Withdrawal Order in Retirement: Which Account to Tap First
Why the conventional taxable-then-deferred-then-Roth sequence is often wrong, and how blended withdrawals plus conversions cut lifetime tax.
The conventional rule
The standard advice is to spend taxable accounts first, then tax-deferred, then Roth last — maximising the years of tax-deferred compounding. It is a reasonable default and it is frequently the wrong answer for households with a large pre-tax balance.
Why strict sequencing backfires
- It wastes the low-income years. Spending taxable dollars means reporting almost no income, leaving the standard deduction and 10–12% brackets unused.
- It lets the pre-tax balance keep compounding until RMDs force it out at 22–24% or more.
- It leaves the largest pre-tax account to heirs, who must drain it within ten years, usually at their peak rates.
- It concentrates the survivor's income into single-filer brackets.
The blended approach
Instead of exhausting one bucket at a time, target a taxable income level each year and fill it from whichever account is cheapest: take enough pre-tax income (or conversions) to use the low brackets, cover the rest of spending from taxable assets using basis and 0%-rate long-term gains, and reserve Roth dollars for the years when extra income would cross an IRMAA tier or push gains out of the 0% band.
Details that change the answer
- Cost basis. A taxable account with high basis is nearly tax-free to spend; one with a large embedded gain is not.
- Step-up at death. Highly appreciated taxable lots may be better held than sold, which argues for spending pre-tax money instead.
- Charitable intent. QCDs make pre-tax dollars the cheapest source of giving from 70½; appreciated shares are the cheapest before that.
- ACA subsidies before 65. They penalise reported income, temporarily favouring taxable and Roth withdrawals.
- State of residence. A planned move to a no-tax state can justify deferring pre-tax withdrawals until after the move.
How to decide
Withdrawal order and conversion sizing are the same decision viewed twice — both set taxable income for the year. Model them jointly across the full horizon and rank by lifetime tax and ending after-tax net worth rather than by this year's refund.
Educational modeling only. Bracketwise is not tax, legal or investment advice.