Picture a married couple, both 65, walking out of their offices for the last time in June 2026. Between them they have $400,000 in a joint brokerage account, $800,000 spread across two traditional IRAs, and $300,000 in Roth IRAs. Their combined nest egg totals $1.5 million. The question that will quietly determine whether that money lasts 25 years or 32 is not how much they spend. It is which account they open first.
Most retirees reach for the traditional IRA. It looks like the biggest bucket, and the Roth feels too precious to touch. That instinct is understandable. It is also, according to decades of tax-planning research and the structure of the federal tax code itself, almost always the wrong move.
The more efficient sequence runs in the opposite direction: spend from taxable brokerage accounts first, then draw down traditional IRAs and 401(k)s, and leave Roth accounts for last. The order matters because each account type faces different tax treatment on the way out, and the sequence determines how much of a retiree’s money keeps compounding in sheltered space versus leaking out to the IRS every April.
How each account type is taxed at withdrawal
Traditional IRA and 401(k) distributions are taxed as ordinary income. Every dollar withdrawn lands on the tax return alongside Social Security benefits, pensions, and any other income, potentially pushing a retiree into a higher federal bracket. Those distributions can also trigger two costly side effects: they can increase the taxable share of Social Security benefits from 0% to as much as 85%, and they can push modified adjusted gross income above the thresholds for Medicare’s Income-Related Monthly Adjustment Amount (IRMAA), adding hundreds of dollars per month to Part B and Part D premiums.
Taxable brokerage accounts play by different rules. Long-term capital gains and qualified dividends are taxed at preferential rates of 0%, 15%, or 20%, depending on income. For a married couple filing jointly, the 0% capital gains rate applies to taxable income up to roughly $96,700 (the 2025 threshold; the IRS has not yet released inflation-adjusted figures for the 2026 tax year). A retiree living on brokerage withdrawals and Social Security in the early years of retirement can often stay inside that 0% window, paying little or no federal tax on investment gains.
Roth accounts sit at the far end of the spectrum. Qualified withdrawals from a Roth IRA or designated Roth 401(k) are entirely excluded from federal gross income under 26 CFR 1.402A-1 and the ordering rules in IRS Publication 590-B. Contributions come out first, then conversions, then earnings, a layered sequence that protects most Roth withdrawals from taxation. And critically, Roth IRAs carry no required minimum distributions during the account owner’s lifetime. No law forces a Roth IRA holder to withdraw on a schedule, so the money can sit and compound tax-free for decades.
Why the order creates a compounding advantage
When a retiree spends from a taxable brokerage account in the early years, two things happen at once. The income generated is taxed at lower capital-gains rates rather than ordinary income rates. And both the traditional IRA and the Roth IRA keep growing inside their tax-sheltered wrappers, undisturbed by withdrawals.
To see why that matters, consider our hypothetical couple. Suppose they withdraw $50,000 a year from their brokerage account for the first eight years of retirement while leaving both IRAs untouched. If the traditional IRA earns a 6% nominal return, it grows from $800,000 to roughly $1.27 million by the time they reach 73 and required minimum distributions begin. That growth happened entirely inside a tax-deferred wrapper, with no annual drag from capital gains or dividend taxes. Meanwhile, the $300,000 Roth, also earning 6%, has climbed to about $478,000, all of it permanently tax-free.
Had they instead pulled $50,000 a year from the traditional IRA, every dollar of those withdrawals would have been taxed as ordinary income. At the 22% federal bracket, that is $11,000 a year in federal taxes alone, money that never gets a chance to compound. Over eight years, the tax drag adds up to nearly $88,000 in federal income taxes paid, not counting the potential IRMAA surcharges and increased Social Security taxation those distributions could trigger.
Peer-reviewed research by Shoven and Sialm, published in the Journal of Public Economics, established that the tax character of the account holding an asset matters as much as the asset itself. Their work focused on asset location (deciding which investments belong in which account type), but the underlying principle applies directly to withdrawal sequencing: preserving tax-advantaged space reduces the cumulative drag of taxation over a long retirement.
Data from the National Bureau of Economic Research, drawing on the Survey of Consumer Finances, confirms that many American households do hold assets across taxable, tax-deferred, and Roth accounts simultaneously. For those households, the withdrawal sequence is not an abstract planning exercise. It is a decision they will make, explicitly or by default, every year of retirement.
Even when required minimum distributions eventually force money out of traditional accounts (currently beginning at age 73, rising to 75 in 2033 under the SECURE 2.0 Act), entering those years with a somewhat smaller traditional balance reduces the size of mandatory withdrawals and lowers the risk of bracket creep, IRMAA surcharges, and higher Social Security taxation.
Where the strategy gets more nuanced
A strict taxable-first, tax-deferred-second, Roth-last sequence is a strong starting framework, but experienced planners rarely follow it rigidly. The early retirement years, before RMDs kick in and often before Social Security is claimed, can create a window of unusually low taxable income. That window is an opportunity, not just for spending, but for repositioning.
Retirees in those low-income years can strategically convert portions of their traditional IRA to a Roth IRA, paying tax at today’s brackets to move money into an account that will never be taxed again. This is not the same as withdrawing from the traditional IRA to fund spending. It is a deliberate repositioning that shrinks future RMDs and expands the tax-free Roth balance. The IRS outlines the mechanics of such rollovers and conversions in its guidance on retirement plan distributions.
The timing of these conversions carries extra weight right now. Many provisions of the 2017 Tax Cuts and Jobs Act are scheduled to sunset after 2025, which could push several federal income tax brackets back to their higher pre-TCJA levels starting in 2026. If that happens (and as of June 2026, Congress has not enacted a full extension), retirees who converted aggressively in 2024 and 2025 locked in lower rates. Those who did not may still find conversion opportunities, but the math requires a fresh look at the current bracket structure each year.
Coordinating the withdrawal sequence with Social Security claiming decisions adds another layer. Delaying Social Security benefits to age 70 increases the monthly payment by up to 77% compared to claiming at 62, according to the Social Security Administration (the exact increase depends on birth year and full retirement age). But those delay years require income from somewhere. Drawing from taxable accounts during that period, while keeping traditional IRA distributions minimal, can fund the gap without inflating adjusted gross income. Once the larger Social Security benefit begins, the retiree has a higher guaranteed income floor and can adjust the withdrawal mix accordingly.
State taxes matter too. Nine states have no income tax, and several others exempt retirement income partially or fully. A retiree in Florida faces a different calculus than one in California, where traditional IRA distributions are taxed at rates up to 13.3%. The sequencing principle holds in both cases, but the magnitude of the benefit varies considerably.
What happens when the brokerage account runs dry
One practical question the framework does not always address: what if the taxable account is not large enough to bridge the gap to RMD age? Our hypothetical couple has $400,000 in their brokerage account. At $50,000 a year in withdrawals, that money lasts roughly eight years (depending on market returns and spending patterns), carrying them to about age 73, right when RMDs begin. The timing works out neatly in this example, but many retirees have smaller brokerage balances relative to their tax-deferred accounts.
When the taxable account is exhausted before RMDs start, the retiree faces a choice: begin traditional IRA withdrawals or tap the Roth. In most cases, the better move is to pull from the traditional IRA, keeping the Roth intact. The goal is not to avoid traditional IRA withdrawals forever. It is to delay them as long as practical so the Roth has maximum time to compound tax-free.
Higher-income retirees should also watch for the 3.8% net investment income tax (NIIT), which applies to investment income when modified adjusted gross income exceeds $250,000 for married couples filing jointly. Large brokerage account liquidations in a single year can push income above that threshold. Spreading sales across multiple tax years, or pairing them with years of lower other income, can help avoid the surcharge.
What the evidence does not tell us
No federal agency publishes data tracking the actual withdrawal sequences individual retirees choose. The IRS collects distribution information through Form 1099-R, but it does not release a public dataset matching withdrawal order to tax outcomes across account types. That gap means the precise dollar benefit of the taxable-first sequence cannot be pinned to a single authoritative figure. Financial planning models suggest meaningful tax savings over a multi-decade retirement, but those results depend on assumptions about market returns, spending levels, life expectancy, and future tax law.
Tax law itself is the largest wildcard. Federal income tax brackets, capital gains rates, and the rules governing Social Security taxation can all change with new legislation. A withdrawal sequence optimized for the current code could become less efficient if rates shift. Roth IRAs have been exempt from lifetime RMDs since their creation in 1998, but that exemption exists by statute, not by constitutional guarantee. No active legislative proposal to impose Roth RMDs has advanced through Congress as of June 2026, but any future Congress could alter the terms. Retirees should treat the Roth-last strategy as a plan built on current rules, revisited annually.
Making the sequence a yearly habit
The most practical way to apply this framework is not to set a rigid 30-year plan, but to make the withdrawal decision fresh each January. The steps are concrete:
- Estimate the year’s spending need. Include fixed costs, discretionary spending, and any large planned expenses such as a roof replacement or an extended trip.
- Add up required income. Social Security, pensions, annuities, and any required minimum distributions that must be taken from traditional accounts.
- Fill the gap from taxable accounts first. Sell holdings in the brokerage account to cover remaining spending, harvesting losses where possible and taking advantage of lower capital-gains rates.
- Check for Roth conversion headroom. If taxable income after all of the above is still well below the top of the current bracket, consider converting a portion of the traditional IRA to a Roth, paying tax now at a known rate to reduce future RMDs.
- Leave the Roth untouched unless truly needed. The Roth is the last resort for spending and the most powerful asset to leave growing, or to pass to heirs who will receive tax-free distributions under current law.
This annual check-in also catches life changes. A year with high medical expenses and a large itemized deduction might be the right year to take a bigger traditional IRA distribution or conversion, because the deduction offsets the added income. A year with an unexpected capital gain from selling a property might call for pulling back on IRA withdrawals to avoid stacking income into a higher bracket.
The couple who walked out of their offices in June 2026 will make this decision dozens of times before their retirement is over. Each time, the question is the same: which dollars can I spend at the lowest tax cost today, while giving the rest the longest possible runway to grow? The answer almost always starts with the brokerage account, works through the traditional IRA, and leaves the Roth alone. Getting that order right will not make retirement risk-free, but it tilts the math meaningfully in their favor, year after year, for as long as the money needs to last.
