Which account to spend first in retirement
The usual answer is taxable, then tax deferred, then Roth. It is a reasonable default and it is not the best plan for most people. Here is the rule that beats it, and the three deadlines that drive it.
The standard answer is taxable accounts first, then tax deferred, then Roth. It is a reasonable default and for most people it is not the best plan available, because it ignores the one thing early retirement hands you: a stretch of unusually low income years in which the cheapest tax you will ever pay is sitting unused.
The better rule is this. Spend from taxable first, as the default says, but each year top up your taxable income to the edge of a low bracket with a withdrawal or a conversion from your pre tax account. You pay a small tax bill now instead of a larger one later, and you shrink the balance that required distributions will eventually force out.
This is a guide to how the mechanics interact, not advice about your accounts. The thresholds move every year, and the arithmetic only works with your own numbers in it.
The three buckets, and what each one costs to use
| Account type | Tax when you withdraw | Counts toward income tests | Forced withdrawals |
|---|---|---|---|
| Taxable brokerage, savings | Capital gains on the gain only, and the long term rate can be 0% at low incomes | Yes, the gain and any dividends | No |
| Traditional 401k, traditional IRA | Ordinary income rates on the whole withdrawal | Yes, in full | Yes, from 73 or 75 depending on birth year |
| Roth IRA, Roth 401k | Nothing, once the rules on age and holding period are met | No | None for a Roth IRA in the owner’s lifetime |
The third column is the one people skip and it drives most of the real decisions. Several things in US retirement are not taxes but cliffs keyed to your reported income: how much of your Social Security benefit becomes taxable, the premium tax credit for marketplace health insurance before 65, and the Medicare income related monthly adjustment after it. Roth withdrawals sit outside all of them. That is what makes Roth money valuable beyond the zero rate.
Why “leave the pre tax account alone” backfires
A traditional 401k left untouched does not sit still. It compounds, and the tax bill compounds with it, because every dollar of growth is also pre tax.
At 73 or 75 the required minimum distribution begins, and it is a percentage of the balance, not an amount you choose. A balance that doubled while you were busy leaving it alone produces a distribution twice the size, landing on top of your Social Security benefit, in a year when you may also be paying a Medicare surcharge because of it.
The pattern is common enough to have a name among planners: the person who paid almost no tax from 62 to 72 and then pays more tax in their late seventies than they did while working. Nothing went wrong. The low bracket years were simply left on the table.
A married couple meets a sharper version of it. When one spouse dies, the survivor files as single the following year, with roughly half the standard deduction and brackets that start biting far sooner, often on most of the same income. A pre tax balance that was manageable for two can be expensive for one.
The gap years are the whole opportunity
Call the gap years the ones between your last paycheck and the start of Social Security and required distributions. For someone who retires at 62 and claims at 70, that is eight years in which taxable income can be almost anything you choose.
In those years you can usually do some mix of three things at a very low rate:
- Withdraw from the pre tax account up to the top of a low bracket, and either spend it or move it to taxable.
- Convert pre tax money to Roth, paying the tax from your taxable account rather than from the conversion itself, so the full amount lands in the Roth.
- Realize long term capital gains in your taxable account at the 0% rate, which exists for taxable income below a threshold, and reset your cost basis upward for free.
Each one reduces a future tax bill. Together they are usually worth more than the extra compounding you get from leaving the pre tax account alone, which is the only thing the simple ordering rule optimizes for.
The size of the slice is the decision, and it is an annual one. Fill a low bracket, not a high one. Converting so much that you spill into a materially higher bracket, or over one of the income cliffs below, usually gives back more than it saves.
The three deadlines that shape the plan
Age 63, because of Medicare. The Medicare income related surcharge looks at your income from two years earlier. Income in the year you turn 63 is what sets your premium at 65. From 63 onward, a large conversion carries a possible surcharge attached to it, which is why the cheapest conversion years are usually the earliest ones.
Age 65, because of marketplace insurance. Before 65, if you buy your own coverage, the premium tax credit falls as your modified adjusted gross income rises. A conversion that saves $3,000 in future tax and costs $4,000 in lost subsidy is a bad trade dressed up as a good one. For people in this position the gap years are narrower than they look, and the honest answer is sometimes to convert little or nothing until Medicare starts.
Age 73 or 75, because of required distributions. This is the deadline the whole plan is pointed at. Once distributions begin, your taxable income has a floor you do not control, and the room you had for cheap conversions is gone.
Notice that these three can conflict. Marketplace subsidies argue for keeping income low until 65; the Medicare surcharge argues for finishing conversions before 63; required distributions argue for converting as much as possible beforehand. There is no ordering that satisfies all three, which is precisely why it is worth writing down rather than deciding by instinct.
