The Best Order to Withdraw from Retirement Accounts

Key Takeaways

• The conventional wisdom — taxable first, tax-deferred second, Roth last — is a solid starting point but isn’t always optimal for every retiree in every year.
• Your tax bracket in any given year should drive which account you pull from — the goal is to fill lower tax brackets with tax-deferred withdrawals and preserve Roth assets for higher-bracket years.
• RMDs from traditional accounts override your preferred sequence — once you turn 73, you must take Required Minimum Distributions regardless of whether you need the income.
• Strategic Roth conversions in early retirement can improve your withdrawal sequence for decades — converting during low-income years shifts future withdrawals from taxable to tax-free.
• The difference between an optimized and unoptimized withdrawal sequence can exceed $100,000 in total lifetime taxes for retirees with significant assets across multiple account types.

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Table of Contents

1. Why Withdrawal Order Matters More Than Most People Think
2. The Three Types of Retirement Accounts
3. The Conventional Withdrawal Sequence
4. When the Conventional Wisdom Is Wrong
5. The Tax Bracket Filling Strategy
6. How RMDs Change Everything
7. The Roth Conversion Bridge
8. Hypothetical: Two Retirees, Two Strategies, Two Outcomes
9. Year-by-Year Decision Framework
10. FAQ

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Why Withdrawal Order Matters More Than Most People Think

Here’s a fact that surprises most people the first time they encounter it: two retirees with identical savings, identical spending, and identical investment returns can end up with dramatically different amounts of money over a 25-year retirement — purely based on the order they withdraw from their accounts.

This isn’t about earning more or spending less. It’s about tax efficiency. Every dollar you pay in unnecessary taxes is a dollar that can’t compound in your portfolio, can’t fund your lifestyle, and can’t be passed to your heirs.

The stakes are real. Research from financial planning software providers like Vanguard and others has shown that an optimized withdrawal strategy can extend portfolio longevity by 2-5 years compared to a random or conventional approach — and can reduce total lifetime taxes by $50,000-$150,000 or more for retirees with significant savings across multiple account types.

Yet most retirees never give this a minute’s thought. They pull money from wherever is most convenient — usually their IRA, because that’s where the biggest balance sits — without considering the tax consequences.

The Three Types of Retirement Accounts

Before we can talk about withdrawal order, we need to understand the three “tax buckets” most retirees have. Each is taxed differently, and that difference is what creates the optimization opportunity:

1. Taxable accounts (brokerage accounts, bank savings, CDs) – Funded with after-tax dollars (you already paid income tax on the money you put in) – Investment gains are taxed when realized — short-term gains at ordinary rates, long-term gains at preferential rates (0%, 15%, or 20%) – Qualified dividends are taxed at capital gains rates – No Required Minimum Distributions – Tax-loss harvesting opportunities available

2. Tax-deferred accounts (traditional IRA, 401(k), 403(b), SEP-IRA) – Funded with pre-tax dollars (you got a deduction when you contributed) – All withdrawals are taxed as ordinary income — there’s no preferential rate for gains – Required Minimum Distributions begin at age 73 (under current law) – Early withdrawal penalty of 10% before age 59½ (with exceptions)

3. Tax-free accounts (Roth IRA, Roth 401(k)) – Funded with after-tax dollars (no deduction when you contributed) – Qualified withdrawals are completely tax-free — including all investment growth – No Required Minimum Distributions for Roth IRAs (Roth 401(k)s had RMDs prior to SECURE 2.0, but this was eliminated starting 2024) – Inherited Roth IRAs are also distributed tax-free to beneficiaries

Understanding these three buckets is essential because the goal of withdrawal sequencing is to minimize the total taxes you pay across your entire retirement — not just in any single year.

The Conventional Withdrawal Sequence

The traditional rule of thumb that most financial advisors have taught for decades is simple:

Step 1: Spend from taxable accounts first. This allows tax-deferred and tax-free accounts to continue growing. Taxable account withdrawals are often tax-efficient because long-term gains and qualified dividends receive preferential rates, and you can use tax-loss harvesting to offset gains.

