The order you draw down retirement accounts in — not just how much you withdraw — is one of the biggest levers on your lifetime tax bill. The standard rule of thumb is taxable accounts first, tax-deferred accounts second, Roth accounts last, because it lets tax-advantaged growth compound the longest. But required minimum distributions, low-income years, and Roth conversion opportunities all justify breaking that default order deliberately, not accidentally.
How it works
The standard sequence exists because different accounts are taxed differently, and later withdrawals from tax-sheltered accounts benefit from more years of compounding:
- Taxable brokerage accounts first. Already taxed money; only gains are taxed on sale, often at favorable long-term capital gains rates. Spending this first lets 401(k)s, IRAs, and Roth accounts keep compounding untouched.
- Tax-deferred accounts second (traditional 401(k), traditional IRA). Withdrawals are taxed as ordinary income. Drawing these in retirement, often at a lower tax bracket than during working years, can be more efficient than drawing them earlier.
- Roth accounts last. Qualified withdrawals are tax-free, and Roth accounts have no lifetime RMD requirement for the original owner, making them the best vehicle to compound the longest and, if unneeded, pass to heirs tax-free.
Where the standard order breaks down
Required minimum distributions (RMDs) override everything else. Once you reach RMD age (73 in 2026, rising to 75 by 2033 under current law), you must withdraw a minimum amount from tax-deferred accounts regardless of the "ideal" sequence. Plan around this by projecting future RMDs before you get there, not after.
Low-bracket years are a planning opportunity. In years between retiring and RMD age, or any year with unusually low taxable income, filling up the lower tax brackets with a partial Roth conversion can reduce lifetime taxes even though it means paying some tax now, out of order.
Large future RMDs can push you into a higher bracket than you expect. A large traditional 401(k) balance left untouched for years compounds into a large RMD later — sometimes larger than you would voluntarily withdraw, and taxed at a higher marginal rate than if you had drawn it down earlier.
A worked example
Household: Retires at 62, $45,000/year spending need, $200,000 taxable brokerage, $900,000 traditional 401(k), $150,000 Roth IRA.
Ages 62-72 (before RMDs): Spend from the taxable brokerage first (roughly covers 4-5 years), then use partial traditional 401(k) withdrawals sized to stay within a target tax bracket, filling the gap to $45,000/year. Consider Roth conversions in these years if taxable income is otherwise low.
Age 73+ (RMDs begin): Traditional 401(k) RMDs are now required and may exceed the $45,000 spending need on their own. Reinvest any excess into a taxable account rather than spending it if it is not needed.
Comparison: default order vs tax-aware order
| Approach |
How it works |
Best for |
| Strict default order |
Taxable → tax-deferred → Roth, no deviation |
Simplicity, smaller balances |
| Tax-bracket-aware order |
Draws from whichever account keeps you in a target bracket each year |
Larger balances, multiple account types |
| RMD-anticipating order |
Draws down tax-deferred accounts earlier, before RMD age, to reduce future RMD size |
Large traditional 401(k)/IRA balances relative to spending |
| Roth-conversion-integrated order |
Uses low-income years to convert, paying some tax now to reduce tax later |
Households with a gap between retirement and RMD age |
Common mistakes
Following the default order mechanically without checking RMD projections. A large tax-deferred balance can create bracket problems a decade later that early planning would have avoided.
Confusing withdrawal order with asset allocation. Which account you draw from and which asset class (stocks vs bonds) you sell within it are separate decisions — do not let one dictate the other by default.
Ignoring state taxes. Some states tax retirement account withdrawals differently than others, and even differently by account type. Factor this into the sequence, not just federal brackets.
Never modeling Roth conversions. The gap years between retiring and RMD age are often the cheapest years, tax-wise, of your entire retirement to move money into a Roth.
FAQ
Should I always spend taxable accounts first?
As a default, yes, but check whether doing so causes you to skip cheap Roth-conversion opportunities in early, low-income retirement years.
Do required minimum distributions apply to Roth accounts?
Not for the original owner's Roth IRA. Inherited Roth accounts and workplace Roth 401(k)s have different rules, so confirm the specifics for your account type.
How do I know my future RMD size?
Project your tax-deferred balance forward at an assumed growth rate to your RMD age, then apply the relevant IRS life-expectancy divisor for an estimate.
Is this the same decision as building a retirement paycheck?
Related but distinct — withdrawal order decides which account funds the spending; turning that into a steady monthly income is a separate logistical step.
Where to go next
Once you know the order, see how to turn it into an actual monthly income in how to create a retirement paycheck. Check that your allocation still fits your drawdown plan in asset allocation by age, and if the decision feels complex, see do I need a financial advisor for retirement.