What’s the Best Order to Withdraw From Your Retirement Accounts?

Conventional advice says withdraw from taxable accounts first, then tax-deferred (traditional IRA, 401(k)), then Roth IRA last. For many retirees with significant savings, this conventional order may not be optimal. The right withdrawal sequence balances current tax brackets, future required minimum distributions, IRMAA exposure, and the surviving spouse’s tax situation, and the only reliable way to determine it for your specific situation is through a multi-year tax and income projection. A common framework for many wealthy retirees involves drawing from taxable accounts in early retirement while doing strategic Roth conversions from tax-deferred accounts, then transitioning into RMDs as required, and using Roth IRA assets later to fund late retirement healthcare and legacy.

Key Takeaways:

– The “taxable first, traditional second, Roth last” rule is a starting point, not the final answer.

– For retirees with $1 Million or more in traditional accounts, future RMDs often create a bigger tax problem than current withdrawals.

– Roth conversions during low-income years can be more valuable than letting traditional balances grow untouched.

– HSA assets work as a backup retirement account after age 65 and may be drawn before or after Roth depending on tax situation.

– The optimal withdrawal order changes at three key ages: 65 (Medicare and IRMAA), 70 (Social Security), and 73 (RMDs).

What is the conventional withdrawal order advice?

The conventional advice says:
1. Taxable accounts first (brokerage, savings, CDs)

2. Tax-deferred accounts next (traditional IRA, 401(k))

3. Roth IRA last

The logic is that drawing from taxable accounts first preserves the tax-deferred and tax-free growth of retirement accounts. This is sound advice for the average retiree with limited savings.

Why is the conventional order often wrong for retirees with significant savings?

Three reasons.
1. RMDs. Letting a large traditional IRA grow untouched until age 73 means much larger required distributions when they begin. Those RMDs often push retirees into higher brackets, trigger IRMAA, and increase the taxable portion of Social Security. Learn more: [https://creativefinancialgrp.com/how-can-you-reduce-your-required-minimum-distributions/.]

2. The widow’s penalty. Leaving a large traditional balance to the surviving spouse creates massive single-filer tax exposure. Learn more: [https://creativefinancialgrp.com/how-are-taxes-different-for-a-surviving-spouse/]

3. Lost opportunity. The low-income years between retirement and age 73 are when Roth conversions are most valuable. Following the conventional order ignores this opportunity. Learn more: [https://creativefinancialgrp.com/when-should-you-do-a-roth-conversion/]

What is the optimal withdrawal order?

For most retirees with significant savings, a more effective sequence is:

Phase 1 (retirement to age 70-73): Strategic mixing. Draw from taxable accounts to fund living expenses while doing Roth conversions from traditional IRAs up to a target bracket. This keeps current income manageable while moving traditional balances to Roth.

Phase 2 (age 73 onward): RMD-driven. Required minimum distributions begin. Use RMDs as the primary income source. Continue drawing from taxable accounts as needed. Roth balances grow untouched.

Phase 3 (late retirement): Roth and tax-efficient. Once RMDs are established, supplemental income comes from Roth (tax-free) and continuing taxable account withdrawals (with step-up in basis benefits at death).

How do you balance Roth conversions with withdrawals?

The two strategies work together, not in isolation.

Example. A 65 year old couple has $500,000 in taxable, $2 Million in traditional IRA, and $300,000 in Roth. They need $100,000 per year of after-tax income. Their plan:
– Withdraw $90,000 per year from the taxable account for living expenses (no tax on principal, modest tax on gains)

– Convert $150,000 per year from traditional IRA to Roth, paying roughly $33,000 in tax from the taxable account

– This produces $100,000 of net spending power plus a $150,000 shift to Roth annually

Over 8 years before RMDs, they move $1.2 Million from traditional to Roth while living comfortably from taxable. By age 73, their traditional balance is roughly $1 Million instead of $3 Million. RMDs are cut in half. Lifetime tax savings: often $200,000 to $400,000.

How does this change at age 73?

RMDs become mandatory at age 73 for those born between 1951 and 1959. The forced distributions become the new floor for taxable income.

Once RMDs begin, the strategy shifts:

– RMDs become the primary income source

– Continue drawing from taxable for any gap (uses principal and small gains)

– Use qualified charitable distributions to satisfy RMDs without adding to taxable income (see https://creativefinancialgrp.com/how-do-you-avoid-irmaa-in-retirement/ and https://creativefinancialgrp.com/how-can-you-reduce-your-required-minimum-distributions/)

– Roth balances remain untouched and grow tax-free for late retirement or heirs

What about HSAs in the withdrawal order?

Health Savings Accounts are typically the LAST account to draw from, even after Roth. Three
reasons:

1. HSAs are the most tax-advantaged account in the code: tax-deductible going in, tax-free growth, tax-free out for medical expenses

2. After age 65, non-medical use is taxable like a traditional IRA, so the tax-free benefit is only preserved through medical use

3. Reimbursing yourself for past medical expenses with saved receipts can provide tax-free retirement income. See https://creativefinancialgrp.com/health-insurance-before-65-retirement/ for the full HSA framework.

How does this affect IRMAA?

Every withdrawal decision affects IRMAA two years later. The optimal order accounts for IRMAA thresholds at every step.

For 2026, the Centers for Medicare and Medicaid Services sets the first IRMAA threshold at $109,000 single and $218,000 joint. A retiree drawing $100,000 from a traditional IRA might cross that threshold, while the same retiree drawing $100,000 from a Roth IRA might not.

This is why withdrawal order matters even for the same total income. The source matters as much as the amount. See https://creativefinancialgrp.com/how-do-you-avoid-irmaa-in-retirement/.

What if you have a pension?

A pension reduces the strategic flexibility of withdrawal order because the pension income is fixed and counts as ordinary income.

For retirees with substantial pensions, the planning shifts to:

– Withdraw less from traditional accounts (the pension is already filling that bucket)

– Do Roth conversions only when total income stays in lower brackets

– Use Roth and taxable accounts more aggressively to keep total taxable income manageable

Common Mistakes:

1. Following the conventional taxable-first rule without considering RMD impact

2. Leaving traditional balances untouched until forced distributions begin

3. Drawing from Roth IRAs first (eliminates the most tax-advantaged growth)

4. Ignoring IRMAA implications of withdrawal source

5. Failing to coordinate withdrawals with Social Security timing (see https://creativefinancialgrp.com/when-should-you-take-social-security/)