Retirement Withdrawal Order: Which Account to Draw First
The sequence you withdraw money in retirement can cost or save you more than $100,000 in taxes over a 20-year drawdown. Most retirees default to spending taxable accounts first, then tax-deferred, then Roth. That conventional order is often correct, but blindly following it without running the numbers first is one of the most expensive mistakes in retirement planning. Here's how tax-efficient drawdown actually works.
Why Retirement Withdrawal Order Changes Your Tax Bill
The core insight is simple: different accounts are taxed at different rates, and the order you spend them in determines which rates apply to which dollars. Get this right and you can spend the same lifestyle across the same 25 years while paying significantly less to the IRS.
Here's the mechanism. Traditional 401(k) and IRA withdrawals are taxed as ordinary income. Roth withdrawals are tax-free (assuming you're 59½ and the account is at least 5 years old). Long-term capital gains in a taxable brokerage account are taxed at 0%, 15%, or 20% depending on your income, not your marginal ordinary income rate. Social Security benefits become up to 85% taxable once your combined income crosses $34,000 (single) or $44,000 (married filing jointly).
Those differences mean the order you pull from each bucket can shift tens of thousands of dollars between your pocket and the government. A married couple with $80,000 in annual expenses might pay $6,000 in federal taxes using one sequence and $18,000 using another. Same spending, same assets, very different tax bill.
This is also why withdrawal sequencing interacts with Roth conversions, Medicare IRMAA surcharges, and Social Security taxation. You're not just deciding which account to empty. You're managing your taxable income every single year of retirement.
The Three Buckets: What You're Actually Working With
Before building a withdrawal strategy, know exactly what you own and how each account is taxed.
Taxable brokerage accounts (after-tax contributions, growth taxed as capital gains): You pay taxes only on the gain, not the full withdrawal. If you bought a fund for $40,000 and it's now worth $100,000, only the $60,000 gain is taxable. Long-term capital gains rates in 2025 are 0% on income up to $94,050 (married filing jointly), 15% up to $583,750, and 20% above that.
Tax-deferred accounts (traditional 401(k), traditional IRA, SEP IRA, rollover IRA): Every dollar withdrawn is taxed as ordinary income in the year you take it. Required Minimum Distributions (RMDs) begin at age 73 under current law, forcing withdrawals whether you need the cash or not. RMDs are calculated by dividing each account balance by an IRS life expectancy factor, so a $1 million IRA at age 73 carries roughly a $36,496 mandatory withdrawal (using the 27.4 factor from the Uniform Lifetime Table).
Roth accounts (Roth IRA, Roth 401(k)): Contributions come out tax-free anytime. Earnings come out tax-free after age 59½ and after a 5-year holding period. Roth IRAs have no RMDs during the owner's lifetime as of 2024 rules. Roth 401(k)s used to have RMDs, but SECURE 2.0 eliminated that requirement starting in 2024.
Knowing these mechanics cold is prerequisite to any meaningful withdrawal planning. You can model how these buckets interact with your spending at Rightmont's retirement calculator.
The Conventional Withdrawal Order (and Why It's a Starting Point, Not a Rule)
The traditional sequence financial planners have recommended for decades:
- Taxable accounts first
- Tax-deferred accounts second
- Roth accounts last
The logic is sound: let tax-advantaged accounts keep compounding as long as possible, and spend the money that's already been taxed first. For many retirees, this sequence is broadly correct.
But it's wrong often enough that you shouldn't follow it automatically.
The big problem with conventional ordering is that it can leave retirees with massive traditional IRA/401(k) balances that generate crushing RMDs in their 70s. Suppose you retire at 62 with $1.2 million in a traditional 401(k) and $200,000 in a Roth. If you spend taxable and Roth first and touch the 401(k) last, you delay the tax bill, but by age 73 that account has grown to $2.1 million (at 5% nominal growth). Your RMD that year is $76,642. Add Social Security of $35,000 and your taxable income is over $111,000, well into the 22% or 24% bracket, and 85% of your Social Security becomes taxable.
Alt: spend some from the traditional account in your early retirement years at lower rates, or do Roth conversions in those gap years, and you might keep that RMD manageable for life.
The conventional order also ignores that 0% capital gains rates can be harvested intentionally in low-income years, and that IRMAA surcharges on Medicare Part B and D kick in when modified adjusted gross income (MAGI) crosses $106,000 single / $212,000 married (2025 thresholds).
The Tax-Bracket-Filling Strategy: How to Actually Draw Down Efficiently
A more precise approach is bracket filling: each year, calculate your current marginal bracket and draw from different accounts to fill each bracket optimally.
