Tax-Smart Withdrawal Sequencing: Which Accounts to Tap First in Retirement

The conventional retirement withdrawal sequence is taxable accounts first, tax-deferred accounts second, Roth accounts last. That ordering is a reasonable default, but for wealthy retirees a blended approach usually produces a lower lifetime tax bill: spend from taxable accounts while deliberately filling low tax brackets with IRA withdrawals or Roth conversions, use qualified charitable distributions after age 70.5, and manage income around Medicare IRMAA thresholds. The goal is a smooth tax rate across retirement rather than low taxes early and a spike later.

Why does withdrawal order matter?

Three account types are taxed three different ways. Taxable accounts generate capital gains and dividends, often at preferential rates, and receive a basis step-up at death. Traditional IRAs and 401(k)s produce ordinary income on every dollar withdrawn and carry required minimum distributions. Roth accounts produce no tax at all on qualified withdrawals and no lifetime RMDs for the owner.

Because the tax code prices each dollar differently depending on its source and your other income that year, the same spending can produce very different lifetime tax bills depending on sequencing. For a family spending $300,000 a year from a multi-million dollar balance sheet, sequencing decisions compound for decades.

What is wrong with the conventional sequence?

Draining taxable accounts first keeps early-retirement tax bills near zero, which feels efficient. The problem arrives later: the untouched IRA keeps compounding, and when RMDs begin at age 73 (75 for those born in 1960 or later under SECURE 2.0), the forced income can land in the 32 to 37 percent brackets, trigger top Medicare surcharges, and eventually pass to children who must empty the account within ten years at their own peak rates.

The fix is bracket filling. In years when income is low, you intentionally recognize ordinary income, through IRA withdrawals or Roth conversions, up to a chosen bracket ceiling. You pay some tax sooner at 22 or 24 percent to avoid much more tax later at 32 percent or above. Wasting a low bracket is a real cost even though it never appears on any statement.

A worked example (hypothetical)

A married couple, both 65, hold $1.5 million in taxable investments, $3 million in traditional IRAs, and $600,000 in Roth IRAs. They spend $240,000 a year. Following the conventional sequence, their taxable income for several years would be modest, mostly qualified dividends and gains, and the 22 and 24 percent brackets would sit empty while the IRA grows toward seven-figure RMD problems.

Instead, each year from 65 to 73 they draw spending cash from the taxable account and convert or withdraw enough from the IRAs to bring taxable income to the top of a target bracket; the 24 percent bracket for joint filers reaches $403,550 of taxable income in 2026, per IRS Revenue Procedure 2025-32. They size the income each December with their CPA, watching two other lines: the first Medicare IRMAA threshold at $218,000 of MAGI for joint filers, and the 0 percent long-term capital gains bracket, which covers taxable income up to $98,900 for joint filers in 2026 per IRS inflation adjustments. In some years they choose lower conversions to harvest gains at 0 percent; in others they accept one IRMAA tier for a larger conversion. The result is a flatter lifetime tax rate, smaller RMDs, and a growing Roth that the survivor and the children inherit tax free. This example is hypothetical and excludes state tax.

How do RMDs and QCDs fit in?

Required minimum distributions begin at 73, or 75 for those born in 1960 or later. RMDs are ordinary income whether you need the cash or not, which is why shrinking the IRA beforehand matters.

For charitably inclined retirees, qualified charitable distributions are the single most efficient giving tool available. Beginning at age 70.5, you can transfer up to $111,000 per person in 2026, per IRS inflation adjustments, directly from an IRA to charity. The distribution counts toward your RMD but never appears in adjusted gross income, so it avoids ordinary tax, sidesteps the new 0.5 percent AGI floor on charitable deductions, and helps keep MAGI below IRMAA thresholds. Couples giving meaningfully should usually route gifts through QCDs before writing checks from taxable accounts.

Where are the IRMAA cliffs?

Medicare premium surcharges begin at $109,000 of MAGI for single filers and $218,000 for joint filers in 2026, with multiple tiers above, according to published 2026 Medicare figures. Two features make IRMAA a sequencing issue. The thresholds are cliffs, so one extra dollar of income raises premiums for both spouses for an entire year. And the lookback is two years, so income decisions at 63 and 64 set premiums at 65, before Medicare has even started. Withdrawal and conversion plans should be mapped against IRMAA tiers from age 63 onward.

There is one more sequencing input that statements never show: asset location. Holding tax-inefficient assets such as taxable bonds inside the IRA and low-turnover equities in taxable accounts changes which dollars are cheapest to spend in any given year. Sequencing works best when location, harvesting, and withdrawals are managed as one system rather than three separate decisions.

Key numbers for 2026

Frequently asked questions

Which account should I withdraw from first in retirement?Usually taxable accounts supply spending cash while you simultaneously fill low brackets with IRA withdrawals or Roth conversions. A pure "taxable first, deferred second, Roth last" sequence often wastes low-bracket years.

When should I touch my Roth?Generally last, or for large one-time expenses in years when extra ordinary income would cross a bracket or IRMAA threshold. Roth assets are also the most efficient account to leave heirs.

What is bracket filling?Deliberately recognizing IRA income up to the top of a chosen tax bracket in low-income years, so less income is forced out later at higher rates through RMDs.

Do QCDs work if I have not started RMDs?Yes. QCDs are available from age 70.5, before RMDs begin, and they reduce the IRA balance that future RMDs are calculated on.

How do I avoid IRMAA surcharges?You manage MAGI against the published thresholds with a two-year lead time, using QCDs, capital loss harvesting, and conversion sizing. Sometimes crossing a tier deliberately is worth it; the mistake is crossing one by accident.

Does the basis step-up change the sequence?It argues for not liquidating highly appreciated taxable positions late in life, since unrealized gains are forgiven at death under current law. Low-basis assets are often the last dollars to spend.