Glossary:

Retirement Drawdown Terms Made Simple (A to Z)

10-Year Rule (Inherited IRA)-  Non-spouse beneficiaries of inherited IRAs now have to empty the account within 10 years—often creating big tax bills without planning.

Asset Location-  Not to be confused with “allocation,” this refers to putting different types of investments in the right types of accounts (taxable, tax-deferred, tax-free) to reduce taxes.

Capital Gains-  The profit from selling an investment for more than you paid for it. Taxable if held in a taxable account.

Catch-Up Contributions-  Extra amounts people aged 50 and older can contribute to retirement accounts each year, beyond the standard limits.

Drawdown Strategy-  A personalized plan for how and when to withdraw funds from your retirement accounts to minimize taxes and maximize income longevity.

IRMAA (Income-Related Monthly Adjustment Amount)-  A surcharge on Medicare premiums for higher-income retirees. It's based on your income from two years ago—often triggered by unplanned large withdrawals.

Lifetime Tax Liability-  The total amount of taxes you’ll pay over the course of your retirement. A drawdown strategy aims to reduce this over time.

Medicare Enrollment Window-  A 7-month period starting 3 months before your 65th birthday to enroll in Medicare. Missing it can result in penalties.

QCD (Qualified Charitable Distribution)-  A direct donation from your IRA to a qualified charity—available starting at age 70½. It can count toward your RMD and doesn’t count as taxable income.

RMD (Required Minimum Distribution)-  The minimum amount the IRS forces you to withdraw each year from tax-deferred accounts (like IRAs and 401(k)s), starting at age 73 (or 72 for some). These withdrawals are taxable.

Roth 401(k)-  An employer-sponsored retirement account where contributions are made after tax. Withdrawals in retirement are tax-free if qualified.

Roth Conversion- Moving money from a traditional IRA or 401(k) to a Roth IRA. You’ll pay taxes now, but future withdrawals are tax-free. Often used to reduce future Required Minimum Distributions (RMDs).

Roth IRA-  A retirement account where contributions are made after tax, but qualified withdrawals (including growth) are tax-free.

Sequence of Returns Risk-  The danger of poor investment returns early in retirement, which can hurt your portfolio more than losses later on—especially if you’re withdrawing money at the same time.

Social Security Claiming Strategy-  The timing and approach you use to begin collecting Social Security benefits. The age you choose impacts the size of your monthly payment—and tax strategy.

Taxable Account-  Regular brokerage or investment accounts. You pay taxes on interest, dividends, and capital gains as they happen, but not when withdrawing principal.

Tax-Deferred Account-  An account like a Traditional IRA or 401(k) where you don’t pay taxes on contributions or growth until you withdraw the money.

Tax-Free Account-  Accounts like Roth IRAs or Roth 401(k)s. You pay taxes upfront, but withdrawals in retirement are tax-free if certain rules are followed.

Traditional IRA-  A tax-deferred retirement account. Contributions may be tax-deductible, and withdrawals are taxed as income.

Withdrawal Sequencing-  The order in which you take money from your accounts. Done right, it helps reduce taxes, preserve assets, and keep your income stable.