Tax-Efficient Withdrawal Strategies for Google Employees
After retiring from Google, the way you withdraw your savings can have a major impact on how much of your money you get to keep. In fact, the wrong strategy could cost you many thousands in additional taxes. Here’s how to avoid that mistake.
Looking at Your Tax Buckets
As a Google employee, you likely have retirement savings spread across different "tax buckets," each with distinct tax treatment.
Tax-Deferred Accounts
For most employees, a traditional Google 401(k) or IRA is the largest retirement savings vehicle. These accounts hold pre-tax dollars that give you a tax deduction when you contribute to them and grow tax-deferred throughout your career.
When you withdraw from these accounts in retirement, your distributions will be taxed as ordinary income at your current rate. If you are in a lower tax bracket in retirement, this could allow you to keep more of the money you’ve saved up during your career.
However, these tax-deferred accounts are subject to required minimum distributions (RMDs). If you were born between 1951 and 1959, you will have to start withdrawing RMDs at age 73. If you were born in 1960 or later, you’ll have an extra two years, with RMDs kicking in at age 75.
Roth Accounts
If you've contributed to Roth accounts, those funds were already taxed and can be withdrawn tax-free in retirement. This might include:
A Roth 401(k) account
A Roth IRA
Unlike traditional pre-tax accounts, Roth accounts are exempt from RMDs during your lifetime, giving you complete control over when and whether to tap these funds.
Taxable Brokerage Accounts
Your taxable investment accounts work differently from both traditional and Roth retirement accounts. You contribute after-tax dollars to these accounts, but unlike Roth accounts, the growth isn't tax-free.
When you sell your investments, you will pay capital gains tax on the appreciation since you purchased them. Long-term capital gains rates are generally lower than ordinary income tax rates, so holding your investments for longer can help you save more.
Google Stock Units (GSUs)
Your vested GSUs are a key part of your retirement planning. These shares are taxed as ordinary income when they vest, setting your cost basis at that vesting date value. Any appreciation after vesting will be taxed as a capital gain when you sell, while depreciation will create a capital loss you can use to offset other gains.
The Conventional Wisdom (And Why It's Not Always Best)
The most common withdrawal sequence is to drain taxable accounts first, move to tax-deferred accounts next, and save Roth accounts for last. The reasoning for this is simple:
Taxable accounts have the most favorable tax treatment since you're only taxed on gains at capital gains rates.
Tax-deferred accounts are taxed as ordinary income, so you use them next.
Roth accounts provide tax-free income that you want to preserve as long as possible for maximum tax-free growth.
The primary flaw of this approach is the RMD requirements for tax-deferred accounts. By draining taxable accounts early and letting your 401(k) grow untouched, you're setting yourself up for massive RMDs that will push you into higher tax brackets in your 70s and beyond. Those large distributions can also trigger higher taxes on your Social Security benefits and add thousands in Medicare IRMAA surcharges.
For employees retiring with seven-figure 401(k) balances, this sequential approach can easily cost six figures in unnecessary lifetime taxes.
Another Strategy: The Proportional Approach
If the usual approach doesn’t make sense, there is another great option. The proportional withdrawal strategy flips the conventional wisdom on its head. Instead of draining one account type completely before moving to the next, you withdraw from every account type each year based on that account's percentage of your overall retirement savings.
Here's how it works in practice:
Let’s say you have $500,000 in your 401(k), $300,000 in taxable accounts, and $200,000 in Roth accounts: a 50/30/20 split.
If you need $60,000 for the year, you'd withdraw $30,000 from your 401(k), $18,000 from taxable accounts, and $12,000 from your Roth.
The next year, you recalculate the percentages based on current balances and withdraw proportionally again.
This strategy spreads your tax burden evenly across your retirement years rather than concentrating it. You're gradually drawing down your 401(k) throughout retirement instead of letting it balloon until RMDs force massive distributions. The result is often lower lifetime taxes, more predictable tax bills, and better control over your tax bracket from year to year.
