What's the Right Withdrawal Order in Retirement?
Quick answer: The conventional withdrawal order in retirement — taxable accounts first, then tax-deferred accounts (traditional IRA, 401(k), 403(b), 457), then Roth accounts last — is a useful starting framework but rarely the optimal strategy. The right withdrawal order depends on your specific tax bracket, expected future income, Medicare IRMAA tier positioning, Required Minimum Distribution exposure, Social Security claiming strategy, charitable giving goals, and estate planning intentions. For Ohio retirees, the framework also needs to account for Ohio income tax and potential school district income tax. Withdrawal order is best reviewed annually rather than set once at retirement, because the right answer can change year to year as circumstances evolve. This article is educational; specific withdrawal advice requires a qualified tax professional.
Key Takeaways
- The "conventional" withdrawal order (taxable → tax-deferred → Roth) is a starting framework, not a universal rule.
- The actual best withdrawal order depends on your specific tax bracket, IRMAA tier, Social Security taxation, RMDs, and estate goals.
- Roth accounts often produce the most value when used strategically across years, not preserved until the end.
- Drawing from tax-deferred accounts in lower-income years can reduce future RMDs and lifetime tax exposure.
- Withdrawal order should be reviewed annually, since the right answer can shift with changing circumstances.
- Coordinating withdrawal order with Roth conversion timing, charitable giving, and Medicare planning produces meaningfully better outcomes than handling each in isolation.
Table of Contents
- Understanding the Three Account Categories
- The Conventional Withdrawal Order
- Why Conventional Wisdom Often Falls Short
- Factors That Shape Your Specific Strategy
- A More Flexible Withdrawal Framework
- Annual Review and Adjustment
- Withdrawal Order and Other Tax Planning Decisions
- Common Mistakes to Avoid
- Frequently Asked Questions
Understanding the Three Account Categories
Most retirees enter retirement with assets across three broad tax categories. Each category has different rules about how withdrawals are taxed, and the differences are what create the planning opportunity.
Taxable accounts. Brokerage accounts, savings accounts, CDs, and similar holdings. Contributions were made with after-tax dollars. Withdrawals of the original investment ("basis") aren't taxed. Investment gains are taxed when realized, with long-term capital gains and qualified dividends taxed at preferential federal rates (and at Ohio's regular rates in Ohio). Interest and short-term gains are taxed at ordinary rates.
Tax-deferred accounts. Traditional IRAs, 401(k)s, 403(b)s, 457 plans, and similar accounts. Contributions were made with pre-tax dollars (or are tax-deductible). The full withdrawal — both original contribution and growth — is taxed as ordinary income when withdrawn. These accounts also trigger Required Minimum Distributions starting at the age specified in current tax law.
Tax-free accounts. Roth IRAs and Roth 401(k)s. Contributions were made with after-tax dollars. Qualified withdrawals (typically requiring age 59½ and a five-year holding period) are completely tax-free at both federal and Ohio levels. Roth IRAs also have no RMDs during the original account holder's lifetime, and recent legislation eliminated RMDs from Roth 401(k)s.
For Ohio retirees, the practical implication is that each dollar of withdrawal can produce a very different after-tax result depending on which account it came from. A $50,000 withdrawal from a Roth IRA produces $50,000 of spendable cash. The same $50,000 withdrawn from a traditional IRA might produce $35,000-$42,000 after federal and Ohio taxes — and that withdrawal might also push you into a higher IRMAA tier two years later.
This article is part of our broader guide on how to plan a tax-efficient retirement in Ohio, which covers how withdrawal order interacts with the rest of the retirement tax picture.
The Conventional Withdrawal Order
The conventional retirement withdrawal order, taught for decades in financial planning literature, is:
- Taxable accounts first — for tax-efficient access to cash flow
- Tax-deferred accounts next — drawn down at retirement tax rates
- Roth accounts last — preserved for late retirement or inheritance
The reasoning behind this order:
Taxable accounts produce relatively favorable tax treatment when withdrawn — basis isn't taxed, gains qualify for long-term capital gains rates. Drawing from taxable accounts first preserves the tax-deferred and tax-free growth in retirement accounts.
Tax-deferred accounts continue to grow tax-deferred until withdrawn. Drawing from them after taxable accounts maximizes the time those balances compound.
Roth accounts grow tax-free and don't trigger RMDs during the original account holder's lifetime. Preserving them until the end maximizes tax-free growth time, and Roth assets pass to heirs more favorably than traditional accounts.
