Which Accounts to Draw From First in Retirement

Taxable accounts first, tax-deferred second, Roth last. The logic is compounding. Money in a brokerage account pays tax on dividends and realized gains every year; money in an IRA grows untaxed until withdrawn; money in a Roth grows untaxed forever. Spending the least sheltered money first leaves the most sheltered money compounding longest. Spending from a taxable account is also cheap in tax terms, since only the gain on each sale is taxed, usually at long-term capital gains rates.

The order also has an estate logic. Roth IRAs have no required distributions for the owner and pass to heirs income-tax-free, though most non-spouse heirs must empty them within ten years (IRS). Appreciated shares in a taxable account receive a basis equal to their value at your death, so the gain built up during your life is never taxed (IRS Publication 551). The traditional IRA is the worst asset to leave: every dollar is taxable income to your heirs, often in their peak earning years.

The weakness is what the strict order does to your tax brackets. A couple who retire at 62 and live on their taxable account until it runs out may report almost no income for eight or ten years. Then, when required distributions start, the IRA has grown untouched. RMDs, Social Security and any pension arrive together, and income jumps into higher brackets, sometimes into Medicare surcharges, for the rest of their lives. The survivor then files as a single taxpayer with narrower brackets. The low brackets of the early years expire unused every December.

Whenever this year's marginal rate on IRA money is lower than the rate you expect to pay on it later. For most retirees with large pre-tax balances, that describes every year between retirement and the start of RMDs. In 2026, the 10% bracket for a joint return covers the first $24,800 of taxable income, the 12% bracket runs to $100,800, and the 22% bracket to $211,400 (IRS). A couple both 65 or older have a standard deduction of $35,500. They can therefore have about $136,300 of ordinary income before leaving the 12% bracket.

Through 2028, the new senior deduction adds up to $6,000 per person 65 or older. For a couple that is $12,000, phased out by 6% of income above $150,000. It makes the next three years an unusually cheap window for conversions.

There are two ways to use the room. You can withdraw from the IRA to spend, drawing less from the taxable account, which stretches the taxable account and keeps its tax-free step-up for later. Or you can keep spending taxable money and convert IRA money to a Roth, paying the tax from the taxable account. Both move money out of the IRA at 10% or 12%. Conversions do more, because the converted money keeps compounding tax-free. The Tax Bracket Calculator shows how much room you have, and our guide to Roth conversions before RMDs covers sizing and timing.

Filling the 22% bracket is a closer call. It pays if you expect to face 22% or more later anyway, which is common when RMDs plus Social Security are large, and almost certain for a surviving spouse filing alone. It is also more likely to collide with the Medicare thresholds below. Going into the 24% bracket rarely pays unless the IRA is very large or you are converting for heirs in high brackets.

It competes with conversions for the same space. In 2026, long-term gains and qualified dividends are taxed at 0% as long as total taxable income stays at or below $98,900 on a joint return or $49,450 for a single filer (Rev. Proc. 2025-32). Ordinary income is counted first and gains are stacked on top. Every dollar of IRA withdrawal or conversion therefore pushes a dollar of gains out of the 0% rate and into the 15% rate.

So you must choose, in each year, which to use the space for. Harvesting gains at 0% (selling appreciated shares and buying them back to reset the basis) saves 15% on those gains later, but you would not have paid that tax if you held the shares until death. Converting IRA money at 12% saves your future rate on that money, which for most readers with large IRAs is 22% or more, forever. For households with large pre-tax balances, conversions usually win. For households whose wealth is mostly in taxable accounts with large gains, and who will spend those gains, gain harvesting can win. Our tax-loss harvesting guide covers the mechanics of selling and rebuying.

They set ceilings on how much income to create in a year, and both are cliffs rather than gradual rates. For Medicare, the 2026 Part B premium is $202.90 a month. Surcharges, known as IRMAA, begin when modified adjusted gross income from two years earlier exceeds $218,000 on a joint return or $109,000 for a single filer. The first tier adds $81.20 a month for Part B and $14.50 for Part D, per person (CMS, 2026). One dollar over the line costs a couple about $2,300 for the year. Because of the two-year lookback, income from 63 onward counts. A conversion at 63 sets the premiums you pay at 65.

The practical rule: know the next IRMAA threshold and stop a few thousand dollars short of it, since the thresholds are adjusted each year and your final income may differ from your estimate. Crossing a tier deliberately can still make sense if the conversion saves more in future tax than the one-year surcharge costs. If your income drops because you stopped working, Form SSA-44 asks Social Security to use your current income instead (SSA). Our guide to Medicare enrollment and IRMAA has the full table.

