Which Retirement Account Should You Withdraw First

Which retirement account should you withdraw from first?

The standard sequence is taxable brokerage accounts first, tax-deferred accounts like traditional IRAs and 401(k)s second, and Roth IRA accounts last. This order minimizes taxes by preserving tax-free Roth growth longest and reducing pre-tax balances before required minimum distributions begin at age 73.

Why Withdrawal Order Is a Tax Decision, Not Just a Spending Decision

Many retirees think about withdrawal order as a question of which account is most convenient to access. It is actually one of the most consequential tax decisions of retirement. The account you draw from in any given year determines what counts as ordinary income, how much of your Social Security benefit becomes taxable, whether you cross an IRMAA threshold that raises Medicare premiums, and how much tax-free growth remains in your Roth account for later years.

Every dollar you pull from a traditional IRA or 401(k) is added to your ordinary income for that year and taxed at your marginal rate. Every dollar you pull from a taxable brokerage account may be subject to capital gains rates, which are typically lower than ordinary income rates for long-held positions. Every dollar you pull from a Roth IRA that meets the qualified distribution rules comes out completely free of income tax.

The difference between drawing from a traditional IRA and drawing from a Roth in the same year can mean the difference between staying in the 22% bracket and crossing into the 24% or 32% bracket. Across a 25-year retirement, that gap compounds into a meaningful difference in lifetime after-tax income. The sequence is not a detail. It is a strategy.

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The Three Account Types and How They Are Taxed

What makes taxable brokerage accounts different in retirement?

Taxable brokerage accounts, sometimes called after-tax accounts, are funded with money you have already paid income tax on. Investment growth inside these accounts is subject to tax each year on dividends and distributions, but gains on securities you hold are not taxed until you sell. When you do sell, long-term capital gains, on positions held more than one year, are taxed at preferential rates of 0%, 15%, or 20% depending on your income level, not at ordinary income rates.

For many retirees, this makes taxable accounts among the most tax-efficient sources of early retirement income, particularly for those in the 0% or 15% capital gains bracket. Drawing from taxable accounts in early retirement, before other income sources stack up, can allow you to realize gains at low or zero tax cost.

Taxable accounts also benefit from a stepped-up cost basis at death, meaning heirs who inherit these accounts pay capital gains only on appreciation that occurs after the date of inheritance, not on gains that accumulated during your lifetime. This makes taxable accounts useful assets to hold if estate planning is part of your picture.

How do traditional IRAs and 401(k)s work as a withdrawal source?

Traditional IRAs and 401(k)s are funded with pre-tax dollars, and every withdrawal is taxed as ordinary income in the year you take it. There is no capital gains rate, no exclusion for long-term holding, and no distinction between your original contributions and investment growth. The full distribution is added to your taxable income for that year.

These accounts are also subject to required minimum distributions beginning at age 73 under current law. The IRS calculates a minimum amount you must withdraw each year based on your account balance and a life expectancy factor from IRS tables. You cannot defer these distributions indefinitely, and each one is taxable whether or not you need the money to cover living expenses.

Large traditional IRA and 401(k) balances generate large RMDs in later retirement. A retiree who spent their career maximizing pre-tax contributions may face mandatory distributions in their mid-70s that push them into a significantly higher tax bracket, even if their spending needs are modest. Managing the size of these balances before RMDs begin is one of the primary reasons the withdrawal sequencing decision matters so much in the years immediately following retirement.

When can you withdraw from a Roth IRA tax-free?

Roth IRA withdrawals are tax-free when two conditions are met: the account has been open for at least five years, and you are at least 59½ years old. These are called qualified distributions. When both conditions are satisfied, Roth withdrawals generate no federal income tax, do not count toward provisional income for Social Security taxation purposes, and do not affect IRMAA calculations for Medicare premiums.

Roth IRAs have no required minimum distributions during the original owner’s lifetime. The account can grow indefinitely without a government-mandated distribution schedule. This combination, tax-free withdrawals and no RMD obligation, makes Roth accounts the most flexible and tax-efficient source of retirement income available, which is precisely why the conventional guidance is to spend them last.

The Standard Withdrawal Sequence and the Logic Behind It

The conventional three-step withdrawal sequence is: taxable accounts first, tax-deferred accounts second, Roth accounts last. This ordering has a coherent rationale at each step.

Spending taxable accounts first removes assets that generate annual taxable dividends and distributions from your portfolio, reducing the tax drag on your remaining holdings. It also allows you to realize capital gains at potentially low rates in early retirement before other income sources compound your bracket. And it preserves the tax-deferred and tax-free growth in your IRA and Roth accounts for as many additional years as possible.