Where this order works well:
The conventional order works reasonably well for retirees in moderate tax brackets, with balanced asset mix across categories, no significant Social Security or pension income, and no immediate Medicare IRMAA concerns. For some retirees with this profile, the conventional order is genuinely the best approach.
Where this order can break down:
The conventional order assumes that "later" tax brackets will be lower or similar to current brackets, that Roth balances don't need to be deployed strategically, and that drawing from tax-deferred accounts later is preferable to drawing from them now. Those assumptions don't always hold.
Why Conventional Wisdom Often Falls Short
Several scenarios show why the conventional order doesn't always produce the best outcome.
Scenario 1: Retirees with substantial tax-deferred balances facing large future RMDs.
A retiree with $1.5 million in traditional IRA assets at age 65 will face increasingly large RMDs starting at the age specified in current tax law. By the time RMDs are mandatory, the tax-deferred balance may have grown to $2 million or more, with RMDs of $80,000-$100,000+ per year being taxed at high marginal rates. The retiree may also be subject to Medicare IRMAA tier increases driven by RMD income.
For this retiree, drawing voluntarily from tax-deferred accounts in pre-RMD years — even when taxable accounts are available — can meaningfully reduce future RMD exposure and lifetime tax cost. The conventional "taxable first" approach makes the future tax problem worse.
Scenario 2: Retirees with significant pension or Social Security income creating a taxable income floor.
A retiree with a $40,000 annual pension and $30,000 of Social Security already has substantial taxable income before any account withdrawals. Drawing additional taxable income from a tax-deferred account may push into higher brackets, increase Social Security taxation, and trigger IRMAA — even if the withdrawal amount itself seems modest.
For this retiree, drawing from Roth accounts (which don't add to taxable income) can be more efficient in some years than drawing from taxable accounts (where realized gains add to MAGI even though basis doesn't).
Scenario 3: Retirees managing toward an IRMAA threshold.
A retiree projecting income near an IRMAA tier threshold can benefit from drawing the threshold-crossing amount from Roth accounts rather than taxable or tax-deferred accounts. Roth withdrawals don't count toward MAGI for IRMAA. This kind of bracket and threshold management argues against a fixed "Roth last" rule.
Scenario 4: Retirees with charitable giving goals.
A retiree planning meaningful charitable giving can use Qualified Charitable Distributions from a traditional IRA (once age-eligible) to satisfy RMDs while excluding the distribution from taxable income. This changes the calculus around tax-deferred account drawdowns.
Scenario 5: Retirees with longevity expectations or estate planning goals.
A retiree with high expected longevity has more time for Roth balances to compound tax-free, supporting the conventional order. A retiree with shorter expected longevity or limited heirs may benefit from drawing Roth balances earlier — there's less time benefit and potentially more tax benefit to using them now.
Scenario 6: Retirees in lower-than-expected tax brackets in early retirement.
The years between retirement and Social Security claiming are often the lowest-income years of retirement. For a retiree expecting higher brackets later (from Social Security, RMDs, or both), these years can be optimal for filling lower brackets with strategic tax-deferred withdrawals — even if taxable accounts are available.
The pattern across these scenarios: a fixed withdrawal order rarely produces the best result. The right order depends on the household's full tax picture and that picture changes over time.
Factors That Shape Your Specific Strategy
Several factors should influence the withdrawal order for a specific retiree.
Current tax bracket vs. expected future bracket. Drawing from tax-deferred accounts in lower-bracket years and preserving Roth balances for higher-bracket years can produce significant lifetime tax savings. If brackets are expected to remain similar, the impact is smaller.
Medicare IRMAA tier proximity. Retirees enrolled in Medicare or approaching enrollment should evaluate which withdrawals would push MAGI across an IRMAA tier threshold. Roth withdrawals avoid this risk entirely.
Social Security claiming timing. Pre-Social Security years often have lower taxable income, creating an opportunity for tax-deferred withdrawals or Roth conversions. Post-Social Security years have more taxable income, making Roth balances more valuable.
RMD exposure. Retirees with large tax-deferred balances facing significant future RMDs may benefit from drawing those accounts down voluntarily in pre-RMD years. Retirees with modest tax-deferred balances have less to gain from this approach.
Pension income. A retiree with substantial pension income already has a taxable income floor that affects the math on all other withdrawal decisions.