Filling Lower Tax Brackets Before RMDs
Another great strategy for Google employees is strategically withdrawing from tax-deferred accounts during the years between retirement and when RMDs begin.
The Low-Income Window
If you retire at 60 or 62 but don't claim Social Security until 67 or 70, you create a window of relatively low taxable income. During these years, you might find yourself in the 10% or 12% federal tax bracket, even if you're currently in the 24% or 32% bracket. This temporary drop in income creates an opportunity to "fill up" these lower brackets by intentionally taking larger distributions from your traditional 401(k) or IRA.
When RMDs begin, this strategy can pay off in a big way. Those forced distributions at age 73 or 75, combined with Social Security benefits, could easily push you back into a very high tax bracket. By withdrawing more during your low-income years, even if you don't need the money immediately, you're spreading your income out to keep your tax rates more stable. You're also reducing your future RMD amounts by shrinking the balance that those percentages will be applied to.
Example: Strategic Early Withdrawals
Let’s say Sarah retired from Google at 62 with $1.5 million in her traditional 401(k). She has taxable savings to cover her living expenses and doesn't need to tap the 401(k) yet. But instead of leaving it untouched, she withdraws $60,000 annually from the 401(k) throughout her 60s, keeping herself in the 12% bracket. She reinvests this money in her taxable brokerage account, where it continues to grow.
By the time RMDs begin at age 73, her 401(k) balance has been reduced substantially through these strategic withdrawals. Her RMDs are manageable and don't spike her into higher brackets. Without this approach, her RMDs would have been significantly larger, potentially taxed at 22% or 24% instead of the 12% she paid earlier.
Over Sarah’s retirement years, this strategy could save her well over $100,000 in taxes.
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Roth Conversion Strategies
Roth conversions deserve special attention for Google employees with large traditional 401(k) balances. A conversion means moving money from your traditional 401(k) or IRA into a Roth IRA and paying taxes on the converted amount in the year you do it.
When to Consider Roth Conversions
Because Roth conversions are taxed, the best time to do this is in years when you're in a relatively low tax bracket. For most Google employees, this means the years between retirement and claiming Social Security or before RMDs increase your income. The sweet spot for many retirees falls between ages 60 and 73 (or 75).
If you expect to be in a higher tax bracket in the future, paying taxes now at a lower rate makes sense. You're essentially prepaying your tax bill at a discount. For Google employees building substantial pre-tax 401(k) balances, converting some of those funds now while you're in a lower bracket can generate major tax savings later on.
How Much to Convert
The traditional approach is to convert just enough to "fill up" your current tax bracket without spilling into the next one. For example, if you're married filing jointly in 2026 with $150,000 in taxable income, you're in the 22% bracket, which extends up to $211,400. You could convert up to $61,400 while staying in the 22% bracket.
Some situations justify converting more aggressively and accepting higher rates now. If you're confident that tax rates will rise substantially in the future, or if your RMDs will push you into much higher brackets, it might make sense to fill up the 24% bracket. The jump from 24% to 32% is significant, making the 24% bracket an attractive stopping point for many high-balance retirees.
Paying Conversion Taxes
A critical rule to maximize the benefit of Roth conversions is paying the conversion tax from sources outside the retirement account. If you convert $100,000 and pay $22,000 in taxes from the IRA itself, you've only moved $78,000 to Roth. If you pay the $22,000 from taxable savings instead, you've moved the full $100,000 to Roth, where it can grow tax-free forever.
This is where having taxable savings becomes valuable. You can use your brokerage account to pay conversion taxes, and you will be moving more money into the tax-free bucket. Just remember to account for the taxes when planning your conversions. If you want to convert $100,000 but you're in the 24% bracket, you'll need $24,000 available in taxable funds to cover the tax bill.
Managing Social Security Taxation
How you withdraw retirement funds will impact how your Social Security benefits get taxed. Understanding this connection can save you thousands annually once benefits begin.
