The Withdrawal Sequence in Retirement That Can Save You Thousands

Most people spend decades focusing on one question: How much do I need to retire?

But once retirement begins, another question becomes just as important: Which account should I spend from first?

That question sounds simple. Many retirees have heard a basic rule of thumb: spend taxable accounts first, then tax-deferred accounts like IRAs and 401(k)s, and leave Roth accounts for last.

That sequence can be a good starting point. But it is not always the best answer.

In real retirement planning, the goal is not simply to avoid taxes this year. The goal is to manage taxes over the full retirement period. A poor withdrawal sequence can increase the amount of your Social Security that becomes taxable, force larger required minimum distributions later, increase Medicare premiums, push capital gains into higher tax brackets, and leave a surviving spouse with a less efficient tax situation.

The three main retirement tax buckets

Most retirees have some combination of three account types.

Taxable accounts include checking accounts, savings accounts, CDs, brokerage accounts, and jointly owned investment accounts. Interest is generally taxable each year. Dividends and capital gains may receive more favorable tax treatment depending on the investment and holding period. Long-term capital gains can sometimes be taxed at 0%, 15%, or 20%, depending on taxable income. For 2026, the IRS inflation-adjusted maximum 0% long-term capital-gain rate amount is $98,900 for married couples filing jointly and $49,450 for most single filers.

Tax-deferred accountsinclude traditional IRAs, 401(k)s, 403(b)s, SEP IRAs, SIMPLE IRAs, and similar retirement accounts. These accounts often provided a tax deduction when money went in, but withdrawals are generally taxed as ordinary income. The IRS notes that deductible traditional IRA contributions and earnings are taxable when withdrawn, and early withdrawals before age 59½ may also be subject to a 10% additional tax unless an exception applies.

Tax-free accounts usually refer to Roth IRAs and Roth 401(k)s. Qualified Roth distributions can be tax-free, and Roth IRAs generally do not require lifetime required minimum distributions for the original owner. The IRS states that Roth IRA withdrawals are not taxable if they are qualified distributions.

The art of retirement income planning is deciding how to use those buckets together.

Why the “taxable first, IRA second, Roth last” rule can fail

The traditional withdrawal sequence is simple:

1. Spend taxable accounts first.
2. Spend traditional IRAs and 401(k)s next.
3. Spend Roth accounts last.

The logic is understandable. Taxable accounts are already exposed to annual taxation. Traditional retirement accounts continue growing tax-deferred. Roth accounts may grow tax-free, so preserving them can be valuable.

But this strategy can create a problem.

If you spend only from taxable accounts early in retirement and leave a large traditional IRA untouched, that IRA may continue growing until required minimum distributions begin. Under current IRS rules, required minimum distributions generally begin at age 73 for traditional IRAs, SEP IRAs, SIMPLE IRAs, and most retirement plan accounts. Withdrawals are generally included in taxable income except for basis or qualified tax-free distributions.

That can create a future tax trap. By trying to minimize taxes in your early retirement years, you may accidentally create larger taxable income later.

This is especially important during the years after retirement but before Social Security and required minimum distributions begin. Planners often call this period the retirement tax valley. Income may be temporarily lower because wages have stopped, Social Security may not have started, and RMDs may not yet be required.

That window can be one of the most valuable tax-planning opportunities in retirement.

The retirement tax valley

Imagine someone retires at 62, delays Social Security until 70, and does not have to begin required minimum distributions until later. For several years, their taxable income may be unusually low.

A retiree might look at that low-income period and think, “Great, I owe very little in tax.”

But a planner may see something different: unused tax bracket space.

The IRS explains that federal income tax brackets are layered. When income rises into a higher bracket, the higher rate applies only to the next layer of income, not to every dollar earned.

That means a retiree may intentionally create some taxable income in a low-tax year by taking partial IRA withdrawals or doing partial Roth conversions. The purpose is not to pay more tax unnecessarily. The purpose is to pay tax at a known, manageable rate today so that the retiree may reduce future taxes, future RMDs, and future Medicare premium exposure.

This is where a thoughtful withdrawal sequence can save thousands over time.

