Podcast Summary: "The Case for Blended (Instead of Sequential) Drawdown for Early Retirees"

BiggerPockets Money Podcast – December 5, 2025
Hosts: Mindy Jensen & Scott Trench
Guest: Mark B. (EA, Tax Professional)

Overview of Episode Theme

This episode dives deep into advanced withdrawal strategies for early retirees, moving beyond the commonly recommended "sequential drawdown" method. The central thesis, presented by tax specialist and enrolled agent Mark B., is that a "blended drawdown"—drawing from multiple account types simultaneously and strategically—can deliver significant tax efficiency and portfolio optimization over the course of a long retirement. The discussion is especially relevant for those in the FIRE (Financial Independence Retire Early) community who are planning withdrawal strategies spanning 30 to 40 years.

Key Discussion Points and Insights

1. Definition of Drawdown Strategies

Sequential Drawdown:

• Most prevalent method among retirees.
• Withdraw from taxable brokerage accounts first, then tax-deferred (401k, traditional IRA), lastly Roth accounts.
• "Works fine for traditional retirees, but suboptimal for early retirees on 30–40 year timeframes." (Mark, 02:54)

Blended Drawdown:

• Instead of draining one account type at a time, simultaneously withdraw from different account types annually in an optimal ratio.
• Analogy: “It’s like baking a cake, using some of each ingredient each day instead of all of one at a time.” (Mark, 03:08)
• Aims to maximize tax advantages, preserve account flexibility, and optimize legacy planning.

Cyclical Drawdown:

• Withdraw more heavily from different accounts in different years to intentionally optimize for things like ACA health insurance subsidies or expected tax legislation changes.
• Mark likens this to “bunching” charitable contributions for efficiency (03:13).

2. Major Factors in Drawdown Planning

• Tax Optimization: Key focus, especially given the current low-tax environment (“We’re in a historically low tax environment right now…” —Mark, 16:13).
• Portfolio Makeup & Accessibility: The mix of account types and investments determines available strategies.
• Healthcare & ACA Subsidies: Withdrawals affect Modified Adjusted Gross Income (MAGI), impacting insurance subsidies (06:45, 59:42).
• Asset Protection: 401(k)s and IRAs offer stronger protection from creditors than taxable accounts (07:14–08:04).
• Estate Planning: Tax burdens differ for heirs by account type. Tax-deferred accounts are "the worst to inherit" due to forced 10-year withdrawals and income taxation (23:11–25:52).

3. Problems with Sequential Drawdown

• Wastes the standard deduction when drawing exclusively from taxable (capital gains are already taxed advantageously) or Roth accounts (already tax-free).
• Misses the opportunity to realize ordinary income at today’s historically low rates, risking higher taxes later if rates increase.
• Reduces flexibility for tax strategies, investment options, asset protection, and legacy planning.
• Leaves heirs with high-tax-burden accounts (“tax-deferred accounts are the worst to inherit”—Mark, 10:57).

4. The Case for Blended Drawdown

• Simultaneously draws from multiple accounts—to optimize the use of low tax brackets, the standard deduction, and exploit capital gains rates.
• Example: Drawing just enough from tax-deferred accounts each year to fill up low brackets (10–12%) and the standard deduction, while the rest comes from taxable (capital gains) and/or Roth.
• "Trigger that income that's going to be taxed as ordinary income while there's a high standard deduction, while we've got 10%, 12%, and 22% brackets." (Mark, 16:13)
• Blended approach can deliver “over $2,000 in tax savings across two years, even with identical withdrawals to sequential.” (Mark, 57:44–58:35)
• Requires annual or multi-year planning, not a set-and-forget rule ("Model out the number of years you're planning for drawdown"—Mark, 59:00).

5. Tax Treatment of Different Accounts (Best to Worst for Heirs):

• Roth Accounts: Non-taxable, 10-year window for withdrawals, best for inheritance.
• Taxable Brokerage Accounts/Assets: Step-up in basis at death, favorable for heirs.
• Tax-deferred (Traditional IRA/401k): Ordinary income taxation, forced 10-year withdrawal window, potentially high tax for working heirs.
• HSAs: Immediate taxation for heirs (use it yourself if possible).

