The Right Order to Withdraw Retirement Money

By retirement, most households hold money in three tax wrappers: taxable brokerage accounts, pre-tax accounts like 401(k)s and IRAs, and tax-free Roth accounts. The order and blend in which you spend them determines your tax bill every single year for the rest of your life, and the difference between a thoughtful sequence and a careless one is commonly six figures of lifetime taxes for a comfortable retiree.

The good news: the logic is learnable, and the biggest wins come from a handful of decisions made in the first decade of retirement.

Why the Default Order Exists

The textbook sequence, spend taxable first, then pre-tax, then Roth, has real logic. Taxable accounts are the least tax-efficient to hold, since dividends and gains are taxed annually. Pre-tax accounts keep compounding untaxed until withdrawn. Roth accounts are the most precious: tax-free growth, no required distributions, and the best asset to leave heirs. Spending in that order preserves the best wrappers longest.

Where it falls short: it can leave your lowest tax brackets empty for years, then dump enormous required distributions on you at RMD age, taxed in high brackets, exactly what sequencing should prevent.

The Bracket-filling Upgrade

The refined approach treats each year's low brackets as perishable inventory. In years when taxable-account spending would leave your ordinary-income brackets nearly empty, fill them deliberately: withdraw pre-tax dollars up to a chosen bracket ceiling, or convert them to Roth, even though you do not strictly need the money. You pay tax at 10% or 12% now instead of 22% or more later, shrink future RMDs, and build the Roth reserve.

Meanwhile, long-term gains from the taxable account can ride the 0% capital-gains bracket in low-income years, an opportunity many retirees never notice they had.

The RMD Horizon and the Gap Years

Required minimum distributions currently begin at 73, rising to 75 for younger cohorts, and they are a formula, not a choice: balance divided by a life-expectancy factor, taxed as ordinary income. A large pre-tax balance left untouched until then can force taxable income high enough to raise Medicare premiums and push Social Security into maximum taxation. The gap years, retirement to RMD age, are when smart households drain pre-tax balances into low brackets and delay Social Security so the eventual combination is milder.

Making It Operational

Each fall, project the year's income, pick the bracket ceiling, and decide the blend: how much from taxable, how much pre-tax, how much converted, and which account funds January's spending. Layer in the side effects, Medicare surcharges two years ahead, ACA subsidies before 65, Georgia's retirement exclusions, and rebalance with the withdrawals so the portfolio stays on target.

This annual sequencing decision is a core deliverable of our retirement planning service; the Retirement Readiness calculator is a quick first look at your bigger picture.

Tony Colunga · Founder, Attend Wealth

Tony leads Attend Wealth, a fee-based wealth management firm in Atlanta serving professionals, families, and business owners. Advisory services are held to a fiduciary standard. More about Attend