Social Security taxation hinges on your "combined income.” This means your adjusted gross income plus tax-exempt interest plus half of your Social Security benefits. For married couples filing jointly, a combined income between $32,000 and $44,000 means up to 50% of benefits are taxable. Above $44,000, up to 85% of benefits are taxable. Single filers face thresholds at $25,000 and $34,000.
Here's where your withdrawal strategy matters: Distributions from traditional 401(k)s and IRAs count as income and add to your combined income number. Roth withdrawals don't count at all. Capital gains from selling stocks in taxable accounts do count. This creates opportunities to manage your tax bracket.
If you're right at the edge of a Social Security taxation threshold, pulling from your Roth instead of your 401(k) could keep you under the limit and save you thousands. Conversely, if you're already well above the threshold, there's less penalty for taking additional 401(k) withdrawals. Strategic planning around these thresholds, combined with Roth conversions during pre-Social Security years, can dramatically reduce taxation of your benefits over your lifetime.
Google Stock Considerations
Your Google stock deserves special attention in your withdrawal planning because of its unique tax treatment.
Cost Basis and Tax Treatment
When your GSUs vest, you pay ordinary income tax on their value. That vesting date value becomes your cost basis. If you sell shares that have appreciated since vesting, you'll pay long-term capital gains tax on the growth (assuming you've held them for more than a year). If the stock has declined, you can realize a capital loss to offset other gains.
If you have highly appreciated shares, you might time their sale for years when you're in the 0% or 15% capital gains bracket rather than the 20% bracket. If you have shares showing losses, you might sell them to harvest tax losses that can offset other gains or up to $3,000 of ordinary income annually.
Diversification vs. Tax Efficiency
Many Google employees retire holding concentrated positions in company stock, sometimes representing 30%, 50%, or even more of their net worth. While it's tempting to hold these shares indefinitely to defer taxes, the tax benefits aren’t worth the concentration risks.
A balanced approach might involve gradually selling shares over several years to spread the tax impact. If you're in a lower tax bracket early in retirement, that's an ideal time to diversify. You can sell appreciated shares at favorable capital gains rates while you're in the 12% or 22% ordinary income bracket, which corresponds to the 0% or 15% capital gains rate.
Tax-Loss Harvesting
During market downturns, Google stock that has declined since vesting presents opportunities for tax-loss harvesting. You can sell shares at a loss to offset gains elsewhere in your portfolio or take up to $3,000 against ordinary income. If you want to maintain your Google exposure, wait 31 days to avoid the wash sale rule, then repurchase shares if desired.
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Common Withdrawal Mistakes to Avoid
Even well-intentioned retirees make costly mistakes when executing their withdrawal strategies. Being aware of these pitfalls helps you steer clear of them.
Mistake #1: Ignoring Tax Bracket Thresholds
Many retirees withdraw round numbers without considering where they fall in their tax bracket. Taking out $95,000 instead of $96,700 might seem trivial, but if that extra $1,700 pushes income into the next bracket (or triggers a Social Security taxation threshold or IRMAA surcharge), you're paying significantly more in total taxes. Know your bracket limits and withdraw strategically up to but not over the thresholds that matter.
Mistake #2: Letting 401(k) Balances Grow Too Large
Retiring with a $2 million traditional 401(k) and letting it grow untouched for 10 or 15 years creates a ticking tax bomb. Your RMDs will be enormous, potentially forcing you into the highest tax brackets for the rest of your life. Strategic withdrawals or Roth conversions during early retirement years prevent this problem by reducing the balance before RMDs begin.
Mistake #3: Taking Too Much From Roth Too Early
Roth accounts are your most valuable tax asset because every dollar can grow tax-free forever. Withdrawing from Roth when you could take from other sources wastes this benefit. Unless you absolutely need the money and have exhausted other options, leave Roth accounts alone as long as possible to maximize their tax-free growth.
Mistake #4: Forgetting About Medicare IRMAA
High-income retirees pay surcharges on Medicare Part B and Part D premiums through Income-Related Monthly Adjustment Amounts. These surcharges kick in at income levels starting around $106,000 for individuals and $212,000 for married couples, with the surcharges based on income from two years prior. Large IRA withdrawals or Roth conversions can trigger IRMAA surcharges that add thousands annually to your Medicare costs. Plan large distributions carefully around your Medicare enrollment.
