Most retirees enter retirement with money spread across multiple account types: taxable brokerage accounts, traditional IRAs, 401(k) plans, Roth accounts, maybe a pension or annuity.
That raises the question: which accounts do you use first?
The conventional wisdom is simple: spend taxable accounts first, then tax-deferred accounts, and save Roth accounts for last.
For many retirees, that’s a reasonable starting point.
But retirement rarely follows a textbook.
The right withdrawal strategy depends on your tax situation, income needs, healthcare costs, Social Security timing, and long-term goals. Two retirees with the same portfolio can end up with very different answers.
Let’s walk through the conventional approach, the factors that shape your withdrawal strategy, and the situations where deviating from the standard sequence can make sense.
The Conventional Withdrawal Sequence: Taxable → Tax-Deferred → Tax-Free
The standard withdrawal strategy is sequenced as follows:
| Withdrawal Phase | Account Type | Tax Treatment | Rationale |
| Early Retirement | Taxable accounts (brokerage, non-retirement savings) | Taxed on capital gains only (likely at lower rates than ordinary income, except for short-term gains) | Less tax-advantaged, so less benefit to preserving them. Allows tax-deferred accounts more time to grow. |
| Mid Retirement | Tax-deferred accounts (traditional IRA, 401(k), 403(b)) | Full withdrawal taxed as ordinary income | By this point, these accounts have had additional years to compound.
Withdrawals are required starting at age 75. |
| Late Retirement | Tax-free accounts (Roth IRA, Roth 401(k)) | No taxes on withdrawals | Most tax-efficient accounts are preserved for income flexibility.
No required distributions during your lifetime. Useful for legacy planning. |
This sequence accomplishes a few things. It maximizes tax-deferred growth in retirement accounts. It preserves the most flexible, tax-efficient accounts (Roths) for later. And it provides a clear, structured approach that’s relatively easy to follow.
For retirees with moderate, consistent spending needs, no major legacy goals, and tax brackets that stay relatively stable throughout retirement, this approach generally works well. It’s predictable, it’s defensible, and it avoids unnecessary complexity.
But life is unpredictable. Any number of variables could change or throw a wrench in the linear nature of your plan. Tax brackets shift. Social Security may need to be filed sooner or later. Medical expenses may surface unexpectedly. Market volatility can change in an instant. Consequently, the textbook sequence may not be the most tax-efficient path forward.
When the Standard Withdrawal Sequence Isn’t the Best Fit
The first year of retirement looks very different from year ten, which looks very different from year twenty. Your tax situation, income sources, and financial priorities change over time, and so should your withdrawal strategy.
Here are three common scenarios where deviating from the standard sequence could be wise.
Scenario 1: Bridging Healthcare Before Medicare (Ages 62-65)
If you retire before 65, you’re responsible for your own health insurance until Medicare kicks in. One option is purchasing coverage through the ACA marketplace, with income-based premiums.
The challenge is the income implications of your withdrawal. For instance, if you withdraw $50,000 from a traditional IRA to cover living expenses, your modified adjusted gross income rises by $50,000. That added dollar amount could push you into a higher premium tier or disqualify you from subsidies entirely.
An alternative is to draw from taxable accounts or Roth accounts, neither of which count as income for ACA subsidy calculations. This keeps your reportable income lower and can preserve significant premium savings during the years before Medicare eligibility.
The same income sensitivity applies after 65. Once on Medicare, higher income triggers IRMAA surcharges, which can add hundreds of dollars per month to Medicare Part B and Part D premiums. (We covered this in detail in our article on IRMAA.)
Scenario 2: Filling Lower Tax Brackets in Early Retirement
Many retirees experience a temporary drop in income between the time they stop working and the time Social Security and required minimum distributions begin. If you retire at 62 and delay Social Security until 70, you may have several years of unusually low taxable income.
This is an opportunity.
Rather than exclusively spending from taxable accounts (which generates minimal taxable income), consider taking strategic withdrawals from tax-deferred accounts — or doing partial Roth conversions — while you’re in a lower tax bracket.
For example, if you’re in the 12% federal bracket now but expect to be in the 22% bracket once Social Security and RMDs begin, converting a portion of your traditional IRA to a Roth during the low-income years can reduce your lifetime tax burden significantly. You pay taxes now at 12%, and avoid paying them later at 22%.