Here's the formula in plain English:
Step 1. Calculate how much room you have in the 12% bracket (or 0% capital gains bracket). In 2025, the top of the 12% ordinary income bracket for married filing jointly is $94,300 (after the standard deduction of $30,000, that's roughly $124,300 in gross income).
Step 2. Pull the spending you need from your taxable account, using assets with a low cost basis last to minimize capital gains.
Step 3. If you have income headroom left below a higher bracket, do Roth conversions to fill that space. You're paying today's rate on money that will never be taxed again.
Step 4. Tap the Roth only for expenses above what taxable and strategic IRA distributions cover, or to avoid crossing a threshold (like the IRMAA cliff or the 85% Social Security inclusion threshold).
Concrete example: A married couple retires at 62. They need $85,000 in after-tax spending. Social Security won't start until 67. They have $300,000 in taxable accounts, $900,000 in a traditional IRA, $200,000 in Roth.
- Pull $55,000 from the traditional IRA (after the $30,000 standard deduction, that's $25,000 taxable at 10-12%, roughly $3,000 in federal tax).
- Pull $30,000 from taxable with minimal capital gain (basis is $28,000, so $2,000 in gain, taxed at 0% because their income is below the 0% capital gains threshold).
- Total federal tax: roughly $3,000 on $85,000 of spending. Effective rate under 4%.
- Simultaneously, they do an additional Roth conversion to fill up to the top of the 12% bracket, moving more money out of the future RMD problem at a low cost now.
This requires annual recalculation. It's not set-and-forget.
Roth Conversions: The Hidden Lever in Retirement Withdrawal Order
Roth conversions aren't withdrawals, but they're the most powerful tool in the tax-efficient drawdown toolkit and they belong in any honest discussion of withdrawal order.
The logic: if you retire before RMDs kick in at 73, you have a window where your taxable income is low. Every dollar you convert from a traditional IRA to a Roth in that window gets taxed at your current, probably low, rate. Every future withdrawal from that Roth is tax-free. And the converted balance stops contributing to future RMDs.
The math is compelling. Suppose you're in the 12% bracket during your 63-70 window and convert $30,000 per year. You pay $3,600 in tax annually (12% of $30,000). Over 7 years, you've paid $25,200 to convert $210,000. Had those funds stayed in the traditional IRA and grown 5% annually, you'd have around $295,000 by 70, generating RMDs in your 70s at what might be a 22% or 24% rate. Saving potentially $40,000-$50,000 in future taxes for a $25,200 upfront cost.
The risks: you might over-convert, push yourself into a higher bracket, or lose your eligibility for ACA premium tax credits if you're on marketplace insurance before Medicare at 65. Model the conversion amount carefully each year.
Researchers like Wade Pfau and Michael Kitces have written extensively on this: the optimal conversion amount depends on current rate, future projected rate, account balances, and life expectancy. There's no universal rule, only your numbers.
Social Security Timing, RMDs, and Sequence-of-Returns Risk
Withdrawal order doesn't exist in isolation. Three forces shape the strategy significantly.
Social Security timing changes everything about your income picture. Delaying Social Security from 62 to 70 increases your benefit by roughly 76% (8% per year from full retirement age to 70). But those pre-Social Security years are often your lowest-income window and your best opportunity for Roth conversions or harvesting capital gains at 0%. Delaying Social Security and filling that income gap with IRA distributions or conversions can be a net win even though you're drawing the IRA "early."
RMDs are a deadline, not just a nuisance. At 73, the IRS requires you to start withdrawing regardless of need. If you haven't been proactively reducing your traditional account balance through conversions or early withdrawals, you can face forced income spikes that push you into higher brackets, trigger IRMAA surcharges, and increase Social Security taxation all at once. Planning backward from your projected RMD is a useful exercise: at 73, what will your account balance be, and what will the IRS require you to pull?
Sequence-of-returns risk is the danger that a market downturn early in retirement permanently impairs your portfolio even if long-term returns are fine. The 4% rule research (Bengen 1994, and the Trinity Study update) showed that a 4% initial withdrawal rate, adjusted for inflation, survived 95%+ of historical 30-year retirement periods. But those studies assumed a fixed sequence. Flexible spending, including pulling more from Roth or cash reserves in down market years rather than selling depressed equities, improves outcomes significantly. Check how your planned withdrawal rate holds up under the historical worst cases using our 4% rule calculator.
