Retirement Withdrawal Order: Which Accounts to Tap First and Why
Retirees with taxable, tax-deferred and Roth accounts must decide which to draw from first. The conventional order is simple, but taxes, required minimum distributions and Medicare premiums can make a blended approach work better. This guide explains the trade-offs and the questions that shape the answer.
Saving for retirement gets most of the attention. Spending it gets less, yet the order in which you draw from different accounts can change how much tax you pay and how long the money lasts. Most retirees hold some mix of three kinds of money, and each is taxed differently when it comes out. Understanding those differences is the foundation of any withdrawal plan.
The three buckets
| Bucket | Typical accounts | How withdrawals are taxed |
|---|---|---|
| Taxable | Brokerage accounts, savings, CDs | Interest and dividends taxed as earned; selling investments triggers capital gains on the profit only |
| Tax-deferred | Traditional IRA, traditional 401(k), 403(b) | Withdrawals generally taxed as ordinary income |
| Tax-free | Roth IRA, Roth 401(k) | Qualified withdrawals are not taxed |
Health savings accounts sit alongside these. Withdrawals for qualified medical expenses are tax-free, which makes them useful for health costs. Social Security, pensions and annuities are separate income streams that arrive on their own schedules. For how those are taxed, see How Retirement Income Is Taxed.
The conventional order
The standard rule of thumb runs like this:
- Taxable accounts first. Spending these first leaves the tax-advantaged accounts to keep compounding. Capital gains on investments held more than a year are typically taxed at lower rates than ordinary income, though the IRS sets the rules and rates, which you can find at irs.gov.
- Tax-deferred accounts next. Withdrawals add to taxable income, so timing and size matter.
- Roth accounts last. Because qualified withdrawals are tax-free and Roth IRAs have no required minimum distributions during the owner's lifetime, they are often held longest and are also useful for heirs.
The logic is sound in simple cases. The weakness is that it ignores what happens to your tax bill across the whole retirement.
Why the simple order can backfire
Required minimum distributions. Once you reach the age set by law, you must take annual withdrawals from most tax-deferred accounts, whether or not you need the cash. If those accounts have grown large because you left them untouched, the required withdrawals can be big and taxed at higher rates than you would have faced by drawing gradually. The IRS explains the rules and publishes the life-expectancy tables. See also Required Minimum Distributions Explained.
Low-bracket years go to waste. In the years after you stop working but before Social Security, pensions and RMDs begin, taxable income can be unusually low. Not using those low tax brackets means you may pay more tax later at higher rates.
Knock-on effects. Higher income can affect how much of your Social Security benefit is taxed and what you pay for Medicare coverage. Withdrawals that look modest on their own can raise costs elsewhere.
Concentration risk. Spending all your taxable investments first can leave you with fewer flexible resources if markets fall or a large expense arrives.
Approaches that blend the buckets
Many planners and retirees use a mix rather than a strict sequence. Common variations include:
- Proportional withdrawals. Take a similar share from each account type each year. This is simple and spreads tax exposure, though it may not minimize lifetime tax.
- Fill the bracket. Draw enough from tax-deferred accounts each year to use up a chosen tax bracket, then take the rest from taxable or Roth accounts. This aims to smooth income over time.
- Roth conversions in low-income years. Moving money from a traditional account to a Roth pays tax now to reduce future RMDs and taxes. The rules are covered in Roth Conversions Explained.
- Tax-free money as a shock absorber. Keep Roth funds for years with large expenses, so one big withdrawal does not push you into a higher bracket.
- Bucket by purpose. Hold a few years of expected spending in cash or short-term holdings and the rest invested for growth, refilling the cash bucket from whichever account makes sense that year.
None of these is the right answer for everyone. They are frameworks to test against your own numbers.
What changes the answer
| Factor | Why it matters |
|---|---|
| Current and expected tax brackets | Drawing from tax-deferred accounts is cheapest when your bracket is low |
| Size of each bucket | A very large traditional balance points toward managing future RMDs |
| Age and other income | Social Security, pensions and part-time work stack on top of withdrawals |
| State taxes | Rules differ widely, and some states do not tax certain retirement income |
| Health and longevity | Longer retirements favor preserving growth assets |
| Legacy goals | Roth money and appreciated assets are treated differently by heirs |
| Medicare and benefit thresholds | Higher income can raise premiums and the taxable share of benefits |
Market risk and the timing of withdrawals
The order of withdrawals interacts with market performance. Selling stocks during a downturn locks in losses and shrinks the portfolio's ability to recover, an effect explained in Sequence of Returns Risk. Holding some cash or bonds for near-term spending, and being flexible about which account to draw from in a bad year, can reduce the pressure to sell at a poor time. Rules about the overall pace of spending are discussed in the 4% rule and withdrawal rates.
A worked scenario, in outline
Consider a hypothetical retiree who stops working at 62, has money in a brokerage account, a traditional IRA and a Roth IRA, and plans to delay Social Security. Their income in the first few years is low because they live mostly on savings.
- Scenario A, strict conventional order: they spend the brokerage account first. Later, with that gone, they depend on the IRA and Social Security, and RMDs plus benefits push their income higher than it has ever been.
- Scenario B, blended: they take some IRA withdrawals or Roth conversions in the early low-income years, paying tax at low rates, and use the brokerage account for the rest. Later RMDs are smaller.
Scenario B can lower lifetime taxes, though not always, and it depends on tax law, markets and the retiree's choices. The point is not that one is right but that the answer comes from modeling your own situation rather than applying a rule mechanically.
Practical steps
- List every account with its type, balance and any withdrawal restrictions.
- Estimate annual spending and where guaranteed income, such as Social Security or a pension, will cover it.
- Project taxable income for several years, not just the next one.
- Check RMD timing and the likely size of required withdrawals.
- Review each year. Tax law, markets and spending change, so the plan should too.
- Consider professional help. A fee-only financial planner or a tax professional can model alternatives, and the IRS publishes the rules on irs.gov.
The conventional order is a reasonable first guess. For many retirees, thinking in terms of tax brackets over a whole retirement, rather than one account at a time, leads to a better one.
Frequently asked questions
What is the conventional order for withdrawing retirement money?
The traditional rule of thumb is to spend taxable accounts first, then tax-deferred accounts such as traditional IRAs and 401(k)s, and leave Roth accounts for last. The idea is to let tax-advantaged money keep growing. It is a starting point rather than a rule, because your tax bracket, required minimum distributions and goals can change the best order.
Why might someone draw from a traditional IRA before a taxable account?
Withdrawals from tax-deferred accounts count as ordinary income. Taking some in lower-income years can fill up low tax brackets, reduce the size of future required minimum distributions and avoid a larger tax bill later. Whether that works depends on your income, other sources and tax rules, so many people model it with a tax professional.
Do required minimum distributions change the order?
Yes. Once required minimum distributions begin, you must withdraw a calculated amount each year from most tax-deferred accounts, whether or not you need the money. Those withdrawals become the first layer of income and can push you toward drawing less from other accounts. The IRS publishes the rules and tables.