Keep in mind, you are accelerating taxes you wouldn’t otherwise owe for several years. But if done strategically, converting just enough to stay within favorable brackets, the long-term savings can be substantial.
Scenario 3: Managing RMDs and Social Security Taxation
Required minimum distributions begin at age 73, and they’re mandatory whether you need the income or not. For retirees with large tax-deferred balances, RMDs can push taxable income materially higher, possibly triggering higher marginal tax brackets and IRMAA surcharges on Medicare premiums
If you wait until age 75 to start tapping tax-deferred accounts, those accounts have had more than a decade to grow (assuming you retire around 62). While growth is a welcome outcome, forced distributions can complicate your finances. Suddenly, you’re taking $60,000, $80,000, or more in RMDs each year, and a sizable portion disappears to taxes.
A more tax-efficient approach is to begin drawing down tax-deferred accounts earlier in retirement, even if you don’t strictly need the income right away. This reduces the balance subject to RMDs later, smooths out your tax liability, and can prevent the “tax bomb” that arrives when large RMDs coincide with Social Security income.
The Five Factors That Shape Your Withdrawal Strategy
Although they’re important, taxes are not the only driver of your withdrawal strategy. There are several variables to consider:
Your Tax Bracket (Current and Future)
Withdrawal sequencing is a tax arbitrage question: take income in the years when your tax rate is lowest.
If you’re in the 12% bracket now but expect to be in the 22% bracket once Social Security and RMDs begin, it may be prudent to accelerate income from tax-deferred accounts while rates are lower. Conversely, if you’re in the 24% bracket in early retirement but expect income to drop significantly later, preserving tax-deferred accounts might make more sense.
For instance, a couple in the 12% bracket with $80,000 in taxable income has over $20,000 of “room” before hitting the 22% bracket. Strategic withdrawals or Roth conversions could fill that space while rates are favorable.
The challenge is that future tax rates aren’t static. Tax law changes, income sources shift, and deductions phase in or out as you age.
| Tax rate | Singler filer | Married filing jointly (or surviving spouse) | Head of household | Married filing separately |
| 10% | $0 to $12,400 | $0 to $24,800 | $0 to $17,700 | $0 to $12,400 |
| 12% | $12,401 to $50,400 | $24,801 to $100,800 | $17,701 to $67,450 | $12,401 to $50,400 |
| 22% | $50,401 to $105,700 | $100,801 to $211,400 | $67,451 to $105,700 | $50,401 to $105,700 |
| 24% | $105,701 to $201,775 | $211,401 to $403,550 | $105,701 to $201,750 | $105,701 to $201,775 |
| 32% | $201,776 to $256,225 | $403,551 to $512,450 | $201,751 to $256,200 | $201,776 to $256,225 |
| 35% | $256,226 to $640,600 | $512,451 to $768,700 | $256,201 to $640,600 | $256,226 to $384,350 |
| 37% | $640,601 or more | $768,701 or more | $640,601 or more | $384,351 or more |
Social Security Timing
When you claim Social Security has a direct impact on how much you’ll need to withdraw from your portfolio (and for how long).
Claim at 62, and your benefit is permanently reduced, but you should be less reliant on portfolio withdrawals in the early years. Delay until 70, and your benefit increases significantly, but you may need to draw more from savings to bridge the gap.
Here’s an example that assumes a full retirement age (FRA) of 67 and standard benefit of $3,000.
| Claiming Age | Monthly Benefit | Annual Benefit | Impact |
| 62 | $2,100 | $25,200 | 30% reduction |
| 67 (FRA) | $3,000 | $36,000 | Standard benefit |
| 70 | $3,720 | $44,640 | 24% increase |
The difference between claiming at 62 versus 70 is almost $20,000 per year — money that either comes from your portfolio (if you delay) or is permanently lost in benefit amount (if you claim early). This decision directly affects how much you’ll need to withdraw from savings and for how long.
Life Expectancy and Longevity
How long your money needs to last influences which accounts you prioritize.
If longevity runs in your family or you’re planning for a 30+ year retirement, preserving Roth accounts and managing tax-deferred accounts to avoid excessive RMDs becomes more important. Roth accounts don’t have required distributions, continue growing tax-free, and provide flexibility late in life when healthcare costs may spike.
If you’re planning for a shorter retirement or have health concerns that suggest a more compressed timeline, the calculus shifts. Drawing down tax-deferred accounts earlier — and potentially spending Roth assets sooner — may make more sense than preserving them for decades you may not reach.
