Retirement Withdrawal Sequencing Basics

Once you stop working, the order in which you draw down different account types — taxable brokerage accounts, tax-deferred accounts like traditional IRAs and 401(k)s, and tax-free Roth accounts — can meaningfully change how long your savings last and how much tax you pay along the way.

The Traditional Rule of Thumb

A commonly cited default sequence is:

1. Spend from taxable accounts first, since their growth is usually taxed at more favorable long-term capital gains rates and withdrawing principal is not a taxable event at all.
2. Spend from tax-deferred accounts next (traditional IRAs, 401(k)s), once taxable accounts are largely depleted.
3. Spend from Roth accounts last, letting their tax-free growth compound for as long as possible.

This ordering minimizes taxes paid in any single year on average, but it is a starting point, not a rule that fits every household.

Why Strict Sequencing Can Backfire

Draining taxable accounts completely before touching tax-deferred ones can push a retiree into an unusually low-income stretch early in retirement, followed by a sharp jump once tax-deferred withdrawals (and eventually RMDs) begin. A more tax-efficient approach often blends withdrawals across account types every year, deliberately "filling up" lower tax brackets with some tax-deferred withdrawals or Roth conversions even while taxable and Roth balances are still available.

Interaction With Other Income

Withdrawal sequencing does not happen in isolation — it interacts with:

• Social Security claiming age, since delaying benefits often means drawing more heavily from savings in the early retirement years.
• Required minimum distributions, which eventually force withdrawals from tax-deferred accounts regardless of preference.
• Medicare premium surcharges (IRMAA), which are based on taxable income from two years prior, so a large one-time withdrawal or Roth conversion can raise premiums well after the fact.
• Healthcare subsidies, for retirees not yet on Medicare, which are also income-sensitive.

A More Dynamic Approach

Many advisors now favor a "fill the bracket" strategy: each year, estimate the retiree's other taxable income, then withdraw from tax-deferred accounts (or execute a partial Roth conversion) only up to the top of a target tax bracket, drawing any additional spending needs from taxable or Roth accounts instead. This keeps taxable income smoother from year to year and can reduce lifetime taxes compared to a rigid three-bucket sequence.

The Bottom Line

There is no universal optimal order — the right sequence depends on account balances, expected Social Security timing, anticipated healthcare costs, and each household's own tax situation year by year. Reviewing the plan annually, rather than setting a sequence once at retirement, tends to produce better outcomes than a fixed rule followed mechanically for 20-30 years.

Sample content for demonstration purposes — not financial advice.