The minute you start taking money out of your retirement accounts, the tax meter starts running. But a simple strategy lets you maximize your money and minimize the tax bill…so your retirement savings will last longer.

To get the most out of your retirement withdrawals, plan to take the money out in this order.

Step 1. Take all of your RMDs. Most retirement accounts (except Roth IRAs) have strict required minimum distribution – RMD – rules once you hit age 70½. If you don’t follow them to the penny, the IRS will hit you with hefty tax penalties. Make sure you know how much you have to withdraw by using this IRS worksheet. The only two numbers you’ll need to know are

  1. Your “life expectancy factor,” which is based on your age, from the IRS Uniform Lifetime Table (included in that worksheet).
  2. Your retirement account balance on December 31 of last year.
If you’re not age 70½ or older, you do not have to take any RMDs.

Once you know your RMD for the year you can decide whether you want to take the money in one lump or divided up throughout the year. You will have to pay income taxes on that money at your regular rate, but no extra penalties.

Step 2. Take money out of your taxable accounts. Withdrawing these funds will not add to your tax bill – you’re already paying tax on these accounts anyway, so you might as well use this money next.

Step 3. Take money from your tax-free accounts, such as Roth IRAs. Once you hit retirement age (and meet any other tax requirements), you can take this money out with no tax bite at all.

If you expect your income tax rate to be higher in the future, reverse steps 3 and 4.

Step 4. Take money out of your tax-deferred accounts: your 401k and any traditional IRAs, for example. Withdrawals from these accounts will trigger regular income taxes.

By following this 4-step plan, you’ll keep post-retirement taxes to a minimum…and get the most bang out of your retirement bucks.