Where Roth money is worth more than its zero rate
Spending Roth last is the default. Two situations are worth breaking it for.
A large one off expense. A new roof, a car, helping a child. Taking that from a pre tax account can push a whole year’s income up a bracket, make more of your Social Security taxable and trigger a Medicare surcharge two years later. The same amount from a Roth does none of that, because it never appears as income.
A year that is already full. If a pension, a property sale or an unusually large distribution has already filled the bracket, Roth money is the cheapest marginal dollar available for the rest of that year.
Think of the Roth as the account that lets you control a single year’s reported income. That ability is worth keeping some of, which is another argument for building the Roth balance during the gap years rather than arriving at 73 with nothing in it.
What this looks like year by year
Do it as an annual pass, not a one time plan:
- Work out what you need to spend next year.
- Take it from taxable first, keeping an eye on the gains you realize.
- Estimate the taxable income that leaves you with.
- Decide how much room is left in the bracket you are willing to pay, after checking the three deadlines above against your age.
- Fill that room with a pre tax withdrawal or a Roth conversion. Pay the tax from taxable money if you can.
- Write down what you did and what the reported income came to, because the Medicare surcharge will ask about this year in two years’ time.
Step 6 is the one people skip and it is the one that compounds. Three years in, the question “what was my modified adjusted gross income in the year I turned 63” has a real answer or it does not.
Keeping the record somewhere it will survive
This is a plan with a long memory and it does not fit in your head. You are tracking balances by account type, a conversion amount per year, a two year lag on one threshold, a cliff at 65 and a start date at 73 or 75.
RetireOS is what we built for it: 401k, IRA, HSA and taxable balances in one place, a Roth conversion ladder laid out year by year, the Medicare bridge years marked, and a required distribution date that is calculated from your birth year rather than remembered. It is one HTML file that runs on your own machine, with no account and nothing uploaded, which is the right shape for a document that lists everything you own.
The decision upstream of this one
Withdrawal order and Social Security timing are the same decision seen from two sides. The claiming date sets when the gap years end, and therefore how much cheap bracket space you have; the withdrawal plan decides what you do with it. Deciding either alone usually produces a worse answer than deciding both together, which is why the companion to this piece is when to take Social Security.
And if the number that does not work yet is the spending itself rather than the tax, the sequencing is not your problem. Zero-based budgeting is where we would start instead, and if there is still debt in the picture, how to make a debt payoff plan and the free debt calculator come first.
Frequently asked questions
What is the standard retirement withdrawal order?
Taxable accounts first, then tax deferred accounts like a traditional 401k or IRA, then Roth accounts last. The logic is that it leaves the tax sheltered money compounding for as long as possible. It is a sound default and it is beaten, for most people, by a plan that deliberately uses up the low tax brackets in the early retirement years.
Why would I withdraw from a traditional IRA before I have to?
Because an untouched pre tax balance does not disappear, it grows, and required minimum distributions eventually force it out at whatever tax rate applies then. Drawing some of it down during the low income years between retiring and starting Social Security often means paying 10% or 12% on money that would otherwise come out later at a higher rate.
When do required minimum distributions start?
Under the SECURE 2.0 rules the age is 73 for people who reached 72 after 2022, and it rises to 75 for those born in 1960 or later. Roth IRAs have no required distributions during the original owner's lifetime, which is part of why Roth money is usually spent last.
What is a Roth conversion ladder?
Moving money from a traditional IRA to a Roth IRA a slice at a time, in years when your taxable income is low, and paying the tax on each slice at that year's rate. Done across the gap years between retiring and starting benefits, it shrinks the pre tax balance that required distributions will later act on, and the converted money grows tax free afterwards.
How does this affect my health insurance before 65?
If you buy coverage on the Affordable Care Act marketplace, the premium tax credit is based on your modified adjusted gross income. A large Roth conversion raises that income and can cut the subsidy sharply, which is a real cost that has to be weighed against the tax saved. After 65 the equivalent issue is the Medicare income related surcharge, which looks at your income from two years earlier.
Should I always spend the Roth last?
Usually, but not always. Roth withdrawals do not count toward the income that makes Social Security taxable or that triggers Medicare surcharges, which makes them the right tool for a large one off expense in a year you want to keep reported income down. Spending Roth money last is the default, not a rule.
Does the order matter if my balances are small?
Less than you might think, and that is good news. If nearly all of your money is in one account type there is little to sequence, and the decisions that matter more are when to claim Social Security and whether your spending is sustainable.
Financial disclaimer: This guide is for general information and education only. It is not financial advice. Confirm balances, rates and fees against your own statements, and consult a qualified advisor about your situation.
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