A Step-by-Step Framework for Choosing Your Withdrawal Order
Here's an actionable framework to build your own tax-efficient drawdown sequence. This is a starting point; your CPA or financial planner should review before you execute.
Step 1: Map your accounts. List every account, its balance, its type (taxable/tax-deferred/Roth), and your estimated cost basis in taxable accounts.
Step 2: Estimate your annual spending need. This is your after-tax number, the money that hits your bank account. If you need $80,000 to live and pay no state income tax, you need to gross up that amount to account for federal taxes on any taxable withdrawals.
Step 3: Calculate your tax brackets. Use the current year's IRS brackets. Know where your income sits from fixed sources (pension, Social Security, rental income) before you touch any account.
Step 4: Fill brackets intelligently. Pull from taxable accounts first for spending needs where the capital gain is minimal (or qualifies for the 0% rate). Then pull from traditional accounts up to the top of your current bracket. If room remains below a higher bracket you want to avoid, convert that space to Roth.
Step 5: Use Roth as the overflow valve. When spending needs exceed what you can withdraw from other sources at acceptable rates, tap Roth. This preserves the tax-free growth for as long as possible while keeping you out of higher brackets.
Step 6: Revisit every year. Tax law changes. Your account balances change. Your spending changes. This is not a one-time decision.
If you want a personalized starting point for your specific account mix, income sources, and spending target, the Rightmont plan editor can model multiple withdrawal scenarios side by side.
Try the Calculator
Model your own withdrawal sequence and see how your projected account balances hold up under different market scenarios with our free retirement calculator at https://rightmont.com/calculators/retirement-calculator.
Frequently Asked Questions
What is the best order to withdraw from retirement accounts?
The generally recommended retirement withdrawal order is taxable accounts first, then tax-deferred accounts (traditional IRA, 401(k)), then Roth accounts last. However, a smarter approach for many retirees is to fill lower tax brackets each year by mixing withdrawals from different accounts, including doing Roth conversions in low-income years to reduce future Required Minimum Distributions. The optimal order depends on your specific tax brackets, Social Security timing, and projected RMD burden.
Should I withdraw from my Roth IRA or traditional IRA first?
For most retirees, it's tax-efficient to withdraw from the traditional IRA first up to the top of your current tax bracket, then use Roth funds for additional spending above that threshold. Spending your traditional IRA first in low-income retirement years keeps the withdrawals in the 10% or 12% bracket, while preserving Roth funds avoids tax on future growth. However, if your traditional IRA balance is large enough to generate significant RMDs at 73, you may want to do Roth conversions early rather than waiting.
How do Required Minimum Distributions affect my withdrawal strategy?
Required Minimum Distributions (RMDs) begin at age 73 and are calculated by dividing your traditional IRA or 401(k) balance by an IRS life expectancy factor. For a $1 million IRA at age 73, the RMD is roughly $36,496 using the Uniform Lifetime Table factor of 27.4. Large RMDs can push you into higher tax brackets and cause up to 85% of Social Security to become taxable, which is why proactive Roth conversions in your 60s can significantly reduce the RMD problem before it starts.
At what income level do Roth conversions stop making sense in retirement?
Roth conversions generally stop being worthwhile when the rate you pay to convert today exceeds the rate you'd pay on future traditional IRA withdrawals or RMDs. Converting into the 22% bracket or higher typically requires careful analysis, because crossing Medicare IRMAA thresholds ($106,000 single / $212,000 married in 2025) adds surcharges that can make the effective cost of conversion much higher than the nominal tax rate. Most advisors target conversions that keep income within the 12% or low 22% bracket.
Does the 4% rule account for withdrawal order and taxes?
The original 4% rule research by William Bengen (1994) and the Trinity Study modeled pre-tax withdrawals from a single portfolio and did not explicitly account for tax-efficient withdrawal sequencing across multiple account types. In practice, a tax-efficient withdrawal order can allow retirees to sustain a higher after-tax spending level on the same gross withdrawal rate, or maintain the same spending at a lower gross withdrawal. Using our 4% rule calculator at https://rightmont.com/calculators/4-percent-rule-calculator can help you see how your withdrawal rate holds up historically.
Can I use money from a Roth IRA before age 59½ without penalty?
Yes, Roth IRA contributions (not earnings) can be withdrawn at any age, at any time, without taxes or penalty, because those dollars were already taxed. The 10% early withdrawal penalty and potential taxes apply only to the earnings portion if withdrawn before age 59½ and before the account has been open 5 years. This makes the Roth IRA a flexible emergency backstop in early retirement, though depleting it early sacrifices the long-run tax-free compounding benefit.
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