You plan to retire in the next few years. You’ve worked out your retirement budget. The next question is how to generate the income you need in a way that is tax efficient, sustainable, and maximizes your resources.
Social Security will be an important source of income in retirement. Up to 85% of your Social Security benefit may be taxable, depending on your “combined income” and whether you file as single, married filing jointly, married filing separately, or head of household. Combined income generally includes adjusted gross income, tax-exempt interest, and one-half of your Social Security benefit.
A Simple Distribution Strategy
One common approach is to coordinate withdrawals from different sources in a way that manages taxes, preserves flexibility, and allows certain assets to remain invested as long as appropriate. However, the right order depends on your tax situation, income needs, RMDs, estate planning goals, and, for clergy, the availability of the parsonage allowance.
For clergy, Traditional pre-tax JRB assets may be the first place to look and the last place to overlook. Retired clergy may be able to claim eligible JRB distributions as parsonage allowance, but only from Traditional pre-tax assets held in a denominational retirement plan such as the JRB 403(b) Retirement Plan. This benefit is not available from Roth after-tax assets or from non-denominational retirement accounts. For many clergy, using JRB pre-tax assets to support eligible housing expenses is a priority before deciding which other assets from which to draw.
For participants who are not eligible for the parsonage allowance, or for clergy drawing income beyond their eligible housing allowance, a traditional withdrawal framework may include:
- Cash and Cash Equivalents –These accounts are generally funded with after-tax dollars, so withdrawing principal typically does not create additional taxable income. However, interest earned on money-market accounts, CDs, and similar holdings is generally taxable. Think twice about exhausting these accounts if they are part of your rainy-day fund. Financial experts recommend keeping enough cash available to pay three-to-six months of expenses.
- Taxable Brokerage Accounts – You’ve already paid income tax on the funds invested in these accounts. Selling these assets may generate capital gains or losses. Gains on investments held for more than one year are generally taxed at long-term capital gains rates, which may be lower than ordinary income tax rates.
- Pre-Tax Retirement Assets – such as your Traditional pre-tax JRB retirement savings. Distributions from pre-tax retirement assets are generally taxable as ordinary income, except for amounts properly claimed by eligible clergy as a parsonage allowance. Taking distributions allows you to smooth out your taxable income while managing your tax bracket. Because you pay taxes on withdrawals from pre-tax investments, keeping this balance invested may support long term tax-deferred growth.
- Roth After-Tax Assets – If your JRB account includes Roth investments, your contributions were made with after-tax dollars. Your earnings grew tax-free. Qualified withdrawals are tax free (you must generally be over age 59½ and the account must have been open for at least five years). Because Roth accounts offer tax-free growth and tax-free withdrawals, many people choose to preserve them as long as possible.
Additional Considerations
For Clergy
Because the parsonage allowance can be a significant retirement planning benefit, retired clergy should consider how annual distributions from Traditional pre-tax JRB assets may coordinate with their eligible housing expenses. Distributions properly claimed as parsonage allowance may be excluded from federal income tax, subject to applicable rules and limits. This benefit is available only from Traditional pre-tax assets held in a denominational retirement plan such as the JRB 403(b) Retirement Plan, not from Roth after-tax assets. Retired clergy generally do not pay SECA taxes on retirement plan distributions, including amounts claimed as parsonage allowance. Because this benefit depends on individual circumstances and housing expenses, clergy should maintain appropriate records and consult their tax advisor. If you have questions about the housing allowance, please contact us.
Required Minimum Distributions
Under current law, if you reach age 73 (or age 75 if born in 1960 or later) by the end of the year, you must take a Required Minimum Distribution (RMD) from each of your tax-deferred retirement accounts, such as your pre-tax JRB savings and Traditional IRAs. If you are still working, you are not required to take an RMD from your current employer’s plan. The formula for calculating the RMD is based on your age and the balance in your account at the end of the previous year. RMD withdrawals are taxable as ordinary income. Since RMDs are not optional, you should consider them part of your retirement income plan before dipping into other assets. Note: Roth 403(b) accounts, including those in the JRB plan, are no longer subject to RMDs during the original owner’s lifetime, which is another reason participants choose to preserve Roth savings.
Roth After-Tax Assets
Roth assets can offer valuable tax benefits both during your lifetime and for your beneficiaries. For you, qualified Roth withdrawals are generally tax-free and do not add to taxable income. This can provide retirement cash flow without increasing the income used to determine your tax bracket, the taxable portion of your Social Security benefits, or certain Medicare-related income thresholds. For your beneficiaries, inherited Roth assets may also provide significant tax advantages because qualified Roth withdrawals are generally tax-free, while withdrawals from inherited Traditional pre-tax retirement assets are generally taxed as ordinary income. As a result, preserving Roth assets can be a powerful estate planning strategy, especially for participants who want to leave heirs a more tax-efficient source of retirement assets.
Seek Balance
From a tax perspective, it is important to seek balance when planning withdrawals from your retirement accounts.
- Clergy who want to get the most out of the parsonage allowance may consider taking distributions from pre-tax assets at least equal to the parsonage allowance they plan to claim.
- Retirees who want to take advantage of deductions, including the standard deduction, may want to have taxable income at least equal to the deductions they want to take.
- Retirees looking to reduce income taxes in a given year can lean on their Roth assets, since qualified Roth withdrawals are tax-free.
- Retirees desiring to reduce the tax burden on beneficiaries may prioritize saving Roth assets as inheritance for their heirs.
- If your estate plan includes leaving assets to tax-exempt entities, such as charities, you may want to target your tax-deferred assets for such gifts, since charities generally do not owe income taxes on withdrawals.
Everyone’s individual situation is different and some of these options may not be appropriate for you. Your family’s finances may justify a different approach. Regardless of how you generate retirement income, it is important to understand the tax implications of your decisions.
The JRB can help you think through your retirement income options and how your JRB account may fit into your broader plan. Contact us at staff@jrbcj.org or call 888-JRB-FREE (572-3733).
JRB provides this information for general educational purposes only. It is not intended as legal, tax, or investment advice.
July 2026