State and school district tax exposure. Ohio retirees subject to school district income tax under the traditional tax base face additional tax on traditional account withdrawals. Roth withdrawals don't trigger school district tax.
Health and longevity expectations. Longer expected longevity favors preserving Roth balances. Shorter expected longevity may favor drawing them earlier.
Charitable giving plans. Substantial charitable giving combined with sufficient age can shift the calculus through Qualified Charitable Distributions, which let RMDs satisfy charitable goals tax-free.
Estate planning goals. Retirees prioritizing tax-free wealth transfer to heirs benefit from preserving Roth balances. Retirees with no heirs or different priorities may use Roth balances differently.
Investment risk allocation. Some retirees prefer to draw down riskier assets first to preserve more stable holdings; others prefer the opposite. Asset location strategy interacts with withdrawal order.
The right strategy isn't determined by any single factor — it emerges from how the factors interact in your specific situation.
A More Flexible Withdrawal Framework
Rather than a fixed order, a more useful approach involves three steps each year:
Step 1: Project total taxable income for the year before discretionary withdrawals.
Start with predictable income: pension, Social Security (or planned claiming), RMDs (if applicable), interest, dividends, and any other expected income. This baseline tells you where you'd start the year without any discretionary withdrawal decisions.
Step 2: Identify the year's planning objectives.
What's the goal for this year? Filling a lower tax bracket? Staying below an IRMAA threshold? Generating cash for a specific need? Doing a Roth conversion? Charitable giving via QCD? Each objective shapes the withdrawal decision differently.
Step 3: Choose the withdrawal source(s) that best serve those objectives.
For some years, the answer is taxable accounts. For others, it's Roth withdrawals to stay below an IRMAA tier. For others still, it's a strategic tax-deferred withdrawal to fill a lower bracket. The right answer is the one that fits this year's tax picture and planning objectives.
An example of how this might play out across early retirement:
A retiree retires at 62 with a pension of $30,000, $800,000 in a traditional IRA, $400,000 in a Roth IRA, and $200,000 in a brokerage account. Social Security claiming is planned for age 67. Medicare enrollment is at 65.
- Ages 62-65 (pre-Medicare, pre-Social Security): Low taxable income years. Strategic withdrawals from the traditional IRA to fill the lower brackets reduce future RMDs without triggering IRMAA (not yet on Medicare).
- Ages 65-67 (Medicare, pre-Social Security): Manage Medicare IRMAA tier carefully. Continue strategic IRA withdrawals where they fit below IRMAA thresholds. Roth withdrawals available for additional cash flow.
- Ages 67+ (Social Security claiming, eventually RMDs): Higher taxable income floor. Roth becomes more valuable for managing income across IRMAA thresholds and Social Security taxation. QCDs become available for charitable giving.
- RMD age and beyond: RMDs satisfy a portion of income needs. Withdrawal decisions focus on managing MAGI for IRMAA, with Roth withdrawals reserved for years when needed to stay below thresholds.
The point isn't that this specific sequence is correct for every retiree — it's that the withdrawal source should be chosen based on each year's specific picture, not a fixed rule applied across all years.
Annual Review and Adjustment
The right withdrawal order can shift year to year as circumstances change. An annual review is one of the highest-value uses of coordinated financial and tax planning.
What an annual withdrawal review should cover:
- Current year's expected total taxable income before discretionary withdrawals
- Current year's tax bracket projection
- Medicare IRMAA tier projection (current year and the year two years out)
- Social Security taxation status
- Available withdrawal sources and their tax characteristics
- Year-specific planning objectives (bracket filling, IRMAA management, charitable giving, etc.)
- The interaction between this year's decision and future years' tax pictures
When the right answer might change:
- A major income event (inheritance, settlement, business sale) changes the bracket picture
- A spouse's death changes the household tax filing status and IRMAA thresholds
- Tax law changes alter the relative attractiveness of different account types
- Health changes affect longevity expectations and withdrawal urgency
- Charitable goals evolve, changing the value of QCD-eligible distributions
- Roth conversion completion in earlier years changes the account mix going forward
The practical workflow:
Many advisors and tax professionals review withdrawal strategy annually as part of year-end tax planning, typically in October-December when the current year's picture is largely known and the next year can be projected. This timing allows for current-year adjustments (additional withdrawals, deferring distributions to January, charitable timing) while the year is still open.
For Ohio retirees, the annual review should include Ohio state tax and school district tax projections alongside federal tax planning.
