A Six-Figure Retirement Decision: Which Account Should You Withdraw From First?

Two retirees can withdraw the exact same amount of money each year and end up paying dramatically different taxes.

In many cases, the reason is withdrawal sequencing — whether income comes from a traditional IRA, a brokerage account, or a Roth account first.

The order you draw from your retirement accounts can create a six-figure difference in lifetime taxes. It can also influence how long your portfolio lasts, how much of your Social Security benefit becomes taxable, and whether Medicare premiums increase.

Let’s walk through the standard withdrawal sequence, when it makes sense to deviate from that framework, and how coordinating withdrawals across accounts can reduce lifetime taxes and help your retirement savings last longer.

Why Withdrawal Order Matters More Than You’d Think

While you’re working, money flows in one direction: into your accounts. Retirement reverses that. Now you’re converting assets into income, and the order you do it in has real consequences.

Most retirees have three primary account types, each taxed differently:

• Traditional IRAs and 401(k)s: These accounts were funded with pre-tax contributions. Every dollar withdrawn is treated as ordinary income and taxed at your marginal rate.
• Taxable brokerage accounts: These accounts are more flexible. When investments are sold, gains are generally taxed at long-term capital gains rates — 0%, 15%, or 20% depending on income.
• Roth accounts: Withdrawals from Roth IRAs and 401(k)s are completely tax-free, provided the account has been open at least five years and you’ve reached age 59½.

The instinct is to think “I’ll just tap whichever account is most convenient.” But that convenience can cost you. A withdrawal from your IRA might push you into a higher tax bracket. That same bracket jump could make more of your Social Security taxable. And if you’re over 65, it might trigger Medicare premium surcharges two years later.

One withdrawal decision can trigger several downstream effects in your tax picture. That’s why the order matters.

The Conventional Approach to Withdrawal Sequencing

A widely accepted withdrawal sequence in retirement follows this general order: taxable accounts first, then traditional pre-tax accounts, and Roth accounts last. 

1. Start with Taxable Accounts

Tapping your brokerage accounts first gives your tax-advantaged accounts more time to compound. It’s also the most tax-efficient starting point for withdrawals: long-term capital gains rates can be as low as 0% depending on your income, compared to ordinary income rates that can run 12% to 37%. 

For early retirees under 59½, there’s a practical benefit here too — brokerage accounts carry no early withdrawal penalties. Drawing from them first keeps your taxable income lower, which could delay when you need to claim Social Security.

2. Move to Traditional Tax-Deferred Accounts Next

Once taxable accounts are drawn down, shift to your traditional IRA or 401(k). This preserves Roth accounts for longer, allowing them to keep compounding tax-free. It also gives you more control over your income. 

For retirees who stop working before claiming Social Security, spreading IRA withdrawals across several years can prevent large spikes in income later that could inflate Medicare premiums or pull more Social Security into taxable income.

3. Tap Roth Accounts Last

Roth accounts are your most flexible asset in retirement. They have no required minimum distributions, grow completely tax-free, and can be passed to heirs under favorable conditions. 

Saving them for last maximizes that growth window and gives you a tax-free reserve for years when other income sources are higher, or you need more flexibility. If an unexpected expense arises (like a home repair, medical cost, or family need), a Roth withdrawal can provide cash without increasing taxable income.

Why This Sequence Works

This approach prioritizes tax efficiency and long-term growth. By drawing from taxable accounts first, you’re often paying capital gains rates (0% to 15%) instead of ordinary income rates (12% to 37%). You’re also giving your tax-advantaged accounts more time to compound.

The Strategic Enhancement: Roth Conversions During Low-Income Years

The conventional sequence works well for many retirees. But there’s a proactive strategy that can reduce lifetime taxes even further: executing Roth conversions during the years between retirement and age 73.

Your income is lower in early retirement than it was during your working years, and lower than it will be once RMDs begin. This creates space in the 12% or 22% federal brackets that can be used strategically.

A Roth conversion moves money from a traditional IRA into a Roth IRA. The amount converted is taxed in the year of the conversion, but future growth and withdrawals become completely tax-free.

How to Size Conversions

Instead of converting a fixed dollar amount, one approach is to map conversions to tax brackets.

For example, let’s say you and your spouse need $60,000 for living expenses, which you draw from your brokerage account. Your taxable income after deductions is $60,000, leaving you with about $34,000 of room in the 12% bracket before jumping to 22% (assuming the bracket tops out around $94,000).

You could convert $34,000 from your traditional IRA to Roth, paying 12% tax now instead of 22%+ later when RMDs would force that money out. Over several years, this systematically reduces your traditional IRA balance, reducing future RMDs and building a pool of tax-free income for later in retirement.

• Smaller traditional IRA balance by age 73 = smaller RMDs 
• More money in Roth accounts = more tax-free flexibility later 

For households with large retirement balances, this can help save six figures in lifetime taxes.

Proportional Withdrawals: An Alternative Approach

Not everyone benefits from a strict withdrawal order. Some retirees do better with a proportional approach, withdrawing from each account type based on its share of the overall portfolio. 

For example, if your portfolio is 50% traditional IRA, 30% taxable, and 20% Roth, each withdrawal would be taken in those same proportions. Rather than deferring all pre-tax income until later, proportional withdrawals spread tax liability evenly over retirement, which can prevent income spikes that trigger higher brackets, Medicare surcharges, or additional Social Security taxation.

You give up some early tax efficiency (paying ordinary income tax when you could be using capital gains rates), but you gain predictability and reduce the risk of a large tax surprise later. 

