Most retirees hold their savings in more than one kind of account, and the order in which those accounts are drawn down turns out to matter almost as much as how much was saved in the first place. A common approach among financial planners is to spend taxable brokerage money first, tap tax-deferred retirement accounts next, and leave Roth accounts for last. Followed sensibly, that sequence can lower the lifetime tax bill and let a portfolio last noticeably longer than a haphazard withdrawal pattern would. It is a general framework rather than an ironclad rule, and the best order for any one household depends on its own tax picture.
Three buckets, three tax treatments
The logic behind the sequence starts with the fact that retirement money is not all taxed the same way. A taxable brokerage account holds dollars that have already been taxed once, so only the investment gains face any further tax, and then usually at favorable long-term capital-gains rates. A tax-deferred account, such as a traditional individual retirement account or a 401(k), was funded with pre-tax dollars, which means every withdrawal is taxed as ordinary income. A Roth account sits at the opposite end, funded with money already taxed, so qualified withdrawals come out entirely tax-free.
Because those three treatments differ so sharply, the order of withdrawals directly shapes how much of a nest egg ends up with the government. The Internal Revenue Service overview of retirement plans lays out how each account type is taxed, and that difference is the entire reason a withdrawal sequence exists. Spending from the least tax-advantaged accounts first, while leaving the most tax-advantaged ones alone, keeps more money compounding where the tax code is friendliest.
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Why taxable accounts usually come first
Drawing from a taxable brokerage account early tends to be the cheapest way to raise cash. When investments held longer than a year are sold, the profit is taxed at long-term capital-gains rates, which for many retirees run lower than the ordinary-income rates that apply to retirement-plan withdrawals. The IRS describes this preferential treatment in its guidance on capital gains and losses. Spending these dollars first also does something quieter but valuable: it leaves the tax-deferred and Roth accounts untouched, so they keep growing under their tax shelter rather than being cashed out early.
There is a further advantage. Only the gain in a taxable account is taxed, not the original principal, so a dollar withdrawn from it often carries a much smaller tax cost than a dollar pulled from a traditional retirement account. For a retiree in the early years after leaving work, leaning on taxable savings can hold reported income low, which ripples through to other costs tied to income.
Tax-deferred accounts in the middle
Once taxable savings are spent down, the traditional bucket is generally next. Every dollar taken from a traditional IRA or 401(k) counts as ordinary income, so these accounts are the most expensive to draw from on a per-dollar basis, but they cannot be deferred forever. Federal rules require withdrawals to begin at a set age through required minimum distributions, which force taxable money out of the account whether the retiree needs it or not.
That deadline is why the middle of the sequence carries a subtlety. Leaving a large traditional balance completely untouched for too long can backfire, because required minimum distributions may eventually push a retiree into a higher tax bracket all at once. Drawing measured amounts from these accounts during lower-income years, rather than waiting until distributions are mandatory, can smooth the tax bill and shrink the balance that will later be forced out. The goal is to empty the most heavily taxed account gradually rather than in a single unavoidable surge.
Roth accounts last
Roth savings are usually preserved until the end for two reasons. Qualified withdrawals are tax-free, so every extra year the money stays invested compounds without the drag of future taxes, and unlike traditional accounts, a Roth IRA imposes no required minimum distributions on its original owner. The IRS confirms these features in its material on Roth IRAs. Left alone, a Roth account can keep growing tax-free for as long as the retiree lives, which makes it the most efficient pool to spend down last.
Roth money also serves a strategic purpose late in retirement. Because withdrawals from it do not add to taxable income, a retiree can lean on a Roth account in a high-income year to cover a large expense without tipping into a higher bracket. And any balance left behind can pass to heirs with valuable tax advantages still attached, which is another reason many households guard the Roth bucket most carefully.
Where the simple order bends
The taxable-then-tax-deferred-then-Roth sequence is a starting point, not a mandate, and several factors can rearrange it. A retiree in an unusually low tax bracket during the early retirement years might deliberately pull extra from a traditional account, or convert part of it to a Roth, precisely because the ordinary-income rate is temporarily cheap. Someone with a very large traditional balance may need to blend withdrawals across account types every year to keep future required distributions manageable. Leaving assets to heirs, managing income-based Medicare surcharges, and coordinating with Social Security timing can all shift the ideal path as well.
What stays constant is the principle underneath the sequence: spend from the accounts the tax code treats worst first, and shelter the ones it treats best for as long as possible. The exact execution depends on each person’s bracket, required distributions, and goals, which is why the order is a general strategy rather than a one-size rule. For most retirees, using it as a default and adjusting around the edges is what turns a fixed pile of savings into an income stream that lasts.
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This article was researched and drafted with AI assistance and reviewed against the linked primary sources.
David M. Keller is a finance writer based in Columbus, Ohio, covering personal finance and consumer-focused economic topics. He earned his degree in journalism from Ohio University and began his career reporting on local business and economic trends for a regional media outlet. Since then, he has contributed to a variety of online publications, focusing on clear, practical coverage of topics such as cost of living, debt, and everyday financial decision-making.
