The Withdrawal Order That Quietly Decides Your Tax Bill
Tax Planning
Most retirement advice stops at the balance. The harder question is which account you spend first, and the common rule of thumb leaves a lot on the table.
By Lifeway Financial · February 4, 2026 · Updated July 21, 2026 · 6 min read
Which retirement accounts should you withdraw from first?
There is no single correct order. The common rule of taxable, then tax-deferred, then Roth is a reasonable default and a poor plan. Better results usually come from deliberately recognizing income in low-income years, filling brackets you choose, and modeling the thresholds that surround them.
Key takeaways
Taxable, tax-deferred, and Roth dollars are taxed differently, so the order you spend them changes your lifetime tax bill.
The years between your last paycheck and required distributions are often the lowest-income years you will have.
Unused low brackets do not carry forward, and an untouched IRA grows into larger forced distributions later.
Medicare surcharges, Social Security taxation, capital gains breakpoints, and health credits all step at income thresholds.
Married couples should plan for the survivor, who will eventually file single on similar income.
Most retirement advice stops at the balance. The harder question is which account you spend first.
By the time people reach their sixties they usually hold three kinds of money, and each is taxed differently. Taxable accounts hold money you already paid tax on, where gains are taxed when you realize them, often at long-term capital gains rates. Tax-deferred accounts, which is most traditional 401(k) and IRA money, generally hold pre-tax dollars, so withdrawals are usually taxed as ordinary income, apart from any after-tax basis in the account. Roth accounts were funded with after-tax dollars, and qualified withdrawals come out untaxed.
The old rule of thumb says spend taxable first, tax-deferred next, and Roth last. It is a reasonable default and a poor plan.
The gap years are the opportunity
Between the day the paycheck stops and the day Social Security and required minimum distributions begin, many households have the lowest taxable income they have seen in decades. Spending only from taxable accounts during that stretch keeps reported income artificially low and leaves the lowest tax brackets unused.
Those brackets do not carry forward. Meanwhile the traditional IRA keeps growing untouched, and when required distributions eventually start, they arrive on a much larger balance and push income up permanently.
Filling brackets on purpose
The alternative is to recognize income deliberately in the low years, either by drawing from the traditional IRA earlier than you strictly need to or by converting a portion to Roth, filling a bracket you are willing to pay rather than the one you may be forced into later.
This trades a known rate today for an unknown rate tomorrow. It is not automatically the right answer. It is a calculation, and it depends on the size of the tax-deferred balance, your expected income later, and what you believe about future rates.
The thresholds that are not brackets
Income does not affect your finances smoothly. It steps. Medicare premium surcharges are set from income reported two years earlier, so a large conversion at sixty-three can raise premiums at sixty-five. How much of your Social Security benefit is taxable depends on your other income. Capital gains rates change at defined breakpoints. Health coverage credits before sixty-five phase out as income rises.
A conversion that looks efficient against the tax table alone can lose money once these thresholds are counted. They have to be modeled together.
The surviving spouse
Married couples plan around joint brackets and often forget that one of them will eventually file as a single taxpayer, frequently on similar income. The same dollars land in higher brackets. Building some tax-free and taxable balance during the married years gives the survivor room that a large all-deferred balance does not.
What this looks like in practice
A withdrawal strategy is a multi-year projection, not a single-year decision, and it gets revisited every year because tax law, income, and life all move. We build and maintain that projection as part of your plan and coordinate it with your tax preparer. We do not prepare returns or provide tax advice.
Common questions
Frequently asked questions
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No. Spending only taxable accounts in the gap years keeps reported income artificially low, leaves the lowest brackets unused, and lets the tax-deferred balance grow into larger required distributions later.
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It depends on the size of your tax-deferred balance, your expected income later, and what you believe about future rates. A conversion trades a known rate today for an unknown rate tomorrow and must be modeled against income thresholds, not just the tax table.
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Medicare premium surcharges are set from income reported two years earlier, so a large conversion at sixty-three can increase premiums at sixty-five.
Sources and further reading
Where these figures come from
Rules, thresholds, and figures change. Confirm current details with the primary source for the year you are planning.
Publication 590-B: Distributions from Individual Retirement Arrangements
Internal Revenue Service
Medicare Premiums: Income-Related Monthly Adjustment Amounts
Centers for Medicare and Medicaid Services
Income Taxes and Your Social Security Benefit
Social Security Administration
Questions and Answers on the Premium Tax Credit
Internal Revenue Service
Insights are educational and are not investment, tax, or legal advice. See our Form ADV Part 2A and Form CRS for important details.
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