Retirement Income
Which Account Should You Draw From First in Retirement?
The order in which you spend your savings matters almost as much as how much you have saved.
The three buckets
Most retirees have savings spread across three types of accounts, each with different tax treatment. Taxable accounts — brokerage accounts, savings — where you pay taxes on gains and income as they occur. Tax-deferred accounts — traditional 401(k)s and IRAs — where contributions were pre-tax and withdrawals are taxed as ordinary income. Tax-free accounts — Roth IRAs and Roth 401(k)s — where qualified withdrawals are tax-free. The order in which you draw from these accounts determines your tax bill in retirement.
The conventional wisdom
The traditional guidance is to spend taxable accounts first, then tax-deferred, then tax-free. The logic: let the tax-advantaged accounts continue to grow as long as possible. This approach has merit, but it is not universally optimal. For many retirees, drawing down tax-deferred accounts more aggressively in the early years of retirement — before Social Security begins and before required minimum distributions kick in — can reduce lifetime taxes significantly.
The RMD problem
Traditional IRAs and 401(k)s require minimum distributions beginning at age 73 (under current law). If you have accumulated a large balance in tax-deferred accounts and defer withdrawals until RMDs begin, you may find yourself forced to take large taxable distributions — potentially pushing you into a higher tax bracket, increasing Medicare premiums, and making more of your Social Security benefits taxable. Strategic withdrawals in the years before RMDs begin can reduce this problem.
Roth conversions: the bridge strategy
The years between retirement and age 73 — when income is often lower than during peak earning years — can be an opportunity to convert traditional IRA balances to Roth at a lower tax rate. This reduces future RMDs, creates tax-free income later in retirement, and can improve the tax efficiency of the estate. Whether a Roth conversion strategy makes sense depends on your current tax rate, your expected future tax rate, and your time horizon.
Social Security timing interacts with sequencing
Delaying Social Security increases the monthly benefit — by approximately 8% per year between full retirement age and age 70. But delaying Social Security means drawing more heavily from savings in the early years of retirement. Whether that tradeoff makes sense depends on your health, your other income sources, and your tax situation. Withdrawal sequencing and Social Security timing are not independent decisions.
The answer is personal
There is no universal optimal withdrawal sequence. The right approach depends on your account balances, your tax bracket, your Social Security strategy, your state of residence (California taxes retirement income), your health, and your estate planning goals. What is universal is that the order matters — and that most people have not thought carefully about it before they need to start spending.
The order in which you draw from your accounts in retirement is a planning decision, not a default. Getting it right can meaningfully extend how long your money lasts.
If you are approaching retirement and have not thought through your withdrawal sequence, that is worth addressing before the first distribution.
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