Mistake #5: Not Coordinating With a Spouse
If you're married, your withdrawal strategy should consider both spouses' accounts and income as one combined portfolio. When one spouse dies, the survivor faces higher tax brackets when filing as single. This reality often justifies doing more Roth conversions while both spouses are alive to reduce the surviving spouse's future tax burden.
Putting It All Together: Creating Your Personalized Strategy
Unfortunately, there’s no one-size-fits-all solution for distributions in retirement. No single withdrawal strategy works for everyone. The right approach will depend on your total retirement assets, spending needs, tax situation, and goals. That said, Google employees approaching retirement often share several characteristics that influence optimal withdrawal planning:
Most have substantial pre-tax 401(k) balances built through years of maximum contributions on high incomes.
Many hold concentrated Google stock positions from accumulated GSUs.
Some have significant Roth balances from mega backdoor Roth contributions.
Most expect higher-than-average spending in retirement due to their pre-retirement lifestyle and income.
These factors generally point toward a more aggressive approach to Roth conversions during early retirement years, strategic realization of capital gains at 0% rates when possible, and a proportional withdrawal strategy that spreads tax impact across multiple account types rather than sequential draining.
The key is running projections before you retire. Model different scenarios. Convert $50,000 to Roth annually, or $100,000, or $150,000. Compare total lifetime taxes. See how different withdrawal sequences affect your tax brackets over 30 years. Look at the impact on Social Security taxation and Medicare premiums. These projections often reveal that paying moderately higher taxes early in retirement to avoid much higher taxes later produces significant lifetime savings.
Get Professional Guidance for Your Withdrawal Strategy
Fine-tuning your retirement withdrawals is complex, especially with multiple income sources and substantial assets. The decisions you make about how much to convert to Roth, which accounts to tap, and when to claim Social Security can compound into six-figure differences in lifetime taxes. With such high stakes, it pays to have a little help.
At TrueWealth Financial Partners, we specialize in helping professionals navigate these complexities. As fee-only fiduciary financial advisors based in Bellevue, WA, we provide objective advice tailored to your unique situation. We can help you develop a tax-efficient withdrawal strategy that coordinates your Google 401(k), Roth accounts, taxable investments, Google stock, and Social Security to minimize lifetime taxes and maximize what you keep.
Schedule a free consultation today to discuss your retirement withdrawal strategy. Together, we can build a plan that helps your wealth last throughout your lifetime while keeping more money out of the IRS's hands.
FAQs
Should I always withdraw from taxable accounts first?
Not necessarily. While taxable accounts often have favorable tax treatment through capital gains rates, the optimal strategy depends on your current tax bracket and future expectations. If you're in a very low bracket early in retirement, withdrawing from tax-deferred accounts or doing Roth conversions might make more sense, saving taxable accounts for when you're in higher brackets later.
How do Roth conversions affect Social Security taxation?
Roth conversions increase your taxable income in the year you do them, which can increase your combined income and make more of your Social Security benefits taxable that year. However, future Roth withdrawals don't count toward combined income at all. Converting before you claim Social Security can help reduce taxation of benefits throughout all your future years of receiving them.
Can I still do Roth conversions after RMDs begin?
Yes, you can continue Roth conversions after RMDs start. However, you must take your full RMD first before doing any conversions. RMDs themselves cannot be converted to Roth. The RMD is calculated before any conversions, so converting during the year doesn't reduce your current year's RMD amount.
Should I keep some Google stock for the step-up in basis at death?
If you have low-basis Google stock that you won't need for retirement spending, holding it until death can make sense for your heirs. They'll receive a step-up in basis to the value at your death, eliminating all capital gains tax on appreciation during your lifetime. However, don't let the tail wag the dog. Avoiding concentration risk through diversification should always take precedence over tax considerations.
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