Which Accounts Should You Withdraw From First in Retirement?
How to create a tax-efficient retirement income strategy
When people think about retirement, they often focus on how much they’ve saved. But just as important is how those savings are withdrawn.
One of the most common questions we hear is:
“Which accounts should I withdraw from first in retirement?”
It’s a smart question — because the order in which you take withdrawals can affect your tax bill, portfolio longevity, Medicare costs, and long-term flexibility.
The good news is that there are some helpful principles to guide the decision. The better news is that a thoughtful withdrawal strategy can often make retirement income more efficient and more predictable.
The three main retirement income “buckets”
Most retirees hold savings in a mix of three account types, each with different tax characteristics.
1. Taxable accounts
These are typically brokerage accounts, individual or joint investment accounts, and in some cases bank or money market assets held outside retirement accounts.
Examples:
Individual brokerage account
Joint brokerage account
Trust account
General tax treatment:
Interest, non-qualified dividends, and short-term gains are generally taxable in the year received
Qualified dividends and long-term capital gains may receive preferential tax treatment
Unrealized gains are generally not taxed until assets are sold
Why these accounts matter:
They often provide the most flexibility
They generally do not have retirement-age withdrawal rules
They are not subject to RMDs
2. Tax-deferred accounts
These include accounts that were often funded with pre-tax dollars, and withdrawals are generally taxed as ordinary income.
Examples:
Traditional IRA
401(k)
403(b)
SEP IRA
SIMPLE IRA
General tax treatment:
Contributions may have reduced taxable income when made
Earnings grow tax deferred
Withdrawals are generally taxed as ordinary income
RMDs:
Under current IRS rules, many current retirees must begin taking required minimum distributions (RMDs) at age 73, though the exact required beginning date depends on birth year and, for some workplace plans, retirement status. (irs.gov)
3. Tax-free accounts
These accounts can provide valuable flexibility later in retirement.
Examples:
Roth IRA
Roth 401(k)
Roth 403(b)
General tax treatment:
Contributions are generally made with after-tax dollars
Qualified withdrawals are generally income tax-free
RMDs:
Roth IRAs are not subject to lifetime RMDs for the original owner
Designated Roth accounts in 401(k) and 403(b) plans are also not subject to lifetime RMDs for the owner under current law. (irs.gov)
The traditional withdrawal order
A common rule of thumb is to withdraw in this order:
Taxable accounts first
Tax-deferred accounts next
Roth accounts last
This approach is often a reasonable starting point because it allows tax-advantaged assets to remain invested longer.
Why many people start with taxable accounts first
Using taxable assets first may help because:
Long-term capital gains may be taxed at lower rates than ordinary income
Tax-deferred and tax-free accounts can potentially continue growing
It preserves Roth assets for later years, when tax flexibility may become even more valuable
Why tax-deferred accounts are often used next
Drawing from traditional IRAs and similar accounts later can make sense, but waiting too long can also create problems.
Why this stage matters:
Large tax-deferred balances can lead to larger future RMDs
Higher RMDs can increase taxable income in later retirement
More taxable income can affect Medicare premiums and the taxation of Social Security benefits
Why Roth accounts are often preserved for last
Roth assets are often the most flexible dollars in retirement.
Potential benefits:
Qualified withdrawals are generally tax-free
No lifetime RMDs for the original owner
They may provide flexibility for larger one-time expenses
They can be useful later if tax rates or income rise
Why the “standard” strategy is not always the best one
This is where retirement income planning becomes more nuanced.
The traditional order is a good framework, but not always the most tax-efficient strategy in real life. In many households, the better approach is not a rigid sequence — it’s a year-by-year tax-aware strategy.
In other words, the question is often not just:
“Which account do we use first?”
It’s also:
“How much should we take from each type of account this year?”
That distinction can make a meaningful difference.
A more tax-aware way to think about withdrawals
Many advisors focus less on strict order and more on tax diversification — drawing from different account types strategically over time.
The goal is often to:
Keep income within a target tax bracket
Avoid large tax spikes later
Manage future RMD exposure
Coordinate with Social Security and Medicare
Maintain flexibility in different market environments
Key factors that should shape retirement withdrawal strategy
1. Your tax bracket each year
A retiree may not want to withdraw only from taxable accounts if that means allowing large pre-tax balances to keep compounding until RMDs begin.
In some years, it may make sense to:
Take enough from traditional IRAs to fill up a lower tax bracket
Realize some capital gains intentionally
Avoid pushing income into a higher bracket than necessary
This can help smooth taxable income over time rather than creating larger spikes later.
2. The window before RMDs begin
The years between retirement and RMD age can be especially valuable for planning.
