In retirement, you typically have money in three different tax buckets: taxable accounts (regular brokerage, savings), tax-deferred accounts (traditional IRA, 401(k)), and tax-free accounts (Roth IRA, Roth 401(k)). The order in which you draw from each bucket has a meaningful effect on how long your money lasts and how much you pay in lifetime taxes.
There’s no single right answer — the optimal sequence depends on your tax bracket, your other income, your age, and your goals for what’s left when you’re gone. But there’s a default order that works well for most retirees, and a set of common adjustments that improve on it.
The traditional rule: taxable, then tax-deferred, then Roth
The classic withdrawal sequence is:
- Taxable accounts first — regular brokerage and savings
- Tax-deferred accounts next — traditional IRA, 401(k), 403(b)
- Roth accounts last — Roth IRA, Roth 401(k)
The logic is straightforward: tax-deferred and Roth balances grow tax-free internally, so you want them growing as long as possible. Taxable accounts pay tax on dividends and capital gains every year, so the longer they sit, the more tax you pay along the way.
This default order works reasonably well for most retirees and is the simplest rule of thumb. But it’s rarely the most tax-efficient sequence once you account for tax brackets, RMDs, and Social Security taxation.
Why a smarter sequence usually beats the default
The problem with the strict default order: if you spend down taxable accounts entirely in your 60s and then start drawing heavily from tax-deferred accounts in your 70s, you can end up with very high taxable income at exactly the wrong time — when RMDs kick in, when Social Security is taxable, and when Medicare premiums are most affected by income.
A better approach in most cases is to blend withdrawals across buckets each year, choosing the mix that fills up your current tax bracket without spilling into the next one.
The bracket-filling approach
In each year of retirement, the goal is to use your tax brackets efficiently:
- Estimate your taxable income for the year before retirement-account withdrawals (Social Security, pension, dividends, interest, etc.).
- Look at the gap between that baseline and the top of your current tax bracket.
- Fill the gap with tax-deferred withdrawals (or Roth conversions). This income is taxed at your current marginal rate — intentionally.
- Cover any remaining cash needs from taxable accounts (using long-term capital gains rates, often lower).
- Use Roth withdrawals only when adding ordinary income would push you into a much higher bracket or trigger thresholds (IRMAA, ACA subsidies, capital gains rate changes).
Done year after year, this approach steadily reduces the tax-deferred balance — lowering future RMDs — while spending down taxable accounts and preserving Roth for late retirement or heirs.
The case for Roth conversions during the gap years
The years between retirement (typically 60s) and the start of Social Security and RMDs are often the lowest-income years of your life. There’s usually room to convert pre-tax money to Roth at low marginal rates — or to draw it as ordinary income for spending and skip a Roth draw.
Either way, the principle is the same: pull tax-deferred money out at low rates rather than letting it pile up and be forced out at higher rates later. Roth conversions are essentially a withdrawal sequencing decision — you’re moving money from one bucket to another at today’s tax rate.
Where Social Security fits
Once Social Security has started, the calculation shifts. Up to 85% of Social Security benefits become taxable depending on your other income, and the formula creates non-obvious marginal rates — pulling an extra $1 from a traditional IRA can effectively be taxed at 22% federal plus another 18.5% from increased Social Security taxation, for a marginal rate of 40.5%.
This is why drawing heavily from tax-deferred accounts after Social Security has started often produces higher effective tax rates than expected. Doing more of the tax-deferred drawdown before Social Security begins (delaying SS to 70 helps create this window) avoids the worst of these stacking effects.
Where IRMAA fits
Medicare Part B and Part D premiums increase — sometimes significantly — if your income exceeds certain thresholds. The IRMAA lookback uses your tax return from two years ago, so a withdrawal in 2026 affects your 2028 Medicare premiums.
Withdrawals are most efficient when they don’t cross IRMAA thresholds in a given year. If a planned conversion or withdrawal would push you over a threshold, it’s often worth either splitting it across two years or compressing several years of conversions into one (paying one year of higher IRMAA instead of three).
The role of long-term capital gains rates
Long-term capital gains and qualified dividends are taxed at lower rates than ordinary income — 0%, 15%, or 20% depending on income. The 0% rate applies to married couples with taxable income below roughly $96,000 (2026) and is one of the most underused planning opportunities in retirement.
In low-income years, selling appreciated taxable holdings can realize gains at 0%. Done strategically across several years, this can move large amounts of unrealized gain off the tax books for free. The same year, drawing tax-deferred money would be taxed at ordinary income rates — so coordinating these is part of the sequencing decision.
Sample blended sequences
Early retirement (60s, before Social Security and RMDs)
Mix tax-deferred withdrawals (or Roth conversions) up to a target bracket, with any cash shortfall coming from taxable accounts — ideally realizing long-term gains at 0% or 15%. Roth left to grow.
Mid-retirement (70s, RMDs and Social Security active)
RMDs are mandatory from the tax-deferred bucket; you don’t choose whether to take them. Beyond the RMD, fill out remaining cash needs from taxable first (capital gains rates) and Roth only when crossing into a higher bracket would otherwise be forced. Continue Roth conversions in years where there’s bracket headroom and IRMAA allows.
Late retirement (80s+) and legacy planning
If estate planning matters, Roth balances are typically preserved — they pass to heirs tax-free. Tax-deferred balances pass with significant tax friction (heirs typically must drain inherited IRAs within 10 years, taxed as ordinary income). Charitable plans favor traditional IRAs (qualified charitable distributions go to charity tax-free).
Common mistakes
- Spending taxable accounts down to zero too early, leaving only tax-deferred and Roth — future flexibility shrinks
- Ignoring RMDs in planning until they begin, then being surprised by the taxable income they generate
- Withdrawing from Roth first because it “feels free” — this loses the tax-free compounding advantage and often produces a worse lifetime outcome
- Realizing capital gains haphazardly, missing the 0% and 15% rate opportunities in low-income years
- Not coordinating with Social Security claiming. Delaying Social Security to 70 isn’t just about a higher benefit — it creates a longer low-income window for efficient conversions and drawdowns.
When to revisit the plan
Withdrawal sequencing isn’t a one-time decision. It’s an annual planning task. Tax brackets change, your other income changes, market values shift, life events happen. Each year — ideally in November or December, when income is mostly known — review where you stand against bracket and IRMAA thresholds and adjust the year’s withdrawals accordingly.
This is one of the highest-value planning tasks in retirement and one of the most commonly skipped. Working with a tax-aware advisor or running the numbers carefully yourself each year can save tens or hundreds of thousands of dollars across a long retirement.
Further Reading
- Roth Conversions Explained
- Required Minimum Distributions (RMDs) Explained
- Taxes and Retirement Accounts Explained Simply
- How Social Security Income Is Taxed
- Sequence of Returns Risk in Retirement
- Building a Retirement Income Plan
This article is for general educational purposes only and does not constitute tax or financial advice. Withdrawal sequencing has significant tax implications — consult a qualified tax professional or fee-only advisor before making decisions.