A better sequence: spend with a tax map, not a rule of thumb

The right withdrawal sequence is rarely one account at a time. It is usually a coordinated blend. A more flexible framework might look like this:

1. Start with cash flow needs

The first step is not taxes. It is making sure the retiree has the cash needed to support spending.

A retiree should generally maintain enough cash or short-term reserves to avoid selling long-term investments at the wrong time. That does not mean holding excessive cash for decades, but it does mean matching near-term spending needs with appropriate liquidity.

2. Use taxable accounts strategically

Taxable accounts are often useful early in retirement because they can provide flexibility. Selling investments with little gain may create very little tax. Selling investments with losses may create tax-loss harvesting opportunities. Selling appreciated investments may allow a retiree to intentionally realize long-term capital gains in a favorable tax bracket.

This is one reason taxable accounts should not simply be viewed as “first to spend down.” They are a planning tool.

For some retirees, harvesting gains at a 0% federal long-term capital-gains rate can be more valuable than blindly preserving taxable assets. For others, preserving highly appreciated assets may be useful for estate planning. The right choice depends on the client's tax bracket, estate goals, charitable intent, and cash-flow needs.

3. Fill low ordinary-income brackets with IRA withdrawals or Roth conversions

The years before RMDs begin can be ideal for partial traditional IRA withdrawals or Roth conversions. This is especially valuable when a retiree has a large pre-tax IRA or 401(k), modest current income, and future income that may rise when Social Security and RMDs begin.

The goal is not to convert everything. Large Roth conversions can create their own tax problems. The goal is to identify how much income can be recognized before crossing important thresholds. Those thresholds may include:

• The top of a desired federal tax bracket.
• The point where more Social Security becomes taxable.
• Medicare IRMAA thresholds.
• The net investment income tax threshold.
• State income tax considerations.
• Capital-gain bracket thresholds.

A well-designed Roth conversion strategy is not about guessing whether tax rates will rise. It is about comparing today's marginal tax rate against a reasonable estimate of future marginal tax rates.

4. Coordinate carefully with Social Security

Social Security can be more tax-efficient than many other income sources because no more than 85% of benefits are federally taxable under current rules. But additional income from IRA withdrawals, pensions, wages, interest, dividends, and even tax-exempt interest can cause more Social Security benefits to become taxable.

The IRS uses a formula that includes one-half of Social Security benefits plus other taxable income and tax-exempt interest. If that total exceeds the applicable base amount — $25,000 for single filers or $32,000 for married couples filing jointly — some benefits may become taxable.

This interaction is one of the most commonly missed planning opportunities in retirement. A retiree may think they are taking “only a little more” from an IRA. But that withdrawal may also increase the taxable portion of Social Security. In that situation, the effective marginal tax rate on the withdrawal may be higher than expected.

This is sometimes called the Social Security tax torpedo. It is not a separate tax. It is the result of more Social Security becoming taxable as other income rises.

5. Manage Medicare IRMAA cliffs

Medicare premiums can also be affected by income.

For 2026, the standard Medicare Part B premium is $202.90 per month. But higher-income Medicare beneficiaries may pay income-related monthly adjustment amounts, commonly called IRMAA. Medicare states that 2026 premiums are based on modified adjusted gross income from the tax return two years earlier, and the first 2026 IRMAA threshold begins above $109,000 for individual filers and above $218,000 for joint filers.

This creates another sequencing issue. A Roth conversion, large IRA withdrawal, sale of appreciated investments, or unusually high income year may not just create more income tax. It may also increase Medicare premiums two years later.

That does not mean retirees should always avoid IRMAA. Sometimes paying a little more in Medicare premiums is worth it if the long-term tax savings are large enough. But it should be intentional, not accidental.

The Roth account is not always “last”

Roth accounts are powerful because qualified withdrawals can be tax-free. Many retirees preserve Roth assets as long as possible, and that can be appropriate. But “Roth last” is not always optimal.

Sometimes Roth withdrawals are useful in years when taking more IRA income would push a retiree into a higher tax bracket, increase Medicare premiums, or cause more Social Security to become taxable. Roth assets can also be valuable after the death of the first spouse, when the surviving spouse may move from married filing jointly to single filing status.

