By SR Staff
You've spent decades building up a 401(k), an IRA, maybe a Roth, and a taxable brokerage account. Now that you're retired, a new question replaces "how much should I save?": which account do I actually pull from first? Get the order wrong, and you could hand the IRS thousands of extra dollars over your retirement — money that could have stayed invested or funded your lifestyle instead.
There's no single formula that works for everyone, but there is a well-tested framework. Understanding it — and knowing when to break from it — can meaningfully extend how long your money lasts.
Why Withdrawal Order Isn't Just a Technicality
Every dollar you withdraw in retirement is taxed differently depending on where it comes from. Withdrawals from a traditional 401(k) or IRA count as ordinary income. Withdrawals from a Roth are generally tax-free. Selling from a taxable brokerage account triggers capital gains tax, but only on the growth, not your original contribution.
Pull from the wrong bucket at the wrong time, and you can push yourself into a higher tax bracket, trigger higher Medicare premiums through IRMAA surcharges, or cause more of your Social Security benefit to become taxable. The goal of a withdrawal strategy isn't just paying your bills — it's minimizing lifetime taxes while keeping your money invested as long as possible.
The Traditional Playbook: Taxable, Then Tax-Deferred, Then Roth
The conventional wisdom, and a reasonable starting point for most retirees, follows this sequence:
- Taxable brokerage accounts first. These get the friendliest tax treatment on gains, and spending them down early lets your tax-advantaged accounts keep compounding.
- Tax-deferred accounts next (traditional 401(k)s and IRAs). You'll eventually be forced into these anyway once required minimum distributions kick in, so drawing them down steadily — rather than letting them balloon — can help you avoid a painful tax spike later.
- Roth accounts last. Because qualified Roth withdrawals are tax-free and Roths have no RMDs for the original owner, letting this bucket grow the longest maximizes its value — both for you and for heirs.
This order defers taxes as long as possible and lets your most tax-efficient accounts compound the longest. For a retiree with a fairly steady, predictable income need, it's a solid default.
Where the Standard Rule Breaks Down
The problem with following this sequence rigidly is that it can create a tax cliff later in retirement. If you spend down taxable and tax-deferred accounts in strict order, you may enter your 70s with a much smaller traditional IRA — until RMDs force large distributions anyway, or with a Roth so large it barely mattered that you protected it.
Meanwhile, many retirees have years — often the early ones, after leaving a paycheck behind but before Social Security and RMDs begin — where their taxable income is unusually low. These "low-income windows" are valuable and easy to waste if you're mechanically following taxable-first, tax-deferred-second.
A smarter approach blends withdrawals across account types every year, filling up your current tax bracket intentionally rather than emptying one account before touching the next.
Building a Strategy That Fits Your Situation
Instead of a strict sequence, think in terms of tactics you layer on top of the general order:
- Use low-income years strategically. In the gap between retiring and claiming Social Security, consider pulling some income from your traditional IRA even if you don't strictly need it — up to the top of a lower tax bracket — rather than saving it all for later.
- Consider Roth conversions during those same years. Moving money from a traditional IRA to a Roth while your income is low means paying tax at a lower rate now instead of a higher rate later. Our guide on Roth conversion strategy walks through how to evaluate whether — and how much — makes sense for you.
- Watch the IRMAA lookback. Medicare premiums are based on your income from two years prior, so a large withdrawal or conversion can quietly raise your healthcare costs down the road.
- Coordinate with Social Security timing. Up to 85% of your Social Security benefit can become taxable depending on your other income, so withdrawal decisions and claiming decisions should be made together, not in isolation.
- Keep some Roth money accessible. Even if you follow a taxable-then-deferred-then-Roth default, holding a small Roth reserve gives you flexibility for a year with an unusually large expense, without spiking your tax bracket.
A Simple Example
Consider a couple who retires at 63 with a taxable brokerage account, a traditional IRA, and a Roth IRA. Rather than draining the brokerage account completely before touching anything else, they might spend brokerage funds for routine expenses while also withdrawing — or converting — enough from the traditional IRA each year to "fill up" the 12% tax bracket. They leave the Roth untouched.
By the time RMDs begin, their traditional IRA is smaller than it would have been, their tax bracket in later retirement is more predictable, and their Roth has had years of extra tax-free growth. None of this requires exotic planning — just a willingness to blend accounts instead of draining them one at a time.
The Takeaway
The taxable-then-deferred-then-Roth order is a reasonable default, but it shouldn't be applied on autopilot. The retirees who keep the most money working for them are the ones who look at their tax bracket every year and decide, deliberately, which accounts to draw from — and when a Roth conversion might be worth doing along the way. If your accounts are large or your income sources are complex, a fee-only financial planner or CPA can model these scenarios and help you avoid an expensive mistake.
Written by: Seeking Retirement