For many retirees, these are lower-income years because:
Employment income may have stopped
Social Security may not have started yet
RMDs have not begun
That can create an opportunity to:
Withdraw intentionally from tax-deferred accounts
Consider partial Roth conversions
Reduce the size of future RMDs
Under current IRS guidance, RMD rules and timing remain important for traditional IRAs and most pre-tax retirement accounts. (irs.gov)
3. Social Security timing
Social Security claiming strategy and withdrawal strategy should work together.
Why? Because once Social Security starts, the tax picture often becomes more complicated. Under current rules, up to 85% of Social Security benefits may be taxable, depending on combined income. (ssa.gov)
That means the timing of withdrawals from IRAs, brokerage accounts, and Roth accounts can influence:
How much of Social Security is taxable
Your overall marginal tax rate
How much room you have for Roth conversions or other planning moves
4. Medicare premiums and IRMAA
Many retirees are surprised to learn that higher income can increase Medicare costs.
Under current CMS rules, higher-income retirees may pay income-related monthly adjustment amounts (IRMAA) on Medicare Part B and Part D. (cms.gov)
That means a large IRA withdrawal, Roth conversion, or capital gain in one year could potentially increase Medicare premiums later.
This is one reason tax planning in retirement should look beyond the tax return alone.
5. Market conditions
The best withdrawal strategy on paper may not be the best one in a volatile market.
For example:
In a down market, selling heavily from a depressed taxable portfolio may not be ideal
In a strong market, realizing gains may be more manageable
Having multiple tax buckets can create more flexibility when markets are uneven
A good retirement income strategy should be practical, not just theoretical.
What a more balanced strategy can look like
Instead of withdrawing from one bucket until it is exhausted, a retiree might use a blended approach such as:
Taking some spending from a taxable account
Drawing enough from a traditional IRA to stay within a target tax bracket
Preserving Roth assets unless tax-free income is especially helpful
This kind of approach may help:
Reduce lifetime tax drag
Avoid oversized RMDs later
Keep more options open over time
Of course, results depend on each client’s facts, market returns, tax law, spending needs, and estate goals. No withdrawal strategy guarantees a better outcome.
A simple example
Imagine two retirees with similar portfolios and similar spending needs.
Retiree A
Follows a rigid rule:
taxable first
then IRA
then Roth
Retiree B
Reviews the plan each year and adjusts based on:
current tax brackets
Social Security timing
future RMD risk
Medicare thresholds
market conditions
Retiree B may be better positioned to:
smooth income over time
avoid avoidable tax spikes
reduce future RMD pressure
preserve flexibility later in retirement
Not always — but often enough that the planning is worth doing.
Common mistakes retirees make
A few issues come up often:
Waiting too long to address tax-deferred balances
Ignoring future RMDs
Claiming Social Security without coordinating withdrawals
Triggering avoidable Medicare premium increases
Assuming the same withdrawal strategy should be used every year
Treating Roth assets as untouchable, even when selective use may help
Retirement income planning works best when it is revisited regularly, not set once and forgotten.
Key takeaways
There is no one-size-fits-all answer to which account should be used first
A taxable → tax-deferred → Roth sequence is often a useful starting point
A more flexible, tax-aware strategy may be more effective than a strict withdrawal order
RMDs, Social Security taxation, and Medicare IRMAA should all be part of the analysis
The most effective strategy is usually the one that fits the client’s broader financial and tax picture
How BDB Wealth Advisors can help
At BDB Wealth Advisors, we help clients think through retirement income in a way that is designed to be both practical and tax-aware.
That may include:
Building a personalized withdrawal strategy
Evaluating Roth conversion opportunities
Coordinating retirement income with Social Security timing
Monitoring future RMD exposure
Adjusting the plan as tax rules, markets, and goals evolve
Retirement is not just about reaching a number. It’s about turning savings into income in a thoughtful, sustainable way.
Final thoughts
The question isn’t simply “Which account do I withdraw from first?”
The better question is:
“How do I create retirement income in the most thoughtful way over time?”
That’s where planning can add real value.
A well-structured withdrawal strategy can help retirees create more flexibility, improve tax awareness, and make more informed decisions throughout retirement.
Let’s Build a Retirement Income Strategy That Fits Your Life
A thoughtful withdrawal strategy can help bring more clarity to retirement income planning. Coordinating portfolio withdrawals with taxes, Social Security, and long-term goals can make a meaningful difference over time.
At BDB Wealth Advisors, we work with clients to create personalized retirement income strategies built around their needs and priorities.
Disclosure: This material is for informational and educational purposes only and should not be construed as personalized investment, tax, or legal advice. All investing involves risk, including the possible loss of principal. Tax laws and regulations are subject to change, and their application depends on individual circumstances. Past results do not guarantee future outcomes. Individuals should consult their financial, tax, and legal professionals before making any decisions based on this information.