Withdrawal order across accounts

In short

A friend of mine spent forty years saving and then froze up on the day she could finally spend. She had three kinds of accounts and no idea which one to touch first. If you are holding a taxable brokerage account, a traditional IRA, and a Roth IRA, you have the same puzzle. The order you draw from them changes your tax bill. Start by listing every account and writing down what kind it is. Then find out when your required withdrawals begin, because the law sets that start at age 73 for 2024 (source, checked 9/27/2026). Compare your tax picture across several years, not just this one. Write your plan down. Look at it again each year.

The whole of it

What it is

I once watched a neighbor of mine pay the same toll on every road he drove, never stopping to ask if a free road ran alongside. That is what can happen when you draw from your accounts with no plan. You are probably wondering what all this means for you, so let us take it slowly.

A withdrawal order is the sequence in which you take money out of your accounts in retirement. You have likely built up money in more than one place. Some sits in a taxable account, where you already paid tax on the money you put in. Some sits in a traditional IRA or a traditional 401(k), where you got a tax break going in and owe tax coming out. Some sits in a Roth IRA or Roth 401(k), where you paid tax going in and can take money out tax free if the rules are met. The order matters because each kind is taxed in its own way.

You deserve a plan that fits your life, not a rule of thumb from a stranger. Still, knowing the common paths helps. Good folks disagree about which one is best, and that is fine.

How it works

If you have ever wondered why your tax bill jumps in some years and dips in others, the answer often lies in which account you drew from. Money you pull from a traditional IRA counts as ordinary income. It gets added to whatever else you earn, and it is taxed at your bracket. A bracket is a slice of income taxed at a set percent.

Money from a taxable account works another way. You owe tax only on the gain, meaning the part that grew above what you paid in. Long term gains, from things held more than one year, are taxed at rates that are often lower than ordinary rates. Money from a Roth account, taken after the rules are met, does not add to your taxable income at all. That is a quiet gift.

One common approach is the conventional order. You spend taxable accounts first, then traditional accounts, then Roth accounts last. The idea is to let the tax sheltered money keep growing as long as it can. It is easy to follow, and plenty of people start there.

Another approach blends the sources. Instead of emptying one account before touching the next, you pull a little from each every year. This can keep your taxable income steady, so it does not climb into a higher bracket. Steady is a friend.

A third idea is to fill your low brackets on purpose. In a year when your income is low, you might pull extra from a traditional account so it is taxed at a low rate now, rather than a higher rate later. Some people also convert traditional money to Roth in those years. A conversion means moving money from a traditional account into a Roth, and the amount moved is added to that year's taxable income. Whether it makes sense depends on your own numbers. The IRS explains the rules in its materials on Roth conversions.

The law also sets a floor. Once you reach age 73 for 2024 (source, checked 9/27/2026), the rules call for a required minimum distribution from most traditional accounts each year. This is a set amount figured from your balance and your age. Roth IRAs do not have this rule for the original owner. Miss the required amount and the IRS may charge a penalty, so mark your calendar.

The numbers, and where to find yours

You may be thinking, where do I even look? The good news is that the facts sit in plain sight.

Your account balances are on your latest statements. Your tax bracket depends on your total taxable income and your filing status. The brackets and the standard deduction change by year, so the current amounts are the current figure, which the official source publishes each year and the current figure, which the official source publishes each year. The IRS publishes them, and the site fills in the verified figures with the date.

Your required minimum distribution comes from dividing your account balance at the end of last year by a life expectancy number. That number comes from a table in IRS Publication 590 B, which is named Distributions from Individual Retirement Arrangements. Your account provider will often work it out for you, but you can check their math.

Social Security matters too. Part of your benefit can become taxable depending on your other income, and IRS Publication 915 explains how. Draw more from a traditional account and more of your benefit may be pulled into the tax net. Look before you leap.

Last, if you are on Medicare, your income can raise your premiums. The Social Security Administration and Medicare publish the income cutoffs, and the current ones are the current figure, which the official source publishes each year. A big withdrawal in one year can push you over a line two years later, because the premium looks back at an earlier tax return. Small steps help.

A worked example

Let me tell you about Margaret. She is 66, single, and retired last year. She has 300,000 dollars in a traditional IRA, 100,000 dollars in a taxable account, and 60,000 dollars in a Roth IRA. She needs 40,000 dollars a year to live on, and she gets 24,000 dollars a year from Social Security. So she must find 16,000 dollars from her savings each year (40,000 minus 24,000 equals 16,000).

Here is the simple path first. Margaret draws the whole 16,000 dollars from her taxable account. Suppose 4,000 dollars of that is gain and 12,000 dollars is her own money coming back (4,000 plus 12,000 equals 16,000). She owes tax on just the 4,000 dollars, and long term gains may be taxed at a low rate. Her traditional IRA keeps growing untouched.

Now the trouble. In ten years the taxable account runs dry, and Margaret leans on the traditional IRA. Say it has grown to 450,000 dollars by then. Suppose the life expectancy number in the IRS table is 25 for her age that year, which is a made up figure for this story. Her required amount would be 450,000 divided by 25, which is 18,000 dollars. That is already more than the 16,000 dollars she needs. All of it lands on her tax return as ordinary income, on top of her Social Security. She could end up in a higher bracket than she ever needed to.

So Margaret tries a blend. Each year she takes 10,000 dollars from her traditional IRA and 6,000 dollars from her taxable account. The check is easy: 10,000 plus 6,000 equals 16,000 dollars, which is what she needs. Her traditional IRA shrinks a bit each year, so her later required amounts are smaller. Her income stays even from year to year. She keeps the Roth as her last reserve, for a big bill or a rainy day.

Neither path is right for everyone. Margaret looked ahead instead of reaching for the nearest pot. That took real care.

Where it goes wrong

I have seen smart people trip over the same few stones. The first is waiting too long to draw from traditional accounts. It feels safe to let them sit, but a large balance can create large required distributions later. You can land in a higher bracket than you planned. Big balances, big surprises.

The second is forgetting the knock on effects. A large withdrawal can make more of your Social Security taxable. It can also raise your Medicare premiums. Both are easy to miss because they do not show up on the withdrawal itself.

The third is missing a required distribution. The penalty rules are set by the IRS, and Publication 590 B lays them out. Ask your provider how to schedule the withdrawals so nothing slips.

The fourth is treating a rule of thumb as a law. The conventional order is a starting point, not a promise. Your health, your family, your state taxes, and your wishes for leaving money behind all matter. Your own numbers should carry more weight than any rule you heard at a dinner table.

And one more. Taking money out of a Roth too early can cost you. Rules about your age and how long the account has been open apply, so read them first.

Questions to answer before you leave this page

Do you know every account you own, what kind each one is, and what it holds today? How much do you truly need each year, once Social Security and any pension are counted? When do your required distributions begin, and how large might they become if your balances keep growing? Are you in a low bracket now that you might use on purpose, before a higher one arrives? Could a withdrawal push more of your Social Security into taxable income, or lift your Medicare premiums? Which account do you want left for last, and why? When will you sit down and review your plan again?