Step 2: Spend from tax-deferred accounts second. Once taxable accounts are depleted (and RMDs begin), draw from traditional IRAs and 401(k)s. These withdrawals are taxed as ordinary income.

Step 3: Spend from Roth accounts last. Roth dollars grow tax-free and come out tax-free. Every year a Roth dollar stays invested is a year of tax-free compounding. Preserve these as long as possible.

This sequence makes intuitive sense, and for many retirees, it’s a perfectly reasonable approach. But it’s not always the best approach — and following it blindly can actually increase your lifetime tax bill.

When the Conventional Wisdom Is Wrong

The conventional sequence fails in several common scenarios:

Scenario 1: The “tax time bomb” in your IRA. If you have a large traditional IRA and follow the conventional sequence (spending taxable accounts first), you delay all IRA withdrawals until RMDs begin at 73. By then, your IRA has grown substantially — and RMDs force you to take increasingly large taxable distributions. It’s common for retirees to be pushed into the 32% bracket (or higher) by RMDs they could have avoided with earlier, voluntary withdrawals in lower brackets.

Scenario 2: The “gap years” between retirement and Social Security/RMDs. If you retire at 62 but don’t start Social Security until 67 and don’t have RMDs until 73, you may have years of unusually low taxable income. The conventional sequence says to spend from taxable accounts during this window — but this is actually the perfect time to take strategic withdrawals from your IRA (or do Roth conversions), filling up the lower tax brackets with income that would otherwise be taxed at higher rates later.

Scenario 3: IRMAA and Social Security taxation cliffs. Large IRA distributions can push your income above IRMAA thresholds or cause more of your Social Security benefits to be taxed. In these cases, pulling from a Roth account to keep your income below a threshold — even though the conventional sequence says “Roth last” — saves money.

Scenario 4: Estate planning considerations. If you want to leave the most tax-efficient inheritance possible, Roth assets passed to heirs are more valuable dollar-for-dollar than traditional IRA assets (which are fully taxable to the beneficiary under the 10-year rule). But spending from the IRA during your lifetime and preserving the Roth may require deviating from the conventional sequence.

The Tax Bracket Filling Strategy

The approach I find most effective is what I call “tax bracket filling” — and it’s more nuanced than a simple 1-2-3 sequence.

The idea: in any given year, calculate how much income you can take from tax-deferred accounts without pushing yourself into a higher marginal tax bracket. Fill up the lower brackets deliberately, then supplement from taxable or Roth accounts as needed.

Here’s how it works with 2026 tax brackets for a married couple filing jointly:

Tax Bracket	Taxable Income Range	Strategy
10%	$0 – $23,850	Fill this with IRA/401(k) withdrawals — this income is taxed at the lowest rate
12%	$23,851 – $97,000	Continue filling with tax-deferred withdrawals — still a low rate
22%	$97,001 – $206,700	Consider whether the 22% rate is lower than your expected future rate; if so, keep filling
24%	$206,701 – $394,600	Typically stop voluntary IRA withdrawals here unless specific circumstances warrant it
32%+	Above $394,600	Avoid pushing income into these brackets if possible

The practical application: if your Social Security and pension income puts you at $50,000 in taxable income, and you’re in the 12% bracket, you might voluntarily withdraw an additional $47,000 from your traditional IRA to fill up the 12% bracket (up to $97,000). That $47,000 is taxed at just 12% — far less than the 22% or 24% rate it might face as a future RMD. Any additional spending needs beyond that come from your taxable or Roth accounts.

Pro Tip: Tax bracket filling is especially powerful in the years between retirement and age 73 (when RMDs begin). These “gap years” are often the lowest-income years of your retirement — and the best time to pull income from tax-deferred accounts at favorable rates.

