Retirement income strategy
Retirement Withdrawal Order: Which Accounts to Tap First
Most retirees hold three kinds of money: taxable brokerage accounts, tax-deferred accounts (traditional IRA, 401(k)), and tax-free Roth accounts. The order you draw from them can change your lifetime tax bill by tens of thousands of dollars. Here is the standard sequence, why it works, and the important exceptions.
Updated September 2026 · 9 min read
The short version
- The standard order: spend taxable accounts first, then traditional IRA/401(k) money, then Roth last.
- Why: taxable money is the most flexible and least tax-advantaged, so spend it while letting tax-deferred and tax-free accounts keep compounding. Roth dollars are the most valuable (tax-free growth, no RMDs), so protect them longest.
- The big exception: in low-income "gap years" before RMDs and Social Security, deliberately pulling some traditional IRA money (or doing Roth conversions) at 10% or 12% beats letting it grow into 22%+ RMDs later.
- RMDs override everything: at 73 or 75 (SECURE 2.0, by birth year), required minimum distributions become mandatory first dollars out of traditional accounts.
- Watch the cliffs: ACA subsidies and IRMAA surcharges can make an extra dollar of IRA withdrawal far more expensive than its bracket rate suggests.
The three buckets and how each is taxed
Every withdrawal decision starts with knowing what each account costs you to tap:
| Account type | Tax when you withdraw | Key constraint |
|---|---|---|
| Taxable brokerage | Only gains are taxed (0%, 15%, or 20% long-term rates if held over a year) | None. Fully flexible at any age. |
| Traditional IRA / 401(k) | Every dollar taxed as ordinary income | 10% penalty before 59½; RMDs at 73 or 75 |
| Roth IRA / Roth 401(k) | Tax-free (qualified) | No lifetime RMDs for Roth IRAs |
Notice the asymmetry. A dollar from a taxable account might cost you 15 cents of capital gains tax (or nothing, if you stay in the 0% bracket). A dollar from a traditional IRA costs you your full marginal income tax rate. A Roth dollar costs nothing. The withdrawal order is really a strategy for spending your cheapest dollars first and your most valuable dollars last.
The standard sequence
For most retirees, the optimal order is:
- Taxable accounts first. Sell from the brokerage account, harvest gains strategically, and let the retirement accounts compound untouched. In low-income years you may pay 0% on long-term gains (in 2026, up to $49,450 of taxable income single or $98,900 married filing jointly).
- Traditional IRA/401(k) next. Once taxable savings run low, or when RMDs force your hand, draw from tax-deferred accounts. Every dollar is ordinary income, so manage which bracket it lands in.
- Roth last. Roth money grows tax-free, has no RMDs, and is the best asset to leave to heirs. Spend it only after the other buckets are exhausted, or strategically to avoid a tax spike.
This sequence minimizes lifetime taxes for the typical retiree because it preserves the accounts with the biggest tax advantages for the longest time. But "typical" hides several situations where deviating pays.
Exception 1: filling low brackets in the gap years
The most valuable exception applies to early retirees. Between retirement and age 73 or 75, many people have years of strikingly low taxable income: no salary, no RMDs yet, Social Security not started, living off taxable savings. In 2026, a married couple filing jointly pays just 10% on taxable income up to $24,800 and 12% up to $100,800 (after the $32,200 standard deduction).
Those cheap brackets are a use-it-or-lose-it opportunity. Deliberately pulling money from a traditional IRA (or doing Roth conversions, which is the same tax math) at 12% today beats letting that money grow until RMDs force it out at 22% or 24% later. A $1 million traditional IRA at age 73 faces a first RMD of roughly $37,700 (balance divided by the IRS divisor of 26.5), and that forced income stacks on top of Social Security.
Exception 2: RMDs take over at 73 or 75
Under SECURE 2.0, required minimum distributions begin at 73 if you were born from 1951 through 1959, and at 75 if you were born in 1960 or later (72 if born in 1950 or earlier). Once RMDs start, the withdrawal order is no longer your choice for traditional accounts: the RMD must come out first, every year, and it counts as ordinary income whether you need the cash or not.
Missing an RMD triggers a 25% penalty on the shortfall (reduced to 10% if corrected promptly). This is why the gap-year strategy matters so much: every dollar converted or withdrawn in your 60s at 12% is a dollar that will not be forced out at 22% or higher in your late 70s.
Exception 3: the ACA cliff and IRMAA thresholds
Two parts of the tax code can make an extra dollar of IRA withdrawal cost far more than its bracket rate:
- ACA premium subsidies (before 65). Since 2026, the 400% federal poverty level subsidy cliff is back: one dollar of income over the line can wipe out thousands in premium tax credits. A traditional IRA withdrawal that costs you an $8,000 subsidy to save $3,000 in future taxes is a bad trade.