Notable Quote:
"If you're trying to do best practices from an estate planning perspective, you want to use [the HSA] quickly." —Scott, 27:44

6. Optimizing Withdrawal Order and Asset Location

• Roth accounts: Maximize for long-term growth, ideal “leave alone” account or for legacy.
• Allocate investments across account types to best exploit tax rules—stock for growth in Roths; bonds/REITs in tax-deferred accounts; stocks for capital gains in brokerage accounts.
• Use retirement accounts (tax-deferred/Roth) for portfolio rebalancing, not brokerage (to avoid triggering unnecessary taxes).

7. Interplay of Ordinary Income vs. Capital Gains

• Capital gains layer on top of ordinary income—strategic withdrawals can result in large sums taxed at very low average rates (illustrated step-by-step at 50:13).
• Married filing jointly in 2025 can have zero federal income tax on over $128,000 using a blended strategy: standard deduction for tax-deferred withdrawals, remainder up to ~$97,000 from capital gains (at 0% rate) (62:36–64:02).

8. ACA (Affordable Care Act) and Healthcare Subsidies

• Withdrawals impact your MAGI; cycling or bunching your income/withdrawals can help hit subsidy thresholds.
• “With the makeup of your income, you can lower the income for the year and have the same amount of income”—Mark, 59:48 (exploiting basis return vs. gains).

9. The Two Commandments of Tax-Efficient Drawdown

(Mark, 65:50)

1. Do not waste the standard deduction.
   Always fill it with ordinary income or Roth conversions.
2. Do not waste the 0% long-term capital gains bracket.
   Harvest gains, even if you don’t need the income, to maximize future flexibility.

Notable Quotes & Memorable Moments

• "Sequential drawdown is what most people in the community think of... but for early retirees, looking at a much longer horizon, some of these other approaches might make more sense..."
  —Mark, 03:13

• "It's a bad bet that [the estate tax threshold] is going to be as high as it is for the next 20 or 30 years... There’s a game of getting this money into the Roth and the taxable brokerage."
  —Scott, 30:14

• “Earned income is the worst type of income—not just because you have to work for it, but because you're taxed the most for it.”
  —Mark, 36:04

• “My favorite tax answer: it depends. Like other tax answers, drawdown during retirement depends—apply it to your circumstances.”
  —Mark, 73:10

Timestamps for Key Segments

• 00:40–03:13 – Introductions, overview of sequential vs. blended vs. cyclical drawdown
• 07:14–08:04 – Asset protection considerations for different account types
• 16:13–22:24 – Historical tax rates and why current rates provide opportunity
• 23:11–25:52 – Tax treatment of inherited accounts; why Roth and brokerages win for heirs
• 28:10–29:29 – HSA account strategy for retirement
• 36:36–39:56 – Taxation mechanics: ordinary vs. capital gains income
• 49:11–52:46 – How capital gains stack on top of ordinary income
• 54:03–58:35 – Blended vs. sequential drawdown tax impact example
• 59:42–62:02 – MAGI, ACA subsidies, and cyclical drawdown for healthcare
• 62:36–66:04 – "Recipe" for zero federal income tax on $128K, two commandments
• 71:26–73:28 – Practical implication: personalization and importance of consulting a tax pro

Summary of Takeaways

• A blended drawdown approach—carefully mixing withdrawals from multiple account types each year—can yield significant tax savings and strategic benefits for early retirees with complex portfolios.
• “Cycle” your withdrawals to optimize for tax brackets, health care subsidies, and legacy goals, rather than simply emptying accounts in sequence.
• Tax planning for retirement is nuanced; there are no universal rules—the optimal path “depends” on personal circumstances and goals.
• Work with a tax professional to tailor your approach and ensure maximum efficiency for your unique situation.

Contact Mark:
Email: markbtaxfi@mail.com (72:19)

Further Resources:
PowerPoint presentation and resources referenced are available at BiggerPocketsMoney.com/resources

“Why not take every last dollar of tax optimization as an early retiree when that's the game?”
—Scott Trench, 74:05