Which Accounts to Draw Down First in Retirement

The conventional order — and why it exists

The traditional rule of thumb for spending down retirement savings is simple: taxable accounts first, tax-deferred accounts second, and Roth accounts last.

1. Taxable brokerage first. These accounts are already taxed each year on dividends and realized gains, and spending them stops that ongoing drag. Withdrawals are taxed only on gains, often at favorable long-term rates.
2. Tax-deferred (traditional 401(k)/IRA) second. Leaving these alone lets them keep growing tax-deferred, but every dollar out is ordinary income — so you tap them after the cheaper taxable money.
3. Roth last. Roth money grows tax-free and has no lifetime RMDs, so it's the most valuable to preserve — ideal for late-in-life spending or as a tax-free inheritance.

The logic is sound as far as it goes: spend the least tax-efficient money first and let the most tax-efficient accounts compound the longest. You can experiment with a simple version of this ordering in the tax-aware withdrawal calculator.

The better mental model: fill the low brackets every year

Modern tax-planning shifts the question from "which account do I empty first?" to "what's the most income I can realize cheaply this year?" The US has a progressive bracket system with a standard deduction, so the first slice of income each year is taxed at 0%, then 10%, then 12%, and so on. Empty years waste that cheap space forever.

So instead of draining one account at a time, a tax-smart retiree blends: they pull enough from the traditional account to "fill up" a low bracket (say the 12% bracket), then top up their spending from taxable or Roth accounts, which add little or nothing to taxable income. The result is a smoother income line across retirement and a lower rate on the tax-deferred money — because it's being pulled out steadily at 10–12% rather than in a late-life RMD spike at 22–24%.

Five reasons to deviate from the default

1. Bracket filling

As above: realize traditional-account income (or Roth conversions) up to the top of a target bracket each year. Filling the 10% and 12% brackets deliberately, even in years you don't need the cash, prevents a future pile-up. The unused low-bracket room this year is gone next year — use it.

2. The 0% long-term capital-gains bracket

Long-term capital gains and qualified dividends have their own rate schedule, and for taxpayers with modest taxable income the rate is 0%. In a low-income year you can sell appreciated taxable holdings, pay $0 in federal tax on the gain, and immediately rebuy to reset your cost basis higher — "tax-gain harvesting." This only works while your total taxable income stays under the 0% threshold, so it competes with Roth conversions for the same low-income space. Estimate the tax on a sale with the capital gains tax calculator.

3. Gap-year Roth conversions

The low-income "gap years" between retiring and starting Social Security and RMDs are the ideal time to convert traditional money to Roth at low rates — the core of a Roth conversion ladder. Spending from your taxable account during these years keeps taxable income low, opening room for conversions. This is a case where you deliberately preserve the traditional account (rather than spending it) so you can convert it on your own terms.

4. RMD pressure

Required minimum distributions begin at 73 (rising to 75 for younger cohorts) and are calculated from your traditional balance. Let that balance grow untouched and the eventual RMDs can be large enough to push you into a higher bracket you can't avoid. Drawing down or converting traditional money before RMDs start is how you defuse this — see the size of your future RMDs with the RMD calculator.

5. IRMAA cliffs

Once you're on Medicare, your Part B and D premiums are surcharged (IRMAA) based on income from two years prior, and the surcharge jumps at hard thresholds — cross one by a dollar and you owe the whole step. A big traditional withdrawal or conversion can trip a cliff, so retirees near a threshold often shift a year's spending to Roth or taxable money to stay under it. Check the brackets with the Medicare IRMAA calculator.

A worked example: default vs. blended

Consider Sam and Alex, both 63, both retired, both needing about $70,000 a year to spend, and both holding $400,000 taxable, $700,000 traditional, and $200,000 Roth. Neither has claimed Social Security yet.

Sam follows the rigid default. He spends only from the taxable account. His taxable income is nearly zero for several years — his low brackets sit empty. By 73, his traditional balance has grown past $900,000, and RMDs plus Social Security push him into the 22–24% brackets and trip an IRMAA surcharge. His late-retirement tax bill is steep.

Alex blends. Each year Alex withdraws about $40,000 from the traditional account — enough to fill up through the 12% bracket — and covers the rest of the $70,000 from the taxable account. His traditional balance shrinks steadily, so his eventual RMDs are far smaller, and he stays clear of IRMAA cliffs.

*Sam's taxable income is just the small realized gains inside his brokerage withdrawal. He looks like he's "winning" on taxes today — but he's wasting a 12% bracket that Alex is using to permanently move money out of the traditional account at a low rate. Over a full retirement, Alex typically pays far less total tax and leaves more behind.

The lesson isn't that "taxable first" is wrong — it's that the goal is the lowest tax across all your retirement years, not the lowest tax this year. That usually means proactively realizing low-bracket income rather than deferring everything.

Other levers worth knowing

• Qualified Charitable Distributions (QCDs). From 70½, you can send up to a yearly limit directly from an IRA to charity, satisfying RMDs without adding to taxable income.
• Asset location. Holding bonds in tax-deferred accounts and stocks in taxable/Roth accounts can reduce the tax drag before you ever withdraw.
• Coordinate with Social Security timing. Delaying benefits to 70 both boosts the benefit and opens more low-income years for conversions and bracket filling first.
• Widow(er)'s tax trap. When one spouse dies, the survivor often files as single with tighter brackets — a reason to move money out of traditional accounts while both are alive.

Frequently asked questions

What is the conventional retirement withdrawal order?

Spend taxable brokerage accounts first, then tax-deferred (traditional 401(k)/IRA) accounts, and leave Roth accounts for last. This lets the most tax-advantaged accounts keep compounding the longest.

Why would I break the conventional order?

Because draining taxable accounts first can waste your low tax brackets and let the traditional balance grow into large, highly taxed RMDs later. Blending withdrawals to fill low brackets each year, do Roth conversions, and avoid IRMAA cliffs often lowers your lifetime tax bill.

What does "filling a tax bracket" mean?

It means realizing income — through traditional withdrawals or Roth conversions — up to the top of a low bracket, then stopping. You use the cheap 10% and 12% space deliberately instead of leaving it empty and paying higher rates later.

How does the 0% capital-gains bracket fit in?

In low-income years, long-term capital gains can be taxed at 0% up to a threshold. You can sell appreciated taxable holdings tax-free and reset your basis, but this competes with Roth conversions for the same low-income room, so you must plan which to prioritize.

When should I worry about RMDs and IRMAA?

RMDs from traditional accounts begin at 73 and can force high-taxed withdrawals, while IRMAA surcharges raise Medicare premiums at hard income thresholds. Drawing down or converting traditional money in your 60s helps shrink both problems before they arrive.

Model your drawdown

• Tax-Aware Withdrawal Calculator — order withdrawals across account types.
• Retirement Drawdown Calculator — how long the money lasts at your spending.
• Capital Gains Tax Calculator — estimate tax on selling taxable holdings.
• RMD Calculator — see the distributions a blended plan can shrink.
• The Roth Conversion Ladder, Explained — the gap-year strategy in depth.