What Is the Best Order for Withdrawing Retirement Accounts?

Quick Answer

There is no single withdrawal order that works for every retiree.

A common starting point is to use taxable savings first, then tax-deferred accounts such as traditional IRAs and 401(k)s, while preserving Roth assets for later. But that simple order is not always the most tax-efficient or strategic choice.

In my experience, the better approach is to coordinate withdrawals from multiple account types based on your tax bracket, Social Security timing, required minimum distributions, income needs, healthcare-related costs, market risk, and legacy goals.

The objective is not simply deciding which account to use first. It is creating a retirement income strategy designed to support you throughout your entire retirement.

Why Withdrawal Order Matters

Many people spend decades contributing to retirement accounts without creating a clear strategy for eventually withdrawing the money.

During your working years, the focus is usually accumulation. You contribute to a 401(k), IRA, Roth IRA, brokerage account, or other savings vehicles and allow those assets to grow over time.

Retirement changes the purpose of those accounts.

Once your paycheck ends, your savings may need to provide income for everyday expenses, travel, healthcare-related costs, taxes, and long-term goals.

The account you choose to withdraw from can affect your taxable income, future required minimum distributions, the taxation of Social Security benefits, Medicare-related costs, the amount left in tax-advantaged accounts, your legacy strategy, and how long your retirement assets may last.

That is why I do not view withdrawal sequencing as a one-time decision. It is an ongoing planning process.

A thoughtful approach to retirement income planning can help coordinate these decisions, so each account has a clear role within your broader retirement strategy.

The Common Withdrawal Order

You may have heard the traditional rule of thumb that suggests withdrawing retirement assets in this order:

1. Taxable brokerage accounts
2. Tax-deferred accounts, such as traditional IRAs and 401(k)s
3. Roth accounts

There are logical reasons behind this framework.

Using taxable assets first may allow tax-deferred and Roth accounts to continue growing. Preserving Roth assets may also provide access to qualified tax-free withdrawals later in retirement.

However, following this order without considering your full tax picture can create problems.

For example, waiting too long to use traditional retirement accounts may allow those balances to grow larger over time. That can lead to higher required minimum distributions and more taxable income later in retirement.

In some cases, the better strategy may involve taking income from more than one account type during the same year. The goal is not simply to follow a generic order. The goal is to create a withdrawal strategy that supports your income needs, manages taxes, and keeps your long-term retirement plan on track.

How Taxable Investment Accounts May Fit Into the Plan

Taxable brokerage accounts are often considered early in the withdrawal process because accessing your original principal generally does not create ordinary income. However, selling appreciated assets may create capital gains, so these accounts still need to be used thoughtfully.

A taxable account can provide flexibility during the early years of retirement, particularly before Social Security begins or required minimum distributions apply.

Potential advantages may include flexible access to funds, opportunities to manage realized capital gains, the ability to use available cash without increasing ordinary income as much as a traditional IRA distribution might, and the potential to offset capital gains with realized losses when appropriate.

However, using taxable accounts first is not automatically the right answer.

Selling appreciated assets can generate taxes, and withdrawal decisions should not be made for tax reasons alone. Your accounts still need to support your risk tolerance, income needs, and long-term goals.

That is why I often remind clients that tax planning and retirement income planning should work together. Each decision should be evaluated within the context of the full retirement strategy, not in isolation.

When Traditional IRAs May Be Used Earlier

Traditional IRAs are generally funded with pre-tax contributions or contain tax-deferred growth. In most cases, withdrawals are taxed as ordinary income, except for any portion that represents after-tax basis.

Because of that tax impact, many retirees try to avoid traditional IRA withdrawals for as long as possible.

But delaying those withdrawals is not always the best strategy.

The years after retirement but before required minimum distributions begin can create an important planning window. During this period, your taxable income may be lower than it was during your working years, which may create opportunities to use traditional IRA funds more intentionally.

Depending on your situation, it may make sense to take planned traditional IRA withdrawals, use IRA funds for living expenses, intentionally fill lower tax brackets, consider partial Roth conversions, or reduce the size of future required minimum distributions.

The goal is not always to minimize taxes in the current year. In many cases, the bigger objective is to manage taxes over your lifetime while creating a retirement income strategy that remains flexible and sustainable.

How a 401(k) Fits Into Retirement Withdrawals

A traditional 401(k) is also generally tax-deferred, which means distributions commonly create taxable income.

After leaving an employer, you may have several options for an old 401(k), depending on the plan rules and your personal circumstances. You may be able to leave the funds in the employer plan, move them to another eligible retirement account, or begin taking distributions.

Before making that decision, it is important to consider factors such as account fees, available account options, withdrawal flexibility, creditor protections, required distribution rules, whether employer stock is held in the plan, whether you are still employed, and how the account fits into your broader retirement income strategy.

A rollover is not automatically better, and leaving the money in the employer plan is not automatically better. The right decision depends on the plan’s features, your income needs, your tax situation, and your long-term financial objectives.

