Overview
Most retirees draw down three types of accounts in retirement: taxable brokerage accounts, tax-deferred accounts (traditional IRA/401k), and tax-free accounts (Roth IRA). The order you draw from each has a real, calculable effect on your lifetime tax bill — and the "obvious" order isn't always the best one.
Why It Matters
The traditional textbook advice — spend taxable first, then tax-deferred, then Roth last — is a reasonable default, but it isn't universally optimal. Depleting taxable accounts first and leaving tax-deferred accounts to grow can produce a larger RMD later, at a point when you also have Social Security income stacking on top — sometimes creating a bigger tax problem in your 70s and 80s than a more blended approach would have.
How It Works
- Pure sequential approach: taxable → tax-deferred → Roth. Simple, defers tax as long as possible, but can lead to large RMDs and bracket spikes later.
- Bracket-filling approach: each year, withdraw from tax-deferred accounts up to the top of your current bracket (or up to the next IRMAA threshold), then cover remaining needs from taxable or Roth. This smooths taxable income across years rather than deferring it all into a lump.
- Blended approach: draw proportionally from all three account types each year to manage both current tax and future RMD size simultaneously.
- The right approach depends on your account balances, expected longevity, whether you're charitably inclined (QCDs specifically require IRA balances), and whether leaving a tax-free Roth inheritance to heirs matters to you.
2026 Key Numbers
- Long-term capital gains rates remain 0/15/20%; the 0% bracket applies up to roughly $48,350 single / $96,700 joint taxable income (2025 figures, modestly higher for 2026) — drawing from taxable accounts with large unrealized gains can sometimes be genuinely tax-free if your other income is low enough that year.
- RMDs begin at 73 (for those born 1951–1959), rising to 75 for those born 1960 or later.
Common Mistakes
- Following the same withdrawal order every year without re-checking where your bracket and IRMAA thresholds actually sit
- Ignoring the interaction between withdrawal order and how much of Social Security becomes taxable
- Failing to account for state income tax differences — the "best" federal order can differ from the best order once state tax is layered in
Sources
- Charles Schwab — tax bracket and capital gains guidance for 2025–2026
- IRS Publication 590-B — Distributions from Individual Retirement Arrangements
This is general education, not personalized tax advice. Withdrawal sequencing should be modeled year-by-year against your actual account balances and income sources with a financial planner.