This matters because a surviving spouse often has lower tax brackets but may still have similar household expenses. One Social Security check may go away, but property taxes, utilities, insurance, car expenses, and housing costs may not fall proportionately. A large traditional IRA inherited by the surviving spouse can create higher tax pressure at exactly the wrong time.

A good withdrawal plan should consider both spouses' lifetimes, not just the current joint tax return.

Qualified charitable distributions can change the sequence

For charitably inclined retirees, qualified charitable distributions can be especially valuable.

A qualified charitable distribution, or QCD, allows an eligible IRA owner to send money directly from an IRA to a qualified charity. The IRS states that taxpayers must be at least age 70½ on the date of the distribution, and a QCD can count toward a required minimum distribution.

The key benefit is that a QCD can satisfy charitable intent while keeping the distribution out of taxable income, assuming the rules are followed. That may be more valuable than taking an IRA distribution, increasing adjusted gross income, and then trying to claim a charitable deduction.

For retirees who give regularly to charity, QCDs can become an important part of the withdrawal sequence once they are eligible.

A simplified example

Consider a married couple retiring in their early 60s with three buckets:

• A taxable brokerage account.
• A large traditional IRA.
• A smaller Roth IRA.

They plan to delay Social Security until age 70. Their first instinct may be to live entirely from the taxable account until Social Security begins. That may keep taxes very low for several years.

But by doing so, they may allow the traditional IRA to grow untouched. Later, when Social Security and RMDs begin, they may have more taxable income than expected. That could increase the taxable portion of Social Security, push them into higher brackets, and potentially increase Medicare premiums.

A more tax-efficient approach may be to use a blend:

• Spend some taxable assets for cash flow.
• Realize long-term capital gains when the tax rate is favorable.
• Convert part of the traditional IRA to Roth during lower-income years.
• Avoid crossing major Medicare or tax thresholds unless the long-term benefit justifies it.
• Preserve Roth assets for later-life flexibility, surviving-spouse protection, or high-tax years.

The annual tax bill may be slightly higher in the early years, but the lifetime tax bill may be lower.

The withdrawal sequence should change over time

A retirement income plan is not something you set once and ignore.

The right withdrawal strategy may change when:

• You start Social Security.
• You begin Medicare.
• You approach RMD age.
• One spouse dies.
• You sell a home or business.
• Investment markets rise or fall.
• Tax laws change.
• Charitable goals change.
• Health expenses increase.
• Family or legacy goals become more important.

Early retirement may focus on tax-bracket management and Roth conversions. Middle retirement may focus on coordinating Social Security, investment withdrawals, and Medicare premiums. Later retirement may focus on RMDs, QCDs, survivor planning, and estate efficiency.

The best withdrawal sequence is dynamic.

Common mistakes retirees make

One common mistake is trying to pay the lowest possible tax every single year. That feels good in the moment but can lead to larger taxes later.

Another mistake is waiting until RMDs begin before thinking seriously about IRA taxation. By then, some of the best planning years may already be gone.

A third mistake is ignoring Medicare IRMAA. A single large transaction can affect premiums two years later.

A fourth mistake is assuming Roth accounts should never be touched. Roth money is valuable, but part of its value is flexibility. Sometimes using Roth dollars strategically can protect the rest of the plan.

A fifth mistake is failing to plan for the surviving spouse. Married filing jointly brackets are wider than single brackets. When the first spouse dies, the surviving spouse may face higher tax rates on similar income.

So, what is the best withdrawal sequence?

There is no universal answer. But a thoughtful retirement withdrawal plan usually follows these principles:

• Use taxable assets intelligently, not automatically.
• Use low-income years before Social Security and RMDs begin.
• Consider partial IRA withdrawals or Roth conversions before future tax pressure builds.
• Manage Social Security taxation, Medicare premiums, and capital-gain brackets together.
• Preserve Roth assets for flexibility, but do not be afraid to use them when they improve the plan.
• Review the strategy every year.

The right withdrawal sequence can potentially save thousands of dollars over a retirement. But the real value is not just tax savings. It is confidence.

A good retirement income plan should help answer three questions:

• Where will my income come from?
• How much tax will I owe?
• How do we make the money last as efficiently as possible?