The order in which you withdraw from retirement accounts , including taxable brokerage accounts, traditional IRAs or 401(k)s, and Roth IRAs , can significantly affect your tax bill, Medicare premiums, and how long your savings last. A blended, tax-aware withdrawal strategy may offer advantages over the traditional "taxable-first" approach, particularly for retirees with substantial savings, though results vary based on individual circumstances.
You spent decades building your retirement savings. How you draw from them matters just as much as how you saved. Getting the sequence right can help protect your wealth, support better tax management, and preserve more for your heirs. Without a thoughtful plan, you may face larger tax bills, higher Medicare premiums, and a portfolio that runs shorter than expected.
What Are the Three Types of Retirement Accounts and How Are They Taxed?
There are three account categories, each with distinct tax treatment:
Taxable brokerage accounts are funded with after-tax dollars and accessible at any time. Gains on investments held longer than one year are generally taxed at long-term capital gains rates, typically 0%, 15%, or 20%, which are often more favorable than ordinary income tax rates.
Tax-deferred accounts, including traditional IRAs, 401(k)s, and 403(b)s, allow pre-tax contributions and tax-deferred growth. Withdrawals are taxed as ordinary income, and starting at age 73, Required Minimum Distributions (RMDs) are mandatory whether you need the money or not.
Tax-free accounts, such as Roth IRAs and Roth 401(k)s, are funded with after-tax dollars, but qualified retirement withdrawals are generally tax-free. Roth IRAs carry no RMDs during your lifetime, offering meaningful flexibility in managing income.
Understanding how each account is taxed is an important foundation for building an effective withdrawal strategy.
Why Does Withdrawal Order Matter So Much?
Your withdrawal sequence shapes your taxable income each year of retirement, and that can have downstream effects on your federal tax bracket, Medicare Part B and Part D premiums, and the portion of your Social Security benefits subject to tax.
Consider this hypothetical scenario: a couple with $800,000 in a traditional IRA and $250,000 in a brokerage account retires at 63. If they spend the brokerage account first and leave the IRA untouched, the IRA continues to grow. By age 73, RMDs may push them into a higher tax bracket than they anticipated, compounded by Medicare IRMAA surcharges triggered by elevated income. What initially seemed like a conservative approach can become unexpectedly costly. Thoughtful sequencing can help keep taxable income more level and predictable across a retirement that may span 25 to 30 years.
Should You Always Withdraw From Taxable Accounts First?
Traditional guidance often points in this direction: start with taxable accounts, then tax-deferred, then Roth. The underlying logic is reasonable since tax-advantaged accounts can benefit from more time to grow. However, this approach has a notable limitation: it does not account for what your tax picture may look like a decade from now.
If you delay IRA withdrawals entirely in early retirement, you may pass up some of your lower-tax years. When paychecks stop and Social Security has not yet started, many retirees find themselves in a lower bracket than they were during their working years. Drawing modest amounts from your traditional IRA during that window, even if you do not immediately need the income, may help reduce the balance that will later generate mandatory, taxable RMDs.
What Is a Blended Withdrawal Strategy?
Rather than following a strict account-by-account sequence, a blended approach draws from multiple account types in the same year, calibrated to keep taxable income within a target range.
For example, if your annual expenses are $80,000 and Social Security covers $40,000, you could cover the remainder entirely from your traditional IRA. But a more tax-efficient approach might take $20,000 from your IRA—staying within the 12% federal bracket for a married couple (based on current tax brackets)—and covering the rest from taxable savings.
In the same year, if your income is relatively low, a partial Roth conversion may also be worth considering. You pay tax on the converted amount in the year of the conversion, which requires funds available to cover that tax bill; done thoughtfully, that money can then grow tax-free, and future RMDs may shrink because the IRA balance is smaller. Over time, the cumulative benefit of this kind of planning can be meaningful.
How Do RMDs, IRMAA, and Social Security Timing Fit In?
These three factors are closely connected, and each deserves attention in your withdrawal plan.
RMDs begin at age 73 and are calculated as a percentage of your tax-deferred balances. The larger the balance, the larger the required withdrawal. Taking IRA distributions before RMDs begin may help reduce future mandatory withdrawals and smooth out taxable income over time.
IRMAA surcharges are additional Medicare premiums that can apply when your Modified Adjusted Gross Income exceeds certain thresholds. Because Medicare uses income from two years prior, a large IRA withdrawal today could affect your healthcare costs down the road. Careful, year-by-year income planning can help you stay within favorable ranges.
Social Security timing also plays a role in shaping your withdrawal strategy. Delaying benefits until age 70 increases your monthly payment and may create a window of lower taxable income in your early retirement years, often a worthwhile time to draw down IRA balances or consider Roth conversions. Once Social Security begins and RMDs start, taxable income tends to rise and planning flexibility can narrow.
What Should Your Strategy Look Like?
There is no universal formula. Your plan should reflect how much you have saved, where it is held, when you plan to claim Social Security, whether you have a pension, how your state treats retirement income, and what you hope to leave behind.
A few principles tend to apply broadly:
- Avoid defaulting to taxable-first without first examining your long-term tax trajectory.
- Consider using lower-income years strategically, before Social Security and RMDs create income floor constraints.
- Spread Roth conversions thoughtfully across multiple years rather than reacting to short-term circumstances.
- Keep IRMAA thresholds in view when planning any large distributions.
- Build a written withdrawal plan so you are better prepared to make decisions when markets are volatile.
If you are within five to ten years of retirement and have not yet mapped out a withdrawal sequence, it may be worth starting that conversation now.
Your Next Step Toward a Smarter Retirement Plan
Your withdrawal strategy does not exist in isolation. It works alongside your tax plan, investment structure, retirement timeline, and long-term goals, and how well those pieces fit together can meaningfully affect how confidently you spend, give, and plan throughout retirement. Reviewing your accounts and withdrawal approach on a regular basis, rather than only when markets draw attention, is the kind of proactive planning that can help protect your financial future. If you are ready to take a closer look, we invite you to schedule a consultation with a Quotient financial advisor today.
Frequently Asked Questions
What is the smartest order to withdraw money from retirement accounts?
There is no single sequence that works for everyone. The most effective approach typically blends withdrawals from taxable, tax-deferred, and Roth accounts to keep taxable income within a target range each year. Strictly following the "taxable first" rule can result in larger RMDs and higher taxes later.
Why should I consider withdrawing from my IRA early in retirement, even if I do not need the money
Early retirement often brings a window of lower taxable income — especially before Social Security and RMDs begin. Drawing modest amounts from your traditional IRA during this period lets you pay taxes at a lower rate now and reduces the balance subject to future mandatory distributions.
How do Roth conversions help reduce future taxes?
A Roth conversion moves funds from a tax-deferred account to a Roth IRA. You pay ordinary income tax on the converted amount in the year of conversion, but future growth and qualified withdrawals are completely tax-free. Converting during low-income years also reduces your IRA balance, lowering future RMDs and giving you more flexibility in managing taxable income.
Can my withdrawal strategy affect my Medicare premiums?
Yes. Medicare uses your Modified Adjusted Gross Income from two years prior to calculate Part B and Part D premiums. Large IRA withdrawals that push your income above certain thresholds can trigger IRMAA surcharges, resulting in meaningfully higher healthcare costs. Careful income planning each year helps avoid this.
