planning | 10 min

How does Penny's Withdrawal Optimizer work?

Discover how the Withdrawal Optimizer helps you effectively manage and strategize portfolio withdrawals.

Last published on: August 16, 2026

Most advisors encounter this task weekly or daily: a client calls and says they need some money. Maybe it's $10,000. Maybe it's $100,000. This sounds easy to the client, but delivering an investment-smart, tax-smart, and plan-smart plan for the requested withdrawal is a difficult and complex task for the advisor the brings up a slew of important questions:

Where is this money going to come from?
Which accounts should they tap?
Which holdings should they sell?
What are the tax consequences of this action?
Should they sell high-basis stock in taxable accounts?
Should they harvest losses to offset gains?
Should they harvest gains to book 0% capital gains and reset basis?
Should they take from tax-deferred accounts?
If so, what withholding levels should they set?
Are there RMDs still to be taken this year that should be handled now as part of this withdrawal?
Should they withdraw from Roth accounts to control AGI, MAGI, or taxable income and avoid entering new Medicare IRMAA brackets, income tax brackets, or to avoid losing tax or ACA credit advantages?
Is there an opportunity to do charitable giving to offset some of the tax impacts of this withdrawal?

Penny's Withdrawal Optimizer tool solves this problem, saving advisors hours of time each week and delivering a repeatable process for answering these common client requests.

It is particularly important to note that none of the questions above is easily answered (or answered well) without access to a detailed plan of what's happening this year (and in the next few years) in the clients' life: What other income is at play? Is there Social Security income? Is Medicare IRMAA at play? Are there any credits, deductions, or thresholds nearby? These are tactical questions that rely for good answers on knowing details about the client situation.

Penny | Withdrawal Optimizer Transcript

I want to introduce you to something that's going to change the way you do business and save you hours of time every week, plus help you deliver better value to clients.

It's the Withdrawal Optimizer inside Penny.

Most advisers encounter this task weekly or even daily. A client calls and says they need some money. Maybe it's $10,000. Maybe it's $100,000.

Seems like an easy task to the client, but immediately the adviser is thinking: Where's the money going to come from? Which account should we tap? Which holdings should we sell? What are the tax consequences of this action? What are the investment consequences?

Should we sell high-basis stock in taxable accounts? Should we harvest losses? Should we harvest gains? Should we take from tax-deferred accounts? Which withholding levels should we set? Are there RMDs to be taken? Should we withdraw from a Roth account so that we can control AGI, MAGI, or taxable income?

Is there an opportunity to do some charitable giving to offset the tax impacts of the withdrawal?

It's actually a really complicated situation and one that most advisers try to do in spreadsheets. But because it's so complicated, there's a lot of risk there.

With the Withdrawal Optimizer inside Penny, we already know everything about the client's plan. So just by entering a withdrawal amount, you get a tax-smart, plan-smart, investment-smart recipe for this withdrawal right away.

Now, there are lots of different things that an adviser could care about here.

Initially, you're going to get a withdrawal strategy that knows all about the other planned withdrawals for the year and gives you the marginal additional taxes that this is going to cost them.

So, in this case, a million dollars is going to cost them $61,000.

By default, we are grossing up the withdrawal, but you could do just a gross withdrawal amount. By default, we're covering all the taxes, but you could also do a safe harbor minimum or even say, "We're going to pay this separately. Just tell me what the taxes are."

You're getting down to the holding-level numbers, including losses that offset parts of it.

You're getting withholdings at both the federal level and, if I add a state here, the state level as well, including withholding percentages.

It's going to tell you the forms to use to do those withholdings and so on.

Like I said, you can actually do a ton of additional work.

For example, of course, we're trying to create great post-tax returns for people. That means paying attention to taxes, but it also means paying attention to investments.

Here, you can remove possible holdings from the equation. You can cap how much of a given position you would sell. You can add an account order for which accounts to tap first.

You can set up standing-order withholdings and tell the optimizer whether to follow those orders or tell you different withholdings that you would set.

You can turn on or off harvesting of gains or losses.

You can set bracket management levels where you'll tap Roth accounts in order to stay within particular levels, or at least minimize amounts over certain levels, including Medicare IRMAA, ACA brackets, or tax brackets.

You can tell us whether you have taken RMDs this year and whether that'll include some RMDs in the plan.

And you can set up possible charitable offsets to the account.

So, tons of incredibly powerful things you can do here.

But again, even before doing any of that, simply typing in an amount that the client asked for gives you a tax-smart, investment-smart, plan-smart withdrawal plan that you can then print and go execute.