- IRMAA (from 63 on). Your modified adjusted gross income at 63 determines your Medicare premiums at 65, with a two-year lookback that never stops. In 2026, the first IRMAA threshold is $109,000 MAGI single or $218,000 married filing jointly. Crossing it by $1 can add thousands per year in Part B and D surcharges.
In years where you are near either cliff, the optimal move is often to live off taxable accounts (where you control the gain) or even tap Roth money, keeping MAGI under the line.
Exception 4: before 59½
Withdrawals from traditional IRAs and 401(k)s before 59½ generally face a 10% early-withdrawal penalty on top of income tax. That penalty reshuffles the order for early retirees:
- Taxable accounts remain penalty-free at any age and are usually the first resort.
- Rule of 55: if you leave your employer in the year you turn 55 or later, you can tap that employer's 401(k) penalty-free. This does not apply to IRAs or old 401(k)s from prior employers.
- SEPP / 72(t): substantially equal periodic payments let you take penalty-free IRA distributions before 59½, but lock you into a fixed schedule for at least five years.
- Roth contributions (not earnings) can be withdrawn anytime tax- and penalty-free, which makes Roth contributions a stealth emergency fund.
A worked example
Consider a married couple, both 62, retired, spending $90,000 a year. They hold $600,000 in taxable accounts, $900,000 in traditional IRAs, and $200,000 in Roth IRAs. No pension; Social Security delayed to 70.
Their best sequence: live off the taxable account first, and each year withdraw or convert from the traditional IRA up to the top of the 12% bracket ($100,800 of taxable income in 2026, after the $32,200 standard deduction). That moves roughly $60,000 to $70,000 a year out of the traditional IRA at 12%, shrinking the balance that RMDs will later force out at 22%. They touch the Roth only if a large one-time expense would otherwise push them into the 22% bracket or over an IRMAA threshold at 63+. At 73, RMDs take over the traditional IRA automatically.
Compare that to the naive approach of spending the Roth first "because it's tax-free": the Roth disappears early, the traditional IRA keeps growing, and RMDs land in the 22% or 24% bracket for decades. Same accounts, same spending, very different lifetime tax bill.
Common mistakes
- Spending Roth first. It feels good because withdrawals are tax-free, but it burns your most valuable dollars while letting your most heavily taxed dollars keep growing.
- Ignoring the gap years. Doing nothing with traditional IRAs in your 60s, then being surprised when RMDs arrive at 22%+ rates.
- Forgetting the cliffs. A withdrawal that looks smart at a 12% bracket rate can be terrible if it costs you ACA subsidies or triggers IRMAA.
- Treating RMDs as optional. They are not. The 25% penalty applies to the amount you should have taken.
- One static plan. The right order changes year to year as brackets, thresholds, account balances, and your age change. Revisit annually.
See your optimal withdrawal sequence
NestCalc models your accounts year by year, sequencing withdrawals across taxable, traditional, and Roth to minimize lifetime taxes, while handling RMDs, IRMAA, and Roth conversions automatically.
Run the free calculator →Frequently asked questions
Should I always withdraw from taxable accounts first?
Generally yes. Taxable accounts are the most flexible source of spending money, and drawing them down first lets tax-advantaged accounts keep compounding. The main exceptions are gap-year bracket filling (deliberately taking some traditional IRA money at low rates), required minimum distributions after 73 or 75, and avoiding the 10% early-withdrawal penalty before 59½.
Do required minimum distributions change the withdrawal order?
Yes. Once RMDs begin at 73 or 75 (depending on birth year under SECURE 2.0), they become mandatory first dollars out of traditional IRAs and 401(k)s. You must take the RMD before any other withdrawal sequencing applies, and the RMD counts as ordinary income whether you need the cash or not.
Is it ever smart to tap my Roth IRA early?
Rarely. Roth money is your most valuable dollar because it grows tax-free and has no RMDs, so spending it first is usually a mistake. Exceptions include avoiding a jump into a much higher tax bracket, staying under the ACA subsidy cliff or an IRMAA threshold, or covering a large one-time expense without triggering extra tax.
What is the Rule of 55?
If you leave your employer in the year you turn 55 or later, you can withdraw from that employer's 401(k) without the usual 10% early-withdrawal penalty. It applies only to the plan of the employer you just left, not to IRAs or old 401(k)s from previous jobs.
Where does an HSA fit in the withdrawal order?
For qualified medical expenses, the HSA should usually come first, since those withdrawals are completely tax-free at any age. If you are paying medical bills out of pocket and saving receipts, the HSA can double as a backup retirement account to tap after taxable savings are exhausted.
Does Social Security timing affect withdrawal order?
Yes. Delaying Social Security to 70 means drawing more heavily from your portfolio in your 60s, which usually means spending taxable accounts first. Claiming earlier reduces portfolio withdrawals but also reduces your guaranteed lifetime income. The withdrawal sequence and the claiming decision should be modeled together.