top of page
Search

The 1-Page Distribution Policy (Pay Yourself Right)

ree

Many families overpay taxes because withdrawals are ad hoc. Here’s a one-page Distribution Policy you can actually run: order, bands, and rules that cut tax drag.

What this solves:

 Ad-hoc withdrawals create three silent costs:


  1. Selling the wrong lot at the wrong time,

  2. Tripping avoidable brackets/IRMAA,

  3. Carrying too little cash and selling into drawdowns. 


A written Distribution Policy fixes that.

The policy—on one page

1) Order of withdrawals (default): Taxable → Tax-deferred → Roth. Exceptions:


  • Fill the 0%/15% capital-gains room in taxable before tapping IRA/401(k).

  • Respect RMDs and watch IRMAA cliffs when pulling from tax-deferred.

  • In high-income years, defer IRA taps and fund spend from taxable + Roth; in low-income years, flip it.


2) Realization bands (so you’re not guessing):


  • Use relative-weight bands (e.g., ±20% vs target) to trigger trims/adds.

  • Harvest losses methodically to offset gains and maintain exposure.

  • Harvest gains into low-bracket windows or when reducing concentration—pair with losses or charitable gifts.


3) Cash buffer: 

Keep 12–24 months of spend in safe cash/short duration so markets don’t force sales.

4) Charitable wrappers when trimming: 

Use a DAF for appreciated lots you’re reducing. At 70½+, use QCDs from IRAs to satisfy part of RMD without raising AGI.

5) Roth-conversion windows: Convert in low-income years (gap years, early retirement, sabbatical). Cap conversions to stay below the next tax bracket and IRMAA tier.

6) Equity-comp specifics (if applicable): 

Set rules for RSUs/Options/ESPP:


  • Auto-diversify RSUs on vest,

  • Use a 10b5-1 for option exercises,

  • Pre-plan grant-cliff years.


7) Guardrails & cadence:


  • Max tax-drag target (e.g., “keep blended tax drag ≤ X%”).

  • Quarterly review; refresh after life changes (sale, move, inheritance).


Hypothetical example (how this changes outcomes) 

Couple, 62/61, $5.4M total: $2.2M taxable (large gains), $2.6M IRA/401(k), $0.6M Roth. Spend need $220k/yr. 

Policy run: Fund first 24 months from cash/short duration + selective taxable trims paired with loss harvesting; fill the 0%/15% CG room. Start partial Roth conversions to the top of the current bracket while pre-RMD. 

Result: same lifestyle, lower AGI, fewer IRMAA hits, smaller future RMDs—without “feeling” different.

30-day implementation


  • Week 1: Draft the one-pager: order, bands, buffer size.

  • Week 2: Map brackets/IRMAA thresholds and your gains/losses inventory.

  • Week 3: Execute one rebalance/harvest pair; fully fund the buffer.

  • Week 4: Decide on this year’s Roth-conversion target and schedule.



 
 
bottom of page