The Plan a Withdrawal tool in Penny answers these questions quickly and easily:

If the client needs a specific amount of spendable cash, which accounts and holdings should fund it, and what does that cost in tax and withholding?

And, because Penny has access to the clients' financial plan, asset allocation, and holdings, the tool provides these answers instantly. Even advisors who don't specialize in or focus on financial planning would have a lot of trouble answering these questions without full client plan context. This is the magic of Penny: tools in Penny have full plan context along with the tactical detail needed to turn plans into actions.

Defining the Need

“Cash in Hand” or “Gross Withdrawal” mode

Are we planning a withdrawal with a target net-of-tax amount in mind ("Cash in Hand") or do we have a known gross-of-tax amount we're targeting ("Gross Withdrawal")? If “Cash in Hand” is chosen (the default), the tool will gross up the withdrawal to handle taxes. The amount of tax involved in the gross-up depends on the next setting.

“Cover tax (no April surprise)”, “Safe-harbor Minimum”, or “None (pay via estimates)” Withholding setting

If “Cover tax” is chosen, the tool will gross up for all estimated additional marginal tax in this withdrawal so that the net-of-tax amount estimated matches the requested amount.
If “Safe-Harbor Minimum” is chosen, the tool will look at the safe-harbor tax amount for this year that will protect someone from underpayment penalties and gross up the withdrawal enough to cover this. On this setting, last year's AGI and taxes paid are needed. These will be fed in, if available, from the financial plan, but the advisor should confirm they are using the right numbers. You'll also have to enter the withheld or estimated taxes paid year to date (YTD). The tool will then estimate a lower tax amount to pay now, noting how much will still be due in April or via other estimated tax payments or withholding.
If “None” is chosen, the tool will still identify additional taxes related to this withdrawal, but it won't create a plan to pay them via withholding and estimates. (However, it will note any statutorily required withholding such as 20% from 401(k)s.)

Default in Creating Withdrawal Plans

By default, the tool will look at the current year's tax situation (provided by your Income Lab plan) and develop a way to provide the needed cash that is as tax-efficient as possible. In practice, this means:

Prefer taxable accounts to tax-deferred (IRAs, 401(k)s, etc.) and tax-free (Roth) accounts: Don't trigger more ordinary income tax (tax-deferred accounts) and don't spend high-value tax-free-growth Roth funds unless needed (since Roth balances cannot easily be replenished).
Within tax-deferred accounts, prefer non-IRAs over IRAs. The reason for this is that IRA funds can be used for qualified charitable distributions, whereas funds from other retirement accounts cannot.
Prefer high-basis holdings to low-basis holdings: Don't create more capital gains than is necessary.
Harvest losses to offset realized gains: If holdings with losses are present, match these with funds sold at a gain to reduce or eliminate net realized gains.
Harvest gains if there is space in the 0% long-term capital gains bracket. The 0% capital gains bracket is a great way to book gains, and if space in the 0% bracket isn't used, it's lost.
Access any account that is available to the client without penalties. For example, don't access retirement accounts before age 59.5 if that account is subject to a 10% penalty.

While these are reasonable defaults, all of these are configurable by the advisor in the Advanced Inputs section.

Advanced Inputs

Accounts & Limits

In this section, the advisor can exclude certain holdings of accounts entirely or put a cap on the amount that can be withdrawn from a given account or from a particular holding in an account.

This ability to exclude or cap holdings is the place where investment-smart planning hits the Withdrawal Optimizer. Net-of-tax investment performance is what is most important to investors, so both taxes and holdings matter. In this section the advisor can exclude certain holdings that tare not to be sold or else set dollar caps on sales. In addition, whole accounts can be excluded or capped. Of course, exclusions or caps of holdings set de facto limits on what can be sold in the account overall. However, if an even lower cap is set on an account, that cap will apply.

Beyond setting holdings-level and account-level caps and exclusions, advisors can set additional preferences:

Account Order - Using the “Add Account Order" button on the Accounts & Limits tab (or the “Edit Account Order” button, if account priorities have already been set), an advisor can set an ordered list of accounts to draw from in each category of account (Taxable, Tax Deferred, and Tax Free). You can set an ordered list in any or all categories. For example, you can set a priority order in Taxable accounts but not in tax-deferred or tax-free. If a priority order is set, the withdrawal plan will access the highest-ranked account first, regardless of whether higher-basis holdings are available in a lower-ranked account. You can also easily sort these accounts by balance (highest to lowest or lowest to highest).

