fire for those years. Enter the target annual SEPP amount as a manual dollar-amount rule with the appropriate start and end years on the tax-deferred account. Stratum does not model the 10% early withdrawal penalty, so the distributions will be modeled as penalty-free, which is correct for a client in a valid SEPP program. The ordinary income tax treatment (100% taxable) is applied correctly regardless.
How Auto-Mode (Income Target) Sizes Draws
When Structured Withdrawals is set to auto-mode (fill the gap to a dollar income target), the engine always runs this strategy near the end of the pipeline — just before any auto-mode Roth Conversion — so it can size draws against the full year's tax picture. This applies regardless of where SW sits in the strategy list. The Strategy Panel shows an 'Auto — runs last' badge on the card to signal this. Why this matters: in net-of-tax mode, the size of SW's draws depends on the year's tax bill. If a fixed-amount Charitable Giving deduction, a QCD, or a Tax Harvest schedule ran AFTER SW, those tax effects would be invisible to SW's gap calculation, leading to draws that miss the net target. Deferring auto-mode SW to the tail ensures every other strategy's effect on tax has been computed first. Advisor implication: SW draws in auto-mode are driven by the income target, the gap, and the tier configuration — not by where SW sits in the strategy list. To change SW's behavior, adjust the income target, tier order, or per-tier constraints (bracket cap, IRMAA limit, min balance). Card position is purely visual when auto mode is on. Manual-mode SW (withdrawal rate or fixed dollar rules) follows advisor-set order normally and is unaffected by this rule.
Varying the Income Target Over Time
The income target does not have to stay flat. A target schedule lets you reset it in key years, so a plan can model a spending curve instead of one number indexed for inflation. Each change is a reset, not an adjustment: "at age 75, set the target to $85,000" means the target is $85,000 from that year forward, until the next change. You can enter a change as a dollar amount or as a percentage of the target in force before it. When to reach for it: • Bridge period — a higher target between retirement and the year Social Security starts, then a step down. • Retirement smile — a real decline through the slow-go and no-go years, typically two changes of −10% to −20%. • A known payoff — a mortgage or the last tuition year permanently lowers the need. • Survivor transition — after the first death a household typically needs 20–25% less. Anchor a percentage change to "after first death" and it lands in the first full survivor year. Changes can be anchored to an age, a retirement year, the first death, or a specific calendar year. Age and first-death anchors move with the plan, so revising a retirement age or a life expectancy does not strand the schedule on the wrong year. Percentages and inflation are independent. A −20% change is a 20% cut in today's dollars; if the target is indexed for inflation, the reduced target keeps growing from there. Every amount you enter is in today's dollars, so you never have to inflate a future figure yourself. Where it lives: Planning Assumptions, beneath the annual income target. Structured Withdrawals inherits the schedule along with the target amount, target type, and inflation setting. Turning on Override in the strategy gives it its own copy — the whole target definition switches together, so a percentage in an override chains off the override's own target, not the Planning Assumptions one. A reduction is a genuine reduction: it lowers the gap the strategy fills, so discretionary draws shrink or stop. RMDs are still mandatory and continue regardless, so a target below the RMD floor simply means no discretionary draws on top of the RMD. Use manual withdrawal rules, not target changes, when you need a one-off amount from a specific account.
Roth as Legacy and Late-Life Reserve
Roth IRAs have no RMDs during the owner's lifetime and pass tax-free to heirs. By setting the Roth withdrawal rate to zero in early and mid-retirement, the account continues growing tax-free. Non-spouse heirs must empty an inherited Roth within 10 years, but those withdrawals remain tax-free.
What drives the result
Controls how much is drawn from each account type in each retirement phase. Higher rates deplete accounts faster. Rates determine the tax character of retirement income year by year.
6% taxable rate in early retirement on $300k account = $18k/year in capital gains income. 0% taxable rate = $0 capital gains — all income comes from other sources.
Higher balances in a given account type produce larger withdrawals at the same rate. Account type mix determines how much flexibility the strategy has.
$300k taxable + $700k IRA vs $700k taxable + $300k IRA create very different tax profiles even with identical withdrawal rates.
Override the rate-based calculation for specific years. Useful for modeling large known expenses, account transfers, or Roth conversion funding.
$100,000 manual withdrawal from taxable in year 1 of retirement to fund a major purchase.
Decides whether the rule funds part of the income target or adds to it. 'Counts toward target' shrinks the auto-calculated draw by the gross amount of the rule, leaving total income at the target — use it to direct where income comes from. 'In addition to target' raises total income by the rule amount — use it for a lumpy expense. Rules saved before this control existed behave as 'in addition', which is how they always behaved.
Directing $40,000 of a $120,000 target to come from the Roth: set the rule to 'counts toward target'. Funding a $60,000 car on top of normal spending: 'in addition to target'.
Names the basis of the shares sold instead of using the account's average. Lowers or raises the reported gain accordingly, and leaves the remaining account at a correspondingly different basis ratio — selling high-basis lots leaves lower-basis dollars behind, exactly as it would in practice. Blank means proportional. Taxable accounts only.
$100,000 drawn from a 30%-basis account reports a $70,000 gain by default. Naming $85,000 of basis reports $15,000 instead, and the account's remaining basis ratio falls.
Assumptions
- Withdrawal rates are applied to the account balance at the beginning of retirement, not recalculated dynamically each year
- Withdrawals inflate at the inflation rate assumption annually so real purchasing power stays approximately constant within each period
- RMDs from tax-deferred accounts override the configured rate when RMD exceeds the formula withdrawal
- Roth accounts have no RMDs and can be held to zero withdrawal rate for as long as desired
- Sufficient balance exists in each account type to support configured withdrawals
Limitations
- Withdrawal rates are not dynamically adjusted based on actual portfolio performance — rates are fixed at the configured levels
- Does not optimize for state tax differences between account types
- Manual withdrawals are honored up to the available account balance; if balance is insufficient, withdrawal is capped at available balance
- Does not automatically model large one-time expenses — use manual withdrawals for these
Related
This page explains how Stratum models this calculation. It is educational material for financial professionals, not tax or legal advice, and tax law changes. Verify current figures against primary IRS sources before relying on them with a client.