Withdrawal Sequencing: Which Account to Drain First in Retirement
Saving was half the game. Once you're spending the portfolio, the order you tap accounts changes how long the money lasts — same balances, same spending, different tax bills. Withdrawal sequencing is the drawdown twin of asset location: free money for doing the same thing in a smarter order.
The default order
- 1. Taxable brokerage first. Withdrawals here are the cheapest: part of every sale is your own basis (never taxed again), and the gain gets long-term capital-gains rates — 15% for most, and 0% if your taxable income sits under about $97,000 (married). Spending it first also lets the sheltered accounts keep compounding untouched.
- 2. Traditional 401(k)/IRA second. Ordinary income rates, but by now you control your bracket — no salary means the standard deduction and low brackets are empty and waiting. Draining traditional mid-retirement also shrinks future required minimum distributions.
- 3. Roth last. Tax-free growth is the most valuable thing you own — every extra year it compounds is pure, permanent gain. It's also the best asset to inherit. Touch it last, or never.
The refinement that beats the default: fill the brackets
Strictly draining taxable first wastes your low-bracket years — the standard deduction and 10–12% brackets go unused while you realize 0%-taxed gains. The stronger play blends: each year, pull from traditional up to the top of a low bracket (or convert it — see the Roth conversion ladder), and cover the rest of spending from taxable. You're buying dollars out of the traditional account at 10–12% that would otherwise exit at 22–25% once RMDs and Social Security stack up.
Mind the collision points
- RMDs at 73 force traditional money out whether you need it or not — a big untouched balance turns into forced income at your highest retirement bracket. Mid-retirement draining/converting exists to defuse this.
- Social Security taxation: ordinary income makes more of your benefit taxable, so big traditional withdrawals are cheapest before claiming.
- ACA subsidies (before Medicare) and IRMAA Medicare surcharges (after) are both driven by your reported income — sometimes the real cost of one more traditional dollar is far above its bracket rate.
- The 0% gains bracket is a gift: in genuinely low-income years, harvesting long-term gains up to its ceiling resets your basis for free.
See your own schedule
Tuesday's withdrawal sequencing tool (Pro) takes your three balances, spending, and horizon, and lays out the year-by-year draw — which account, how much, and how long the portfolio lasts. Run your drawdown →
Frequently asked questions
- Which retirement account should I withdraw from first?
- The standard order is taxable brokerage first (cheapest — basis plus long-term gains rates), traditional 401(k)/IRA second (ordinary rates, but controllable in low-income years), and Roth last (tax-free compounding is too valuable to interrupt).
- What is bracket filling in retirement?
- Each year you withdraw or convert traditional-account dollars up to the top of a low tax bracket — often 12% — and fund remaining spending from taxable. It moves money out of the traditional account cheaply before RMDs and Social Security force it out at higher rates.
- Why save Roth withdrawals for last?
- Roth growth is never taxed, so every additional year of compounding is fully yours; withdrawals also do not raise your taxable income, Medicare premiums, or Social Security taxation. It is likewise the best account to leave to heirs.