Withdrawing from TDA vs Taxable Account in Progressive Tax Rate System

CFAI says,

“Under progressive tax regimes (jurisdictions where tax rates rise as the level of income
rises), a more tax-efficient strategy may be to withdraw from the retirement account
until the lowest tax brackets have been fully utilized.”

My understanding:

Want to withdraw max amount from TDA without increasing your income above the threshold where you move up a tax bracket, particularly if the next tax bracket brings your marginal income tax rate above the capital gains tax rate. This is because, TDAs are taxed based on your marginal income tax rate only upon withdrawals. Taxable accounts tax dividends and interest automatically at marginal income tax rate, BUT any realizations of gains (lets consider these withdrawals from your taxable account) are taxed at the capital gains tax rate, not your marginal income tax rate. Thus, as long as you can maintain your marginal income tax rate below around 20% (capital gains tax rate), you want to withdraw from your tax-deferred account instead of taxable account. But as soon as your marginal income tax rate rises above capital gains tax rate, you would prefer withdrawing (realizing gains) from your taxable account.

Is this correct?

You just want to be using up as much of a lower tax bracket as possible.
The idea behind TDA is that you save now (tax rates high) but receive money later (when tax rates lower as you are noe retired and earn less).

But you don’t know you will be in the low bracket later. You should use as much of the low bracket now as it could be more efficient.

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Yes, your understanding is correct. In progressive tax regimes, it’s advantageous to withdraw from tax-deferred retirement accounts until reaching the highest bracket within the capital gains tax rate. This minimizes the tax burden, as withdrawals from these accounts are taxed at the marginal income tax rate. Once your marginal income tax rate surpasses the capital gains tax rate, it’s preferable to withdraw from taxable accounts to realize gains.

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