Drawing on traditional IRAs and 401(k)s next, before Roth accounts, reduces the pre-tax balance that will eventually generate mandatory distributions. If you draw these accounts down gradually in the years between retirement and age 73, you may arrive at RMD age with a smaller balance, smaller mandatory distributions, and a lower tax burden in the years when your income from Social Security and other sources is highest.

Preserving Roth accounts for last maximizes the compounding runway on tax-free assets. Every additional year a Roth balance grows tax-free is a year of compounding that benefits you entirely, with no future tax obligation attached. The longer you leave Roth funds untouched, the larger the pool of tax-free income available in late retirement, when healthcare costs and other large expenses may be highest.

When to Deviate from the Standard Sequence

The standard sequence is a starting framework, not a rule to follow without looking at your specific tax situation each year. Several circumstances justify drawing from accounts in a different order.

In years when your taxable income is unusually low, perhaps because you retired mid-year, sold a business at a loss, or had significant deductible expenses, drawing additional income from your traditional IRA fills your current tax bracket at rates that may be lower than you will face later. This is the logic behind voluntary Roth conversions in early retirement: paying tax on pre-tax balances now, at today’s lower rate, rather than being forced to distribute them later at a potentially higher rate when RMDs stack on top of Social Security.

When a traditional IRA or 401(k) withdrawal would push your modified adjusted gross income above an IRMAA threshold, Medicare premium surcharges apply retroactively based on income reported two years earlier. Substituting a Roth withdrawal for part of that distribution keeps MAGI in the lower band without reducing the amount of income available for spending. The avoided surcharge often more than offsets any theoretical benefit from preserving Roth balances longer.

When your taxable account holds positions with embedded losses, harvesting those losses to offset realized gains from other positions can make the taxable account a more efficient source of income than the standard sequence would suggest. Tax bracket management requires looking at the full picture of each account type in the current year, not applying a fixed formula.

How RMDs Reshape the Withdrawal Sequence in Later Retirement

The three-step sequence described above assumes you have flexibility over when and how much you draw from each account. That flexibility begins to erode at age 73, when required minimum distributions from traditional IRAs and 401(k)s become mandatory.

An RMD is a floor, not a ceiling. You are required to take at least the calculated minimum, but you can always take more. The practical question is whether you should draw from your Roth in addition to the RMD, or only take what is required from the traditional account and supplement spending from taxable holdings.

The answer depends on where the RMD alone places your taxable income. If the mandatory distribution already fills your current bracket, drawing from the Roth to cover additional spending avoids adding more ordinary income on top of a bracket you have already reached. If the RMD falls well short of your bracket ceiling, drawing additional traditional IRA income up to the bracket limit before touching Roth funds may be more efficient, since you are paying tax at the same marginal rate either way and further reducing the pre-tax balance that will generate even larger RMDs in future years.

This is not a calculation many retirees run intuitively. It requires knowing your projected RMD for the year, your other income sources, the bracket thresholds, and the IRMAA income levels. Getting it right is a planning exercise that benefits from being run annually, not set once at retirement and forgotten. The broader framework for managing this is covered in detail in the retirement withdrawal strategy guide.

What the right sequence looks like in practice

Here is a simple example of how the three-step withdrawal sequence plays out for a retiree with accounts across all three types.

Assume a 63-year-old retiree with $400,000 in a taxable brokerage account, $800,000 in a traditional IRA, and $300,000 in a Roth IRA. She needs $70,000 per year to cover living expenses and has not yet claimed Social Security.

Years 1 through 5 (ages 63-67): Draw the full $70,000 from the taxable brokerage account. Long-term gains are taxed at 0% or 15% depending on total income. No traditional IRA income means Social Security taxability stays low when she claims at 67. Roth balance continues compounding untouched.

Years 6 through 9 (ages 68-72): Taxable account is largely spent. Shift to traditional IRA withdrawals of $50,000 per year, staying within the 22% bracket. Use this window to also convert $20,000 per year from the traditional IRA to Roth, filling the bracket without crossing into 24%. This reduces the future RMD balance while Social Security covers a portion of spending.

Age 73 and beyond: Required minimum distributions from the traditional IRA begin, generating roughly $35,000 in mandatory taxable income based on the reduced balance. Social Security adds another $28,000. Total ordinary income sits at $63,000, comfortably in the 22% bracket. Any spending above that amount is covered by Roth IRA withdrawals, which add no taxable income, keep Medicare premiums stable, and leave the remainder to pass to heirs tax-free.

The same retiree drawing from the traditional IRA first, in year one, would have generated $70,000 in ordinary income immediately, pushed more Social Security into taxable territory, and potentially triggered IRMAA surcharges, all while leaving the taxable brokerage account accumulating additional dividend income unnecessarily. The sequence matters from the first year.

