No single account comes first every year. The conventional order, taxable brokerage, then tax-deferred, then Roth last, manages this year’s bracket but ignores the RMDs building behind it. A stronger approach blends withdrawals from all three accounts each year to fill your target bracket and preserve room for Roth conversions.
What is the conventional withdrawal order?
Spend taxable brokerage money first, since it already carries the lowest tax cost through capital gains rates. Move to tax-deferred accounts once the brokerage runs low. Save Roth withdrawals for last, since they carry no tax at all. It is a reasonable starting instinct, and it works well for someone with a modest pre-tax balance. It works against someone with $1.5 million or more sitting in a 401(k), because every year that balance goes untouched, it grows, and so does the RMD waiting at 73, or 75 if you were born in 1960 or later.
Why does draining taxable accounts first create a problem later?
Picture a couple with $1.2 million in a taxable brokerage account and $2 million in a traditional IRA at retirement. Spending the brokerage account down first, they report very little taxable income for several years, wasting the low brackets that sat open and unused. By the time RMDs begin, the IRA has kept growing, and the forced withdrawal lands in a much higher bracket than anything they paid during the years they were living on taxable funds. The tax bill they avoided early arrives anyway, with interest, in the form of compounding they never converted or spent down while the bracket was cheap.
What does bracket-filling withdrawal sequencing look like?
Say the couple needs $120,000 a year to live on. Guaranteed income covers $40,000 of it. Taking the remaining $80,000 from the brokerage account alone produces a small tax bill this year. Taking $30,000 of it from the IRA instead, filling a bracket that would otherwise go unused, and the rest from the brokerage account, raises this year’s bill a little and shrinks the RMD problem later. These figures are illustrative, meant to show the mechanism rather than predict an outcome for any household.
| This year looks like... | Draw from... | Why |
|---|---|---|
| A quiet, low-income year before Social Security | Tax-deferred, up to the bracket ceiling | Uses bracket room that RMDs will force you to use later anyway |
| A year with a large one-time gain, like a stock sale | Taxable or Roth | Avoids stacking a tax-deferred withdrawal on top of an already high-income year |
| The year after Medicare enrollment | Tax-deferred, but watch the IRMAA tiers | One extra dollar of ordinary income can trigger a full surcharge tier |
| An unplanned large expense | Roth, if the balance allows | Covers the need without changing this year’s bracket or IRMAA exposure |
How do IRMAA and RMDs change the order?
An account that looks cheapest on paper can still be the wrong one for a given year. A tax-deferred withdrawal that fits inside your bracket can still push MAGI over an IRMAA threshold and raise a Medicare premium two years out. Retiring before 59½ adds another layer: a 401(k) reaches penalty-free through the Rule of 55, but only at the employer you just left, not an IRA you rolled money into earlier. An IRA needs a 72(t) schedule of substantially equal payments to reach penalty-free before 59½, and the balance itself is measured against an IRS life expectancy table once RMDs begin, regardless of which accounts you drew from in the years before.
How does this interact with the rest of your plan?
Withdrawal sequencing and Roth conversions pull on the same lever: the room left in this year’s tax bracket. A year spent filling a bracket with conversions leaves less room for a tax-deferred withdrawal that same year, and a year spent drawing a large amount from the IRA leaves less room for a conversion. Social Security claiming adds a third pull, since provisional income from benefits already being paid competes for the same bracket space. The three decisions have to be modeled together, one spreadsheet, not three separate ones.
What should you do next?
Build a year-by-year income map instead of a fixed account order, and note where guaranteed income, one-time events, and IRMAA thresholds fall on that map. Check whether Rule of 55 or 72(t) applies before assuming an account is off-limits before 59½. Revisit the sequence every year, since the right account this year can be the wrong one five years from now.
A sequencing plan that ignores RMDs, IRMAA, and Roth conversion timing is only half a plan. Schedule a consultation to build one that accounts for all three.
Common questions
- Should you spend down taxable accounts before touching an IRA?
- Draining taxable accounts first keeps early tax bills small, but it leaves the tax-deferred account to compound untouched into a larger RMD later. Blending withdrawals across account types beats a strict order in most cases.
- Does the Rule of 55 apply to an IRA?
- No. It applies only to a 401(k) or 403(b) at the employer you separated from in the year you turned 55 or later. An IRA needs a 72(t) schedule, or you wait until 59½.
- What is 72(t) and when would you use it?
- A 72(t) election allows substantially equal periodic payments from an IRA at any age without the 10% early withdrawal penalty. The schedule locks in for five years or until 59½, whichever is longer, so it fits a firm income need rather than a flexible one.
- Does withdrawal order affect what your heirs inherit?
- Yes. A Roth balance left over passes to heirs tax-free. A pre-tax balance left over creates taxable income for whoever inherits it, often on a faster schedule than the original owner faced.
- How often should a withdrawal plan be revisited?
- At least once a year. Tax law, account performance, and one-time income events all change which account makes sense to draw from in a given year.
If the decisions on this page are ahead of you, the two of you can work through them with Robert Boeck before any of them becomes permanent.
Schedule Your Consultation