Sale Order & Harvesting

Sale Order - By default, the tool will seek a “Tax-optimized” solution, as described above. Again, this means choosing holdings to minimize taxes. However, in this advanced setting you can change this to “Pro-rata (keep allocation)” and the withdrawal plan will instead seek to keep the current allocation, ignoring tax consequences.

Loss harvesting - By default, this is set to “on”. However, if you do not want to include sales of high-basis stock with embedded losses as an offset for gains, you can uncheck this option.

Gain harvesting - By default, this is set to “on”. This means the withdrawal plan will look for space in the 0% long-term capital gains bracket and show an amount of gains that can be harvested to increase the basis on a holding, potentially free of tax.

Bracket Management

While it is usually best to avoid spending Roth account funds, since it is hard to replenish those funds due to limits on contributions and the tax cost of Roth conversions, sometimes it makes sense to access Roth funds in order to avoid triggering new taxes or a new tax bracket. The “Bracket Management” settings will help you do this. If you set a cap, the withdrawal plan will access Roth funds if needed to respect the cap. If the withdrawal does not hit the cap, no Roth funds will be accessed. If the cap cannot be respected, the resulting withdrawal recipe will still minimize the amount by which the threshold is exceeded. In this section you can choose to add a cap on:

Federal Tax Brackets / Federal Ordinary Taxable Income / Federal Long-Term Capital Gains Taxable Income (LTCG) - You can independently turn on/off a cap for ordinary income and LTCG. You can choose a particular bracket or state manually-defined levels.

MAGI (IRMAA) - MAGI for Medicare IRMAA purposes is defined under the classic AGI + tax-exempt interest formula. You can choose an IRMAA bracket or state a manual MAGI cap.

ACA MAGI - For purposes of Affordable Care Act (ACA) insurance credits, MAGI is defined differently than it is for Medicare IMRAA. You can set a cap on ACA MAGI here using 400% of Federal Poverty Limit (FPL) calculations or set a manual cap.

Withholding

Often clients and advisors set standing order on federal and state tax withholding from particular accounts. This set of inputs allows an advisor to state these standing orders and choose to have the withdrawal recipe respect these standing orders, making other plans to handle taxes. If you check the “optimize withholding” box by an account (defaulted to checked), the withdrawal plan will state the optimal withholding level. If you uncheck this box, the standing withholding levels will be respected and other provisions will be made for paying taxes, either through withholding or through estimated tax payments.

Withholding is preferred to estimated tax payments because withholding is administratively easier than making an estimated tax payment. So, the optimized withdrawal plan will seek to minimize estimated tax payments if possible. For example, if by shifting withholding it is possible to pay only a single estimated tax payment (e.g., federal only) instead of both a state and federal payment, the withdrawal plan will do so.

RMDs

If RMDs are due this year, they have to be taken. So, when someone needs a withdrawal, often the first place to go is the RMDs. After all, even if everything else changes this year, the RMDs will still have to be taken based on last year's December 31 balance. In this section, the user can choose to “Include RMDs in Withdrawal Plan” (the default) or to ignore them entirely with the “RMDs already taken / earmarked” option. This “ignore” option is available because sometimes clients have particular plans for RMDs or another reason to ignore them. If RMDs are included in the plan, you'll have the opportunity to look at RMDs due for each account this year, total per-person IRA RMD amounts (which can be pooled), and to edit amounts, including withdrawals taken year-to-date (YTD). Accurate values here will help the plan be more effective. By default, the year's full withdrawals are included in this section as “taken already” so that the withdrawal being optimized can be planned on top of a full year's withdrawals, but you can easily zero these out in order to enter actual amounts taken so far in the year.

Charitable Giving

Sometimes, if clients are charitably inclined, including charitable gifts as part of the withdrawal plan can be a good way to minimize tax impacts. This tab gives you the opportunity to explore adding cash or appreciated property (for example, stocks) gifts to public charities, donor-advised funds (DFAs), or private foundations. The tool will automatically figure AGI caps on deductions and display any new deductions available with this gift. It will also show holdings to donate if an appreciated property gift is part of the plan. The tool will automatically find the lowest basis stock to donate so that LTCG on that gain can be avoided.

Other preferences

All else being equal, the plan will prefer non-IRA accounts over IRA accounts because only IRA accounts can be used for qualified charitable distributions (QCDs). QCDs are the most efficient way to get money out of an IRA because this moves funds tax-free to a charity, without those amounts hitting AGI.

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