How RMDs Change Everything

Once you turn 73, Required Minimum Distributions from traditional IRAs and 401(k)s override your preferred withdrawal strategy. You must take your RMD each year regardless of whether you need the income — and the amount increases as you age because the IRS Uniform Lifetime Table divisor decreases.

Here’s a simplified RMD schedule to illustrate the escalation:

Age	Divisor	RMD on $500,000 Balance
73	26.5	$18,868
75	24.6	$20,325
78	22.0	$22,727
80	20.2	$24,752
85	16.0	$31,250
90	12.2	$40,984

As your RMD grows, it increasingly dominates your taxable income — especially if your IRA balance has been growing tax-deferred for years without voluntary withdrawals. This is the “tax time bomb” I referenced earlier.

The penalty for missing an RMD is steep: 25% of the amount you should have withdrawn (reduced from the previous 50% penalty by SECURE 2.0). If corrected within two years, the penalty drops to 10%. Either way, it’s a costly mistake to avoid.

The RMD planning opportunity: If your RMDs are likely to push you into a higher bracket, consider accelerating tax-deferred withdrawals (or Roth conversions) in the years before RMDs begin. This reduces your future IRA balance, which reduces your future RMDs, which reduces your future tax bill. The math often favors paying taxes at lower rates now to avoid higher rates later.

The Roth Conversion Bridge

One of the most powerful withdrawal sequencing strategies involves Roth conversions during early retirement — what I call the “Roth conversion bridge.”

Here’s the concept: in the years between retirement (when your earned income drops to zero) and age 73 (when RMDs begin), you may have an unusually wide gap between your current income and the top of a favorable tax bracket. By converting traditional IRA dollars to Roth during this window, you:

1. Pay taxes at today’s lower rate (filling up the 10%, 12%, and possibly 22% brackets)
2. Reduce your future IRA balance (which reduces future RMDs)
3. Build a larger Roth balance (which provides tax-free income for life and tax-free inheritance for heirs)
4. Create more flexibility in your future withdrawal sequence

The Roth conversion bridge doesn’t reduce your total taxes to zero — it shifts them from unknown future rates to known current rates that are likely lower. For retirees in the 62-72 age range with significant traditional IRA balances, this strategy can be one of the most valuable financial moves they make.

The conversion needs to be coordinated carefully with your withdrawal sequence, Social Security timing, and IRMAA lookback period. Done well, it optimizes your tax situation for decades.

Hypothetical: Two Retirees, Two Strategies, Two Outcomes

Note: This scenario is entirely hypothetical and for educational purposes only.

Let’s compare two hypothetical retirees, both aged 65, both with identical assets: – $300,000 in a taxable brokerage account – $700,000 in a traditional IRA – $200,000 in a Roth IRA – $28,000/year in Social Security (starting at 67) – $50,000/year in spending needs – 6% average annual return on investments

Retiree A (Conventional Sequence): Spends taxable account first (depleted by year 6), then switches entirely to IRA withdrawals. Never does Roth conversions. RMDs at 73 are large because the IRA has grown to over $900,000.

Retiree B (Tax Bracket Filling + Roth Conversions): Uses a blend from day one. Takes IRA withdrawals to fill the 12% bracket each year, supplements from taxable account, converts additional IRA dollars to Roth during the gap years (ages 65-72). By age 73, IRA balance is approximately $450,000 (instead of $900,000), RMDs are modest, and Roth balance has grown to $500,000+.

Projected outcome over 25 years: Retiree B pays approximately $85,000 less in total federal taxes, avoids IRMAA surcharges entirely, has more flexible income sources in later years, and leaves a substantially larger tax-free Roth inheritance to heirs. Same starting point. Same spending. Dramatically different result.

Year-by-Year Decision Framework

Rather than following a rigid sequence, I recommend retirees ask these questions each year:

1. Do I have an RMD this year? If yes, take it first — it’s mandatory. This is your baseline taxable income.

2. What is my projected taxable income before any additional withdrawals? Add up Social Security (85% taxable portion), pension, RMDs, and any other income.

