Withdrawal Order
Most retirees have money in multiple account types: taxable brokerage, traditional IRA/401(k) and Roth. Drawing from the right account at the right time can save tens of thousands in lifetime taxes.
The three buckets
Taxable
Brokerage accounts
Funded with after-tax money. Gains taxed at capital gains rates (0%, 15% or 20%). No withdrawal restrictions.
Tax-deferred
Traditional IRA, 401(k)
Funded with pre-tax money. Withdrawals taxed as ordinary income. Subject to RMDs starting at 73.
Tax-free
Roth IRA, Roth 401(k)
Funded with after-tax money. Qualified withdrawals are completely tax-free. No RMDs on Roth IRA.
The conventional approach
The traditional rule of thumb: draw accounts in this order to let tax-advantaged money grow as long as possible.
- 1
Taxable accounts first
Capital gains rates are lower than ordinary income rates. Using taxable first lets retirement accounts compound longer.
- 2
Tax-deferred second
Once taxable is depleted, draw from traditional accounts. You'll owe income tax on every dollar withdrawn.
- 3
Tax-free last
Roth grows tax-free forever. Saving it for last maximizes the benefit of that tax-free compounding.
Why the conventional approach isn't always optimal
Strict ordering ignores tax brackets. A smarter approach considers how much to take from each bucket each year:
RMD cliffs: Saving all traditional withdrawals for later leads to massive RMDs that push you into high brackets. Taking some early (or doing Roth conversions) smooths your lifetime tax bill.
Empty bracket years: In low-income years you may have room in the 0% capital gains bracket or the 10/12% income bracket. Not filling those brackets is a missed opportunity.
Social Security interactions: Traditional withdrawals can push more of your Social Security benefits into taxation. Blending Roth withdrawals in can keep combined income below the thresholds.
The optimized approach
Instead of a fixed order, an optimized strategy considers your brackets each year:
- Take enough from traditional accounts to "fill" low tax brackets
- Use Roth for anything above that to keep taxable income low
- Harvest capital gains at 0% rates when you have room
- Do Roth conversions in years with extra bracket space
- Let RMDs handle required minimums; supplement from Roth if needed
This "tax-efficient" approach can save $50,000-$200,000+ over a 30-year retirement compared to the rigid conventional order.
Model your withdrawal strategy
RetireNumber projects your tax brackets year by year across traditional, Roth and taxable accounts. See how different withdrawal orders affect your lifetime tax bill, RMDs, and portfolio longevity.
Plan your withdrawalsOptimal withdrawal order depends on your full financial picture. This page provides general education, consult a tax professional for personalized advice.