Traditional 401(k) withdrawals may also be coordinated with IRA withdrawals to help manage taxable income throughout retirement. The key is making sure each account has a clear purpose within the overall withdrawal strategy.

Why Roth IRAs Are Often Preserved

Roth IRAs can be especially valuable in retirement because qualified withdrawals are generally tax-free, and Roth IRA owners are not typically required to take distributions during their lifetimes.

That flexibility may make Roth assets useful for:

• Unexpected expenses
• Years when additional taxable income would be undesirable
• Later retirement healthcare expenses
• Legacy planning
• Managing income during volatile markets
• Supplementing income without increasing ordinary taxable income

For these reasons, many retirees choose to preserve Roth accounts until later in retirement.

However, “Roth last” should not become an inflexible rule.

There may be years when using Roth funds can help avoid crossing a tax threshold, reduce the need for larger taxable withdrawals, or provide income during a year when adding more ordinary income would be less efficient.

A Roth IRA can be an important retirement income tool, not simply an account that is never touched.

Required Minimum Distributions Can Change the Strategy

Required minimum distributions, commonly called RMDs, are minimum annual withdrawals that generally apply to traditional IRAs and many tax-deferred retirement plans once the account owner reaches the applicable starting age.

RMDs matter because they can force taxable income into your plan whether you need the money for spending or not.

If tax-deferred accounts have grown significantly, future RMDs may:

• Increase ordinary taxable income
• Affect how much of Social Security is taxable
• Reduce your control over annual withdrawals
• Affect Medicare-related premium calculations
• Create a larger tax obligation for heirs

That is why withdrawal planning should begin before RMDs start.

Rather than waiting until distributions become mandatory, it may be helpful to evaluate whether earlier withdrawals, partial Roth conversions, or a more coordinated withdrawal strategy could support your long-term retirement income plan.

The goal is to make thoughtful decisions while you still have flexibility, instead of allowing RMD rules to drive the strategy later.

Social Security Timing Is Part of Withdrawal Planning

Social Security should not be considered separately from your retirement accounts.

The age at which you begin benefits affects the monthly income you receive. Claiming earlier may provide income sooner, while delaying beyond full retirement age can increase your monthly benefit until age 70.

The right decision depends on several factors, including:

• Health and longevity expectations
• Marital status
• Survivor benefits
• Other retirement income
• Employment income
• Tax considerations
• Cash-flow needs
• Personal preferences

Sometimes, retirement account withdrawals can help support spending while Social Security is delayed. In other situations, beginning Social Security earlier may reduce the amount that needs to be withdrawn from retirement accounts.

There is no universal answer.

Social Security timing and withdrawal planning should be evaluated together, because both decisions can affect your income, taxes, and long-term retirement strategy.

A Blended Withdrawal Strategy May Be More Effective

In many cases, the most effective strategy is not to empty one account before touching another.

A blended strategy may involve using income from several sources, such as:

• Taxable accounts
• Traditional IRAs or 401(k)s
• Roth accounts, when appropriate
• Social Security or pension income
• Cash reserves or other savings

This approach may provide more control over taxable income and help create a more flexible retirement income strategy.

For example, a retiree might use taxable savings for part of their spending while taking enough from a traditional IRA to intentionally use a lower tax bracket. If additional income is needed, a Roth withdrawal may provide funds without creating the same ordinary income impact.

The exact mix may change from year to year based on tax laws, income needs, market conditions, Social Security timing, healthcare-related costs, and long-term goals.

That is why effective retirement planning in San Diego should include regular tax and income reviews instead of relying on a fixed withdrawal formula.

Tax Efficiency Is About More Than Paying the Least This Year

One of the most common mistakes I see is focusing only on the current year’s tax bill.

Paying the lowest possible tax this year does not always create the best long-term result.

A strong withdrawal strategy should consider several factors, including:

• Current and future tax brackets
• Required minimum distributions
• Roth conversion opportunities
• Social Security taxation
• Capital gains
• Charitable giving goals
• Medicare-related income thresholds
• The tax characteristics of inherited accounts
• Potential changes in income or tax law

Tax efficiency does not mean avoiding every tax. It means making intentional decisions about when, where, and how retirement income is created.

In some cases, paying a little more in taxes today may help reduce larger tax issues later. In other cases, it may make sense to preserve certain accounts for future flexibility, legacy goals, or years when taxable income is higher.

Because tax laws and individual circumstances can be complex, withdrawal decisions should be coordinated with a qualified tax professional.

Market Conditions May Influence Which Account You Use

Taxes are important, but they are not the only consideration.

Market conditions can also affect withdrawal decisions.

Selling assets during a significant decline may lock in losses and reduce the amount available for a future recovery. That is why a well-designed retirement income plan may include cash reserves or more stable assets that can help support near-term spending during uncertain markets.

During a market decline, it may be helpful to evaluate:

• Which assets are being sold
• Which account holds those assets
• Whether cash reserves are available
• Whether spending can be adjusted temporarily
• How withdrawals affect your overall allocation
• Whether rebalancing opportunities exist

The goal is not to predict the market.

