The NC Retirees Guide to Tax-Efficient Income: Where to Pull Money from First When You Retire
As Certified Financial Planners (CFP) in Raleigh, we’ve seen many retirees in the Triangle area follow "conventional wisdom" that inadvertently costs them thousands in unnecessary taxes. Whether you are a former IBM or GSK executive or a long-time resident of North Hills, when you retire your withdrawal strategy can be nearly as important as your investment returns.
For decades, you’ve focused on the "accumulation" phase—building your nest egg through 401(k)s, IRAs, and brokerage accounts. But as you transition into retirement in the Raleigh-Durham area, the game changes. You are moving from a single paycheck to a complex web of income sources, each with its own tax rules.
At Ark Royal Wealth Management, we believe a "one-size-fits-all" approach to withdrawals is a mistake that can lead to a significant lifetime tax bill. Instead, we use a three-step framework to help our clients create a sustainable, tax-smart "retirement paycheck".
Step 1: Identify Your Fixed Income Foundation
Before touching your investment portfolio, you must identify your guaranteed income. This includes:
Social Security: For many Raleigh couples, this might be $60,000 or more annually.
Pensions & Deferred Comp: Common for our clients with backgrounds in local pharma or tech.
Rental Income: Whether it’s a townhouse in Cary or a vacation home at the coast.
Step 2: Determine the "Gap"
Next, we calculate the difference between your fixed income and your actual lifestyle expenses. If your lifestyle requires $125,000 a year and you have $60,000 in Social Security, your portfolio must bridge a $65,000 gap.
Step 3: Strategically Fill the Gap (The 3-Bucket Approach)
This is where conventional wisdom often fails. Most people are told to spend down taxable accounts first. However, for 2026, a married couple in North Carolina filing jointly has a potential standard deduction of $47,500.
By only pulling from taxable accounts, you might be wasting space in the lower tax brackets. Instead, we often recommend:
Tax-Deferred (Traditional IRAs): Pulling enough to fill your 12% bracket.
Taxable (Brokerage): Using this for the remainder to take advantage of return of principal.
Tax-Free (Roth IRAs/HSAs): Keeping these as your "long-term growth engines".
Why Raleigh Residents Need a Local Strategy
North Carolina State Taxes: NC has a flat income tax rate, which is scheduled to drop to 3.99% in 2026. While lower than many states, it still applies to most retirement distributions.
North Carolina, like many other states, does not tax Social Security income. This makes maximizing your benefit even more valuable.
Medicare IRMAA Surcharges: Crossing certain income thresholds (starting at $218,000 of MAGI) can trigger monthly Part B & Part D surcharges that increase your Medicare premiums by thousands of dollars.
Asset Location: Your investments should match their "job." Your Roth IRA should often be more aggressive for long-term growth, while your Traditional IRA should be more conservative if you need the cash in the next 24 months.
Take Control of Your Retirement Paycheck
Managing your taxes in retirement isn’t a one-time event; it’s an annual projection. Small adjustments today can save you tens of thousands of dollars over a 30-year retirement.
Frequently Asked Questions
How do North Carolina state taxes impact my retirement withdrawals?
North Carolina currently taxes most retirement income at a flat rate, which is scheduled to decrease to 3.99% by 2026. While the state does not tax Social Security benefits, your distributions from Traditional IRAs and 401(k)s will generally be subject to this flat tax.
What is the "12% Tax Bracket Gap" mentioned in the strategy?
For a married couple filing jointly in 2026, the 12% federal tax bracket goes up to $100,800 of taxable income. This is the income after your deductions. If your fixed income only fills a portion of this, you have "space" to withdraw money from tax-deferred accounts (like a Traditional IRA) at that 12% rate. Failing to use this space often means paying higher taxes later when Required Minimum Distributions (RMDs) kick in.
What are IRMAA surcharges, and why do they matter to Raleigh retirees?
IRMAA (Income-Related Monthly Adjustment Amount) is an extra charge added to your Medicare Part B and Part D premiums if your Modified Adjusted Gross Income (MAGI) exceeds certain thresholds. For many, crossing the $218,000 threshold can result in significantly higher healthcare costs. IRMAA surcharges can increase Medicare premiums by over $18,000 per year for a couple. The important thing to remember about IRMAA is that the brackets aren’t graduated. If you go over a threshold by just one dollar – your entire premium increases. This is what’s known as IRMAA “cliff" thresholds.
Should I always spend my brokerage account before my IRA?
Not necessarily. While conventional wisdom suggests spending taxable money first to let tax-advantaged accounts grow, this can lead to "tax spikes" later in life. By taking some income from your Traditional IRA now at lower rates, you can reduce the future size of the account and the associated tax burden.
When should I consider a Roth conversion?
If you have a large Traditional IRA and find yourself in a lower tax bracket today than you expect to be in the future, a partial Roth conversion may be beneficial. This involves moving money from a Traditional IRA to a Roth IRA and paying the taxes now, which can help avoid massive Required Minimum Distributions (RMDs) down the road.
Ready to build a smarter retirement strategy?
Ark Royal Wealth Management is a fee-only, fiduciary firm in Raleigh. We’ve helped hundreds of families navigate these complex decisions. Click on See If We're a Fit to learn how me can work with you!