How Required Minimum Distributions Change Your Strategy

Eventually, the IRS will step in.

At age 73, owners of traditional retirement accounts must begin taking required minimum distributions, or RMDs. The amount is determined by dividing the account balance by a life-expectancy factor published by the IRS, and it counts as fully taxable ordinary income.

In turn, the impact of sequencing decisions made earlier in retirement begins to show.

For example: By age 73, if your traditional IRA has $800,000 remaining, your first RMD will be about $30,000. Layer in Social Security, which can exceed $40,000 for individuals, and $70,000 or more for married couples with strong earnings histories, and your baseline taxable income is substantial before you’ve made a single discretionary withdrawal for living expenses. 

That limits your flexibility.

Your most impactful planning window is between retirement and age 73, when you have maximum control over your income. Strategic withdrawals and Roth conversions executed during that period can reduce the traditional IRA balance that would otherwise trigger forced distributions. Once RMDs begin, you’re largely reacting to required distributions in subsequent years rather than proactively planning around them.

Special Scenarios That Complicate the Standard Sequence

The conventional sequence is a useful framework, but life rarely follows a clean script. Here are five situations that call for a different approach. 

Scenario 1: Early Retirement Before 59½

IRA and 401(k) withdrawals before age 59½ usually trigger a 10% early withdrawal penalty in addition to ordinary income taxes. One notable exception is the Rule of 55, which allows penalty-free withdrawals from a 401(k) if you separated from your employer at age 55 or older. 

This provision can be helpful for workers who retire early but have sufficient savings in their current 401(k) to begin withdrawing earlier.

Many early retirees still rely more heavily on taxable accounts (which can always be withdrawn penalty-free, regardless of retirement age) to cover expenses while waiting for the penalty window to close.

Scenario 2: One Spouse Still Working

If one spouse is still earning income, household income is higher, which limits opportunities for Roth conversions or strategic IRA withdrawals at lower rates. 

In this situation, the priority often shifts to drawing from taxable accounts to supplement the lost income, while deferring any aggressive conversion strategy until both partners are retired and their combined income has dropped.

Scenario 3: Large One-Time Expense 

A major purchase (like a home remodel, a car, a child’s wedding) can lead to a sequencing problem if paid for with the wrong account in a single year. Drawing $80,000 from a traditional IRA all at once could push you into a significantly higher bracket than necessary.

The better approach in this scenario is a blended withdrawal strategy, in which you pull $40,000 from a taxable brokerage account (potentially at 0% capital gains) and $40,000 from your IRA, which stays within a lower bracket. 

Scenario 4: Volatile Markets

Market conditions can complicate sequencing as well. When markets decline, selling stocks at depressed prices may not be ideal. Many retirees address this challenge using bucket strategies for flexibility so they can ride out market volatility without selling investments at a loss. 

A common approach is to hold one to three years in cash, four to 10 years in bonds, and 10+ years in stocks.

Scenario 5: Coordinating with Social Security Timing

Waiting to claim Social Security benefits until age 70 is often the most financially advantageous option for higher earners, but it requires larger portfolio withdrawals during your 60s to cover living expenses. 

However, doing so creates space for tax-efficient Roth conversions, since your income is reduced while Social Security hasn’t started. Have your investment and tax advisors model various scenarios to ensure your portfolio can sustain those early withdrawals without depleting long-term growth potential. 

What Makes Sequencing Personal

No two situations are identical, which means the right retirement withdrawal strategy rarely follows a rigid formula. Several factors shape the most effective approach.

• Account structure. If the majority of your savings sits in a traditional IRA, avoiding that account early in retirement may not be realistic. Households with heavily concentrated pre-tax balances often need a more deliberate plan for managing future required minimum distributions.
• Other income sources. Pension payments, part-time work, rental income, or a working spouse can raise your baseline taxable income. That affects how much room you have for Roth conversions or strategic IRA withdrawals at lower tax brackets.
• Health and life expectancy. A couple expecting a long retirement may prioritize tax-free growth for decades, while someone with different circumstances might focus more on income today. Healthcare planning is part of this equation too, particularly for those anticipating significant long-term care costs in later years.
• Retirement location. Where you live in retirement can materially affect withdrawal decisions. Some states tax retirement income heavily, while others have no income tax at all. For example, Minnesota’s top income tax rate approaches 9.85%,¹ which can significantly increase the after-tax impact of IRA withdrawals. If you’re considering a move in retirement, the state tax treatment of retirement income (including Social Security) is worth factoring into your withdrawal strategy.

Because these variables interact in complex ways, retirement income planning can benefit from collaborative effort. Financial advisors can model how different withdrawal strategies affect long-term outcomes, while tax professionals calculate the year-by-year tax impact.

Together, that process helps tailor a withdrawal plan to your specific financial picture.

Sequencing Is Strategy, Not Just Spending

The order in which you draw from retirement accounts is a strategic lever that affects taxes, Medicare costs, and how many years your portfolio can sustain your lifestyle.

The conventional sequence — taxable accounts first, then traditional, then Roth — works well as a baseline. But executing Roth conversions during low-income years can help you go further, particularly for those who have the flexibility to plan ahead of RMD age. The key is to start looking at this now, not at 72.

At Pine Grove Financial Group, we help clients build withdrawal strategies that coordinate account types, income sources, tax planning, and their broader investment strategy into a cohesive retirement plan. If you’d like to explore how sequencing could reduce your lifetime tax burden, schedule a consultation to get started.

¹Minnesota Department of Revenue, “Income Tax Rates and Brackets”