The Role of Social Security in Withdrawal Sequencing

Social Security adds a layer of complexity to the withdrawal sequence because Social Security benefits become partially taxable when your combined income exceeds certain thresholds. For individual filers, up to 85% of benefits become taxable once provisional income exceeds $34,000. For joint filers the threshold is $44,000. Provisional income is calculated as adjusted gross income plus tax-exempt interest plus half of your Social Security benefit.

Traditional IRA and 401(k) withdrawals count in full toward provisional income. Roth withdrawals do not. This means the choice between drawing from a traditional account versus a Roth account in any given year directly affects how much of your Social Security benefit is subject to income tax.

A retiree whose traditional IRA withdrawal would push provisional income above the 85% taxability threshold is effectively paying tax on that IRA withdrawal and paying additional tax on Social Security benefits that would otherwise have been partially sheltered. Substituting Roth income for part of that draw keeps provisional income lower and reduces the overall tax cost of the same spending level. For retirees who are near the Social Security taxability thresholds, this effect can change the effective marginal rate on traditional IRA withdrawals substantially beyond the nominal bracket rate.

Coordinating the Sequence Across a Married Couple

For married couples, the withdrawal sequence question becomes more complex because each spouse may have separate account balances, different earned income histories, and different projected RMDs. The couple’s combined income determines their joint tax bracket, Social Security taxability, and IRMAA exposure.

One common planning consideration is the income gap that emerges when one spouse dies. A surviving spouse files as single rather than married filing jointly, which compresses the tax brackets significantly. RMDs from the deceased spouse’s IRA, which transfers to the surviving spouse, may generate substantial income in a narrower bracket. Couples who hold large traditional IRA balances in one spouse’s name are sometimes well served by drawing down that account more aggressively during the joint lifetime, or converting portions to Roth, to reduce the tax exposure the surviving spouse will face later.

This is one area where the interaction between retirement income planning and withdrawal sequencing becomes especially consequential. The decisions made during joint retirement set the tax landscape that the surviving spouse will navigate alone.

Roth Conversions as a Sequencing Tool

A Roth conversion is not the same as a Roth withdrawal, but it functions as a sequencing tool within the same framework. When you convert a portion of a traditional IRA to Roth, you pay ordinary income tax on the converted amount in that year and move those dollars permanently out of the pre-tax bucket. Future growth on the converted amount is tax-free, and the converted funds face no RMD requirement.

The optimal time for Roth conversions is typically the window between retirement and the start of RMDs at age 73. In that window, income is often lower than peak working years, Social Security may not yet have started, and the tax bracket has room to absorb additional income. Converting enough each year to fill the current bracket, without crossing into the next, is a systematic approach to reducing the pre-tax balance that will eventually generate mandatory taxable distributions.

Roth conversions done in this window align directly with the Preserve. Strengthen. Grow.™ framework: preserving after-tax wealth by paying tax at today’s rates rather than tomorrow’s, and strengthening the tax-free asset base that gives you flexibility in later retirement. The Roth conversion strategy guide covers the mechanics and timing decisions in detail.

The Penalty Exceptions Worth Knowing

The standard rule is that distributions from a traditional IRA or 401(k) taken before age 59½ are subject to a 10% early withdrawal penalty in addition to ordinary income tax. However, several exceptions to this penalty exist that matter in retirement planning contexts.

Unreimbursed medical expenses that exceed a threshold percentage of adjusted gross income can be withdrawn from an IRA without the early withdrawal penalty. Health insurance premiums paid while unemployed also qualify. Substantially equal periodic payments, sometimes called 72(t) distributions, allow penalty-free early distributions if taken in a series of substantially equal payments calculated using IRS-approved methods over a defined period.

These exceptions do not eliminate the ordinary income tax on traditional IRA withdrawals. They only remove the additional 10% penalty. For many retirees who are past 59½, the penalty exceptions are not the relevant consideration. The sequencing decision is primarily a tax efficiency exercise, not a penalty avoidance exercise.

Building a Year-by-Year Withdrawal Plan

Effective retirement account withdrawal order is not a decision made once at retirement. It is a plan reviewed annually as income sources, account balances, tax law, and spending needs change. The inputs that should be revisited each year include your projected traditional IRA and 401(k) balance and the corresponding RMD for the year, your Social Security benefit and when you plan to claim it if you have not already, the current federal and state tax brackets and any bracket changes on the horizon, the IRMAA thresholds for the following two years given that Medicare surcharges are based on prior-year income, and any anticipated large expenses that would increase spending needs in that specific year.

A plan that optimizes all of these variables together, rather than applying a fixed rule, produces meaningfully better outcomes over a long retirement. The difference between a deliberate withdrawal sequence and defaulting to whatever is most convenient is not theoretical. For many retirees, it represents tens of thousands of dollars in taxes paid that did not need to be paid. The tax-efficient investing framework connects these annual withdrawal decisions to the broader goal of preserving the after-tax value of everything you have accumulated.