Withdrawal Order and Other Tax Planning Decisions
Withdrawal order doesn't sit in isolation. It interacts with several other decisions in the retirement tax picture.
Roth conversions. Roth conversions are themselves a form of withdrawal decision — moving assets from tax-deferred to tax-free. Conversion timing and amount should coordinate with the broader withdrawal strategy. We cover this in detail in my piece on Roth conversion strategies for Ohio retirees.
Required Minimum Distributions. RMDs are mandatory withdrawals from tax-deferred accounts that begin at the age specified in current tax law. The withdrawal strategy for pre-RMD years should account for the RMD picture that's coming. We cover this in my piece on Required Minimum Distributions and tax planning.
Medicare IRMAA management. Withdrawal source affects MAGI, which affects IRMAA two years later. Strategic withdrawal sourcing is one of the most direct tools for managing IRMAA exposure. See my piece on Medicare IRMAA: how to avoid the surcharge.
Charitable giving. Qualified Charitable Distributions can satisfy RMD requirements while excluding the distribution from MAGI — changing the withdrawal calculus for charitably inclined retirees. We cover charitable strategies in our forthcoming piece on charitable giving strategies: QCDs and DAFs explained (coming soon in this series).
Social Security claiming. Social Security claiming timing affects the taxable income floor in each year, which affects how additional withdrawals should be sourced. Coordinating claiming with withdrawal strategy is one of the larger optimization opportunities in retirement planning.
Asset location. Where investments are held (taxable vs. tax-deferred vs. Roth) affects withdrawal flexibility. A coordinated asset location strategy supports more flexible withdrawal sequencing over time.
Common Mistakes to Avoid
Several patterns come up repeatedly when retirees handle withdrawal order poorly.
Following the conventional order without analysis. "Taxable first, then tax-deferred, then Roth" applied automatically across all years can produce meaningfully worse outcomes for retirees with substantial tax-deferred balances, pension income, or IRMAA exposure.
Treating Roth balances as untouchable. Preserving Roth accounts at all costs can leave significant tax flexibility unused. Strategic Roth withdrawals in higher-income years often produce better total outcomes than treating Roth as a last resort.
Ignoring Medicare IRMAA effects. Withdrawal decisions made without modeling IRMAA can trigger expensive premium increases two years later. Every significant withdrawal should be evaluated for its IRMAA impact.
Setting the order once at retirement and never reviewing. A withdrawal strategy that made sense at age 62 may be wrong at 70, and wrong again at 75. Annual review is essential.
Withdrawing without considering Ohio tax. Ohio income tax and potential school district tax add to the after-tax cost of traditional account withdrawals. Roth withdrawals avoid both.
Not coordinating with a tax professional. Withdrawal order interacts with too many other tax planning elements to be optimized in isolation. The best results come from financial advisor and tax professional working together.
Forgetting about RMDs in pre-RMD years. Failing to address tax-deferred balance accumulation in pre-RMD years can produce RMD problems that limit options later.
Missing the Roth conversion window. The same low-income years that argue for tax-deferred withdrawals may also argue for Roth conversions. These two decisions need to be evaluated together, not separately.
Frequently Asked Questions
What is the conventional retirement withdrawal order? The conventional order is to draw from taxable accounts first, then tax-deferred accounts (traditional IRA, 401(k), 403(b), 457), then Roth accounts last. This order is a starting framework, not a universal rule.
Is the conventional withdrawal order always right? No. The conventional order works reasonably well for some retirees but produces suboptimal results for others — particularly retirees with large tax-deferred balances, significant pension or Social Security income, or Medicare IRMAA exposure.
When should I draw from my Roth IRA? Roth IRA withdrawals are often most valuable in higher-income years, when staying below an IRMAA tier threshold matters, or when managing Social Security taxation. Treating Roth as a "last resort" can leave significant tax flexibility unused.
Should I draw from my traditional IRA before Social Security starts? For many retirees, pre-Social Security years offer the lowest taxable income of retirement, making strategic IRA withdrawals (or Roth conversions) attractive. Filling lower tax brackets in these years can reduce future RMD exposure and lifetime tax cost.
Do RMDs change my withdrawal strategy? Yes. Once RMDs begin, they're mandatory and become a fixed source of taxable income. The withdrawal strategy in pre-RMD years should account for the RMD picture that's coming, often by drawing voluntarily from tax-deferred accounts to reduce future RMD-eligible balances.
How does Medicare IRMAA affect withdrawal order? