Which Account Should You Draw From First in Retirement?

If you are pulling from your retirement accounts in the wrong order, you could be handing the IRS thousands more than you owe.

Key Takeaways

• Retirement accounts fall into three distinct buckets, each taxed differently, and the order you spend them matters enormously.

• Drawing from taxable accounts first keeps your income low in early retirement, creating a planning window to convert traditional funds at lower rates.

• The Roth IRA should be the last account you touch: no required distributions, no ordinary income tax, and no effect on Medicare premiums.

The Three Buckets Every Retiree Needs to Understand

Most retirees assume they can simply spend from whichever account is most convenient. That assumption is what makes retirement more expensive than it needs to be.

Your retirement savings live in three distinct buckets, each with its own tax treatment.

The first is your taxable brokerage account. This money was funded with after-tax dollars. When you sell investments held longer than a year, the gains are taxed at long-term capital gains rates, which are lower than ordinary income rates for most retirees.

The second is your tax-deferred account, typically a traditional IRA or 401(k). Every dollar you pull from here is taxed as ordinary income in the year you withdraw it.

The third is your Roth IRA. Contributions went in after-tax, qualified withdrawals come out completely tax-free, and there are no required minimum distributions during your lifetime.

Why the Sequence Matters: Taxable First, Traditional Second, Roth Last

The general withdrawal sequence that financial planners use is taxable accounts first, traditional accounts second, and Roth accounts last. Each step in that order serves a specific purpose.

Spending from your taxable account first keeps your reported taxable income low in the early years of retirement. Lower income means lower Medicare premiums, potentially lower taxes on Social Security benefits, and more flexibility to take advantage of preferential capital gains rates.

That lower income also creates a bracket management window. For married couples filing jointly in 2026, the 12% federal income tax bracket extends up to $100,800 of taxable income. In the years before Social Security benefits and required minimum distributions begin stacking up, a retiree can strategically fill that bracket by taking traditional IRA withdrawals or executing Roth conversions at a relatively modest tax rate. Money moved into the Roth during those years can then grow and be withdrawn completely tax-free later.

The Roth stays untouched for as long as possible. Because Roth IRAs carry no required minimum distributions and qualified withdrawals do not count as income for Medicare premium calculations, preserving the Roth is often one of the most powerful long-term moves a retiree can make.

"The sequence is not complicated. Taxable first, traditional through your best bracket years, Roth as the last resort you are grateful you kept." -- Warren Burger, Financial Advisor

How to Apply This in Your Own Plan

1. Map your buckets. Identify exactly how much you hold in taxable accounts, traditional IRAs or 401(k)s, and Roth accounts. The proportion in each bucket will shape your specific strategy.

2. Project your income timeline. Determine when Social Security benefits will begin and when required minimum distributions will kick in. The gap between retirement and those dates is your bracket management window.

3. Model your bracket. Work with a financial planner to estimate how much room you have in the 12% or 22% bracket each year. That headroom is the amount you can convert or withdraw from traditional accounts at a controlled rate before the Roth ever comes into play.

4. Review annually. Tax laws change, income sources shift, and life circumstances evolve. The optimal sequence is not a one-time decision; it is a plan you revisit each year.

This is a hypothetical illustration. Your situation will vary based on income, state taxes, Social Security timing, and applicable tax law.

Source: IRS 2026 Tax Inflation Adjustments -- https://www.irs.gov/newsroom/irs-releases-tax-inflation-adjustments-for-tax-year-2026