Before 65, marketplace health insurance is the constraint. The temporary rule that removed the income cap on premium tax credits expired after 2025. For 2026, households with income above 400% of the federal poverty line get no credit at all, and any advance credit must be repaid in full (IRS). 2026 coverage uses the 2025 poverty guideline, $21,150 for a household of two (HealthCare.gov). So a couple loses the entire credit above $84,600 of modified adjusted gross income. For early retirees paying full price for two unsubsidized policies, that can be worth more than any conversion. Live on cash and taxable basis in those years, and convert after Medicare starts.

Frank and Joan are both 66 and retired, born in 1960, so their RMDs start at 75. They have $700,000 in a taxable account with a $450,000 cost basis, $1.6 million in traditional IRAs, and $250,000 in Roth IRAs. They spend $140,000 a year. Both plan to claim Social Security at 70, for combined benefits of $82,800 a year. The house is paid off, and they would like to leave their two children as much as possible. We compared three plans.

Plan A pays almost no federal tax for eight years: $17,000 in total from 66 to 74. Then the $1.97 million IRA forces an $80,000 distribution at 75, which rises into the $90,000s and above $100,000 by 85, on top of $82,800 of Social Security. Tax from 75 to 95 comes to about $388,000. At 95 they still hold an $841,000 pre-tax IRA, which their children will pay income tax on within ten years of inheriting it.

Plan B spends from the taxable account as before, but converts about $140,000 a year at first, enough to fill the 12% bracket. That costs about $20,000 a year in tax, $148,000 over nine years. Their first RMD is half as large, their taxes from 75 on are cut almost in half, and lifetime federal tax falls by about $52,000. At 95 everything left is in Roth accounts, about $2.0 million that passes income-tax-free.

Plan C converts more, up to just below the $218,000 IRMAA threshold, which fills much of the 22% bracket. It saves only about $14,000 more than Plan B and pays far more tax up front. We also tested filling the entire 22% bracket. It pushed their income into IRMAA tiers for eight straight years and saved nothing further, even before counting the surcharges. The lesson is diminishing returns: the first conversions, taxed at 10% and 12%, do most of the good.

Two effects our model understates favor converting. If Frank dies at 82, Joan files as a single taxpayer with half-width brackets and a single IRMAA threshold of $109,000, while the RMDs continue at full size. And if tax rates rise in future, prepaying at 12% looks better still. One effect cuts the other way: if they plan to leave much of the IRA to charity, pre-tax money is the ideal asset to give, and converting it would waste tax.

You can test your own figures in the Retirement Withdrawal Calculator and see your future RMDs in the RMD Calculator.

From 73, or 75 if you were born in 1960 or later, the required amount comes out of your traditional IRAs and 401(k)s first every year, whatever else you do (IRS). Each year's RMD is the prior December 31 balance divided by the Uniform Lifetime Table factor for your age: 24.6 at 75, for example, or about 4.1% of the balance, rising each year. Roth IRAs have no required distributions for the owner, and since 2024 neither do Roth 401(k) accounts. Missing an RMD costs a 25% excise tax on the shortfall, cut to 10% if corrected within the correction window (IRS).

After RMDs start, the order becomes: take the RMD, then fill any remaining need from the taxable account, then take extra IRA withdrawals if a low bracket is still open, and leave the Roth for last. If you give to charity, a qualified charitable distribution from an IRA once you are 70½ counts toward your RMD but is excluded from income, up to $111,000 per person in 2026. For charitable households, that is usually better than giving cash and taking a deduction; see our guide to qualified charitable distributions.

Many retirees find the RMD is more than they need to spend. The surplus does not have to be spent. It can be reinvested in the taxable account, or given to children and grandchildren within the annual gift exclusion of $19,000 per recipient; our guide to gifting to children and grandchildren covers the options. It cannot go into a Roth, since RMDs are not eligible for conversion.

Tax order decides which account to draw from; sequence risk decides which asset to sell. Sequence-of-returns risk is the danger that a bear market early in retirement, while you are withdrawing, does lasting damage. Shares sold at depressed prices to fund spending are not there for the recovery. Two retirees with the same average return can end with very different results depending on whether the bad years come first. Our retire-at-60 case study shows the effect year by year.

The simplest defense is a cash bucket: one to two years of planned portfolio withdrawals, net of Social Security and pensions, held in a money market fund or short-term Treasuries. In a normal or strong year, you refill it by selling whatever is overweight, often stocks. In a down year, you spend from the bucket and leave stocks alone. The bucket belongs wherever the withdrawals will come from; in a taxable account it also saves you from realizing losses you would rather harvest deliberately.

Bigger is not better. Beyond about three years, the drag of holding cash usually costs more than the protection is worth, and a bond allocation serves the same purpose with better returns. Keep conversions flexible too: a market drop is a good time to convert, because the same number of shares moves to the Roth at a lower tax cost. Our asset allocation by age guide covers how the rest of the portfolio should be set.

It changes as the rules that bind you change: health insurance subsidies before 65, Medicare surcharges from 63, the benefit tax once Social Security starts, and RMDs later. The diagram sets out a typical sequence for a married couple with a large pre-tax balance.