Longevity also ties to legacy planning. If leaving assets to heirs is a priority, Roth accounts pass tax-free. If spending down your assets during your lifetime is the goal, the order matters less.
Market Conditions and Volatility
Markets don’t move in straight lines, and retirement doesn’t pause for corrections.
If you retire into a strong market, you have more flexibility in which accounts to tap. If the portfolio is up significantly, realizing gains from taxable accounts may be more palatable. If tax-deferred accounts have grown substantially, taking distributions feels less painful.
If you retire into a market downturn or experience a significant correction in the first few years of retirement, sequence of returns risk becomes a real concern. Selling assets at depressed prices to fund withdrawals locks in losses and reduces the base from which future growth compounds. In these situations, drawing from cash reserves, taxable accounts with minimal embedded gains, or Roth accounts can help avoid selling equities at the worst possible time.
Market conditions don’t dictate the entire strategy, but they do influence year-to-year decisions about which accounts to tap and how much to withdraw.
Healthcare Costs and Unexpected Expenses
The average 65-year-old retiring today can expect to spend $172,500 on healthcare and medical expenses throughout retirement, according to Fidelity. That figure doesn’t include long-term care, which can add significantly more.
Healthcare is one of the most unpredictable variables in retirement. Premiums, out-of-pocket costs, and potential long-term care needs can vary dramatically from one retiree to another.
Beyond routine costs, unexpected expenses (major home repairs, family support, medical emergencies) may call for extra “rainy day” liquidity. Having funds accessible across multiple account types provides flexibility to respond without forcing a suboptimal tax outcome.
Estate and Legacy Goals
If leaving money to heirs is important to you, Roth accounts can offer meaningful tax advantages. Under current rules, beneficiaries generally receive distributions income tax-free, though distribution requirements vary based on the beneficiary and applicable tax law.
Tax-deferred accounts, on the other hand, pass with income tax obligations. Beneficiaries will owe ordinary income tax on distributions, and under current law, most non-spouse beneficiaries must empty inherited IRAs within ten years.
If legacy isn’t a priority — if the goal is to spend what you’ve saved (it’s your money, after all) — the withdrawal sequence matters less in late retirement. But if passing wealth to the next generation is part of the plan, preserving Roth assets and managing tax-deferred accounts strategically can make a significant difference in what heirs ultimately receive.
Working With a Financial Advisor on Withdrawal Strategy
Withdrawal sequencing isn’t simply deciding which account to tap first.
It’s an ongoing coordination exercise involving:
- Investment strategy
- Taxes
- Social Security timing
- Healthcare costs
- Required minimum distributions
- Estate planning
The right strategy at 65 may not be the right strategy at 70 or 75. Markets change. Tax laws change. Your priorities may change too.
A thoughtful retirement income plan adapts along the way.
This is where professional financial planning adds value. A financial advisor can model different scenarios, project the long-term tax impact of various sequencing approaches, and coordinate withdrawal rate decisions across multiple income streams.
For retirees with substantial assets spread across multiple account types, the difference between a coordinated strategy and a default approach can be measured in tens of thousands of dollars over a retirement that may last three decades.
Schedule a complimentary consultation with a TCI advisor to discuss your retirement withdrawal strategy. We’ll review your current approach, model alternative scenarios, and identify opportunities to minimize taxes and maximize your portfolio’s sustainability across the full retirement timeline.
TCI Wealth Advisors, Inc. is an SEC registered investment advisor. This material is provided for informational purposes only and should not be construed as investment advice or a recommendation. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. TCI is neither a law firm nor a certified public accounting firm, and this material should not be construed as legal or accounting advice. Moreover, you should not assume that any discussion or information contained herein serves as the receipt of, or as a substitute for, personalized investment advice. No amount of prior experience or success should be construed that a certain level of results or satisfaction will be achieved if TCI is engaged, or continues to be engaged, to provide investment advisory services.
The opinions expressed herein are those of the firm and are subject to change without notice. The opinions referenced are as of the date of publication and are subject to change due to changes in the market or economic conditions and may not necessarily come to pass. Any opinions, projections, or forward-looking statements expressed herein are solely those of author, may differ from the views or opinions expressed by other areas of the firm, and are only for general informational purposes as of the date indicated.