3. How much room do I have in my current tax bracket? If you’re in the 12% bracket with $30,000 of headroom, consider filling it with voluntary IRA withdrawals or Roth conversions.

4. Am I near an IRMAA cliff? If your MAGI is approaching an IRMAA threshold, pull additional spending from Roth or taxable accounts to stay below it.

5. Am I near a Social Security taxation threshold? If your combined income is near $32,000 (single) or $44,000 (married), consider which account type keeps you below the 85% taxation threshold.

6. Do I have capital loss carryforwards? If yes, taxable account withdrawals that trigger gains can be offset — making taxable accounts an even more efficient source.

7. What are my Roth conversion opportunities this year? If there’s room in a favorable bracket after all spending is covered, convert additional IRA dollars to Roth.

This annual review takes the static “which account first” question and transforms it into a dynamic tax optimization process. It’s more work than following a simple rule — but the savings justify the effort.

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FAQ

What is the standard withdrawal order for retirement accounts? The conventional wisdom is: taxable brokerage accounts first, tax-deferred accounts (traditional IRA/401k) second, and Roth accounts last. This allows tax-advantaged accounts to continue growing longer. However, this sequence isn’t always optimal — tax bracket filling and strategic Roth conversions can improve outcomes for many retirees.

At what age do Required Minimum Distributions start? Under current law (SECURE 2.0), RMDs begin at age 73 for most people. If you turned 72 before 2023, you’re already subject to RMDs under the prior rules. RMDs apply to traditional IRAs, traditional 401(k)s, and most other tax-deferred retirement accounts. Roth IRAs are exempt from RMDs during the original owner’s lifetime.

Can I withdraw from my Roth IRA before 59½? You can always withdraw your original Roth IRA contributions (not earnings) at any time, at any age, without taxes or penalties. Earnings withdrawn before age 59½ may be subject to taxes and a 10% penalty unless you meet certain exceptions. For most retirees, this isn’t a concern — but for early retirees, knowing the distinction between contributions and earnings is important.

How do I know which tax bracket I’m in? Your marginal tax bracket is determined by your total taxable income after deductions. For 2026, a married couple filing jointly with taxable income up to $23,850 is in the 10% bracket; $23,851-$97,000 is in the 12% bracket; $97,001-$206,700 is in the 22% bracket. You can find the current brackets on the IRS website. Your tax professional or financial advisor can help you identify your bracket and plan accordingly.

Should I take my RMD in January or December? Both have pros and cons. Taking your RMD early (January) gets it invested sooner in your taxable account if you don’t need the income. Taking it late (December) allows more tax-deferred growth. For your first RMD year, you have until April 1 of the following year — but this means you’d take two RMDs in one calendar year, which could push you into a higher bracket. Most retirees benefit from taking their first RMD in the initial required year rather than delaying.

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Building Your Personalized Withdrawal Strategy

There’s no single “right” withdrawal order that applies to every retiree. Your optimal sequence depends on your account balances, income sources, tax bracket, age, health, estate plans, and dozens of other factors that change year to year.

The right withdrawal order isn’t a decision you make once. It’s an annual review that compounds — every year you fill a low bracket on purpose, every year you avoid an IRMAA cliff, and every Roth dollar you preserve for tax-free growth in your last decade. Thirty minutes a year, repeated, is one of the highest-leverage habits available in retirement.

For more on retirement income, bucket planning, and Social Security claiming, browse the retirement planning archive or sign up for the weekly newsletter at the bottom of any page.

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This article is published by Confluence Media Group LLC, an independent publisher of educational financial content. Thomas Clark is a Series 65 Investment Advisor Representative. The information provided is for educational and informational purposes only and is not personalized financial, tax, or legal advice. Past performance does not guarantee future results. All investing involves risk, including potential loss of principal. Consult a qualified professional before making financial decisions.

Confluence Media Group LLC is a separate entity from Confluence Capital Management, the investment advisory practice through which Thomas Clark provides advisory services. Advisory services are not offered through this publishing platform.

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