Retiring With $5 Million: What Is It Worth After Taxes?

Retiring with a $5 million portfolio may feel like reaching a clear financial milestone. However, the account balance alone does not reveal how much money will actually be available to support your retirement.

That is because retirement accounts are not all taxed in the same way. Two people may each have $5 million invested but experience very different after-tax income depending on whether their assets are held in traditional retirement accounts, Roth accounts, taxable brokerage accounts, or a combination of all three.

Why does account type matter in retirement?

The location of your investments can influence when taxes are owed and how withdrawals affect your taxable income.

The three primary account categories generally include:

1. Traditional retirement accounts

Traditional IRAs and employer-sponsored retirement plans may contain contributions that received an upfront tax benefit.

Withdrawals of deductible contributions and earnings from a traditional IRA are generally included in taxable income. These accounts may also become subject to required minimum distribution rules.

2. Roth retirement accounts

Roth accounts are generally funded with money that has already been taxed. When applicable requirements are satisfied, qualified Roth IRA distributions may be tax-free.

This may give retirees access to a source of income that does not create the same immediate income-tax consequences as withdrawals from traditional retirement accounts.

3. Taxable brokerage accounts

A withdrawal from a taxable brokerage account is not necessarily taxed in its entirety.

Instead, taxes may apply to interest, dividends, capital-gain distributions, and gains realized when an investment is sold for more than its adjusted cost basis. The tax treatment may also depend on the investment and how long it was held.

How could two $5 million portfolios produce different outcomes?

Consider two retirees with identical portfolio balances.

One retiree may hold most of the $5 million in a traditional IRA. Much of the money withdrawn from that account could be treated as taxable income.

Another retiree may hold assets across traditional retirement accounts, Roth accounts, and taxable investments. That person may have greater flexibility when deciding which accounts to use for annual spending.

The portfolios may look identical on paper, but their potential tax obligations and spendable income could be substantially different.

This is why retirement readiness should not be evaluated using the portfolio’s headline value alone.

What is tax diversification?

Tax diversification involves holding assets across accounts with different tax treatments.

Depending on the individual circumstances, having multiple account types may provide greater flexibility when creating retirement income. A retiree may be able to choose among taxable, tax-deferred, and potentially tax-free sources based on current spending needs and tax considerations.

However, tax diversification does not mean dividing money equally among every account type. The appropriate structure depends on factors including:

• Current and expected future tax rates
• Retirement timing
• Spending requirements
• Required distributions
• Estate and charitable goals
• Investment time horizon
• Existing account balances
• Eligibility for different account types

Tax diversification is one component of a broader retirement strategy, not a guarantee of lower taxes.

Why does withdrawal order matter?

The sequence in which accounts are used may influence how long the portfolio lasts and how much is ultimately paid in taxes.

A withdrawal strategy may consider:

• Which accounts should fund current spending
• When traditional retirement accounts should be accessed
• Whether Roth assets should be preserved for later years
• How investment gains and losses may be managed
• When charitable gifts should be made
• Whether planned Roth conversions should be considered
• How withdrawals may affect other parts of the financial plan

Automatically withdrawing from one account until it is depleted may overlook opportunities to coordinate taxes, investment risk, and future income.

Is reducing taxes always the primary objective?

Taxes matter, but minimizing taxes in a single year is not necessarily the same as improving the entire retirement plan.

For example, delaying distributions from traditional retirement accounts may reduce current taxable income but potentially create larger taxable distributions in future years. Alternatively, recognizing additional income during a lower-income year may sometimes support a longer-term strategy.

Investment allocation also matters. Decisions should not be based exclusively on tax treatment if they create inappropriate investment risk or interfere with retirement spending needs.

The objective is to coordinate taxes with income, investments, risk, and long-term goals, not to make every decision based on taxes alone.

What should you review before retiring?

Before relying on a $5 million portfolio to fund retirement, consider asking:

• How much is held in traditional, Roth, and taxable accounts?
• What portion of the portfolio may be subject to future taxes?
• How much after-tax income will be needed each year?
• Which accounts should fund the first years of retirement?
• Could large future distributions create additional tax consequences?
• Are Roth conversions or charitable strategies worth evaluating?
• How should withdrawals change during different market conditions?
• What assets are intended for heirs or charitable organizations?

These questions should be evaluated with qualified financial and tax professionals using current tax rules and the retiree’s individual circumstances.

Aventura Private Wealth helps individuals and families coordinate their investments, retirement income, account structure, and withdrawal strategies around their long-term goals. The amount you have accumulated matters, but where that money is held and how it is withdrawn can be just as important.

Aventura Private Wealth, LLC (“APW”) is a Registered Investment Adviser ("RIA"). Registration as an investment adviser does not imply a certain level of skill or training, and the content of this communication has not been approved or verified by the United States Securities and Exchange Commission or by any state securities authority. APW renders individualized investment advice to persons in a particular state only after complying with the state's regulatory requirements, or pursuant to an applicable state exemption or exclusion. All investments carry risk, and no investment strategy can guarantee a profit or protect from loss of capital. Past performance is not indicative of future results.