The goal is to create enough flexibility so every financial decision does not depend on what the market happens to be doing that month.

A thoughtful withdrawal strategy gives you more options, which can be especially important when you are relying on your retirement assets for income.

Withdrawal Planning Should Reflect Your Life

The best withdrawal sequence is not determined by account type alone.

It should reflect your personal situation, including:

• Retirement age
• Spending needs
• Tax situation
• Health
• Family circumstances
• Social Security benefits
• Pension income
• Business interests
• Real estate
• Charitable goals
• Legacy wishes
• Risk tolerance

Two retirees with the same account balances may need completely different strategies.

One person may benefit from drawing down an IRA earlier. Another may rely more heavily on taxable assets while delaying Social Security. A third may use a combination of traditional and Roth withdrawals to manage annual income.

That is why personalized planning matters.

Retirement income is not just about choosing which account to use first. It is about creating a withdrawal strategy that reflects your income needs, tax picture, lifestyle goals, family priorities, and the kind of retirement you want to live.

Why Fiduciary Guidance Can Help

Withdrawal sequencing touches nearly every part of a retirement plan.

It involves retirement income, taxes, Social Security timing, required minimum distributions, estate planning, long-term care considerations, and the way your accounts are used over time.

As a fiduciary financial advisor in San Diego, my role is to evaluate how these decisions work together while keeping each client’s goals and best interests at the center of the strategy.

A fiduciary does not replace your CPA or estate planning attorney. Instead, an advisor can help coordinate with those professionals so your tax decisions, retirement income strategy, account withdrawals, and legacy goals are all working in the same direction.

That coordination matters because a withdrawal decision is rarely just about one account. It can affect your taxable income, future flexibility, family goals, and the long-term strength of your retirement plan.

Recommended Reading: Retirement By Design

Withdrawal order is ultimately about one of the most important retirement questions:

How can your money provide the income you need without creating unnecessary risks?

I explore this broader challenge in my book, Retirement By Design.

The book is designed to help readers think beyond account balances and consider the risks that can affect an abundant retirement, including inflation, overlooked expenses, income gaps, tax mistakes, and the possibility of running out of money.

It also explains why retirement income should be intentionally designed around the way you want to live.

Creating a Withdrawal Strategy That Can Adapt Over Time 

There is no universal answer to which retirement account should be withdrawn from first.

The traditional taxable-first, tax-deferred-second, Roth-last framework can be a useful starting point, but it should not replace personalized planning.

The best order may change from year to year based on factors such as:

• Your tax bracket
• Social Security timing
• Required minimum distributions
• Market conditions
• Healthcare-related expenses
• Spending needs
• Long-term care considerations
• Legacy goals

The most important step is to create a coordinated retirement income strategy before withdrawals become urgent.

When each account is viewed as part of a larger plan, you can make more intentional decisions about income, taxes, flexibility, and your long-term financial future.

The goal is not simply to decide which account to use first. The goal is to build a withdrawal strategy that can adjust as your life, tax picture, income needs, and retirement goals change over time.

Let’s Talk

If you are approaching retirement and want help creating a coordinated withdrawal strategy, I invite you to schedule a complimentary consultation.

Schedule: Your Free Personalized Consultation

Call: (619) 640-2622

Office:
2333 Camino del Rio S STE 240
San Diego, CA 92108

This article is intended for educational purposes only and is not individualized investment, tax, legal, or Social Security advice. Consult the appropriate professionals regarding your specific circumstances.

FAQs

What retirement account should I withdraw from first?

There is no single retirement account every retiree should withdraw from first. A common starting point is using taxable accounts before traditional retirement accounts and Roth accounts, but taxes, required minimum distributions, Social Security timing, market conditions, income needs, and personal goals may support a different order. 

Should I withdraw from my 401(k) or IRA first?

The answer depends on each account’s fees, available account options, withdrawal flexibility, tax treatment, required distribution rules, and role within your retirement income plan. A coordinated review can help determine how your 401(k) and IRA should work together. 

Is it better to use taxable savings before an IRA?

Using taxable savings first may allow tax-deferred accounts to continue growing, but delaying IRA withdrawals can sometimes create larger required minimum distributions later. Some retirees may benefit from combining taxable withdrawals with planned IRA distributions. 

Should a Roth IRA be used last in retirement?

Roth IRAs are often preserved because qualified withdrawals may be tax-free, and Roth IRA owners are not generally required to take lifetime distributions. However, Roth withdrawals may be useful in years when additional taxable income would be undesirable. 

How do required minimum distributions affect withdrawal order?

Required minimum distributions (RMDs) can create taxable income even when you do not need the full amount for spending. Planning before RMDs begin may provide opportunities to manage tax-deferred account balances and future retirement income more intentionally. 

How does Social Security affect retirement account withdrawals?

Social Security timing affects how much income may need to come from retirement accounts. Some retirees use account withdrawals while delaying benefits, while others claim Social Security earlier to reduce withdrawals. The right decision should be based on your complete retirement income plan.