What order should you withdraw from retirement accounts?

What's the default withdrawal order?

The conventional order is taxable accounts first, then tax-deferred accounts like traditional IRAs and 401(k)s, and Roth accounts last. The logic: spend the money with the fewest tax advantages first, and give the accounts with the best tax treatment the longest time to grow. As defaults go, it's a reasonable one.

Each account type gets taxed differently, which is the whole reason order makes a difference. A dollar from your brokerage account, a dollar from your IRA, and a dollar from your Roth all buy the same groceries, but they leave very different marks on your tax return.

When does the default order cost you money?

The default order treats every year of retirement the same, and your tax life doesn't cooperate with that. For many retirees, the years between the last paycheck and the first required distribution are unusually low-income years. Spending only taxable money then can waste them, leaving the lower brackets unfilled while your tax-deferred accounts keep growing toward larger forced withdrawals later.

Three timing effects tend to punish a set-and-forget sequence. Required minimum distributions, which start at 73 or 75 depending on your birth year under the SECURE 2.0 Act, can push you into higher brackets late in retirement if the deferred accounts were never drawn down or converted. Medicare premium surcharges are set by your income from two years earlier, so a single high-withdrawal year can echo into your premiums. And because up to 85 percent of Social Security benefits can be federally taxable depending on your other income, the account each dollar comes from changes how much of your benefit you keep. That last one has a quiet edge to it. The income thresholds that decide how much of your benefit gets taxed, $25,000 for a single filer and $32,000 for a married couple filing jointly, with the top tier starting at $34,000 and $44,000, were written into law in 1983 and expanded in 1993, and Congress never indexed them to inflation. IRS Publication 915 still lists the same dollar figures more than three decades later, which means each year's cost-of-living raise pushes a few more retirees over a line that has not moved since the Reagan administration.

How does a tuned withdrawal order work?

A tuned order treats each year as its own decision, made inside a multi-year plan. The goal shifts from "avoid taxes this year" to "pay the least tax over your whole retirement." Some years that means intentionally realizing more income than the default would, because the bracket space is cheap now and expensive later.

In practice, I look at a few levers together: filling low-bracket years with tax-deferred withdrawals or Roth conversions while that window is open, drawing from taxable accounts where gains are lightly taxed, saving Roth flexibility for the years a threshold is at stake, and coordinating all of it with your Social Security start date. None of these is exotic. The value is in running your actual numbers and revisiting them every year.

How does filling the brackets actually work?

Here is the idea in plain numbers. The federal income tax is built in tiers, and the low tiers are cheap. In a year when your taxable income would otherwise sit near the bottom of a bracket, you can deliberately pull income up to the top of that bracket, and no further, at that low rate. The tool for pulling that income is either a withdrawal from a tax-deferred account or a Roth conversion. Both fill the same inexpensive space; they differ only in where the money lands afterward.

So the order I most often use is not the textbook one. Rather than spending taxable dollars first and leaving the tax-deferred accounts to grow untouched, I frequently draw from tax-deferred accounts up to the top of a target bracket first, then spend from taxable accounts, and save Roth for last. In a genuinely low-income year, that same low-bracket space can go to a Roth conversion first, with taxable dollars covering the actual spending. Either way, the aim is to pay tax at a low rate now on money that would otherwise be forced out at a higher rate later, once required distributions begin. Empty bracket space does not roll over. A low year left unused is simply gone.

Where do annuities fit in the order?

Sometimes a piece of guaranteed income belongs in the plan, and an annuity is the tool that provides it. My bias is toward simplicity here: the more complicated an annuity becomes, the less I tend to like it. Complexity in these products is rarely in the investor's favor, because the features that sound reassuring are usually paid for with higher costs or thinner terms buried in the contract. When an annuity earns a place, it is almost always a plain one.

At their best, annuities do one useful thing very well. They turn a lump sum into a lifelong paycheck, which is insurance against living a long time and outliving your money, what planners call longevity risk. Seen that way, a simple annuity is less an investment than a private pension, filling the same role Social Security does: income that arrives no matter how long you live or what markets do. That role can be worth paying for. The elaborate riders and bonus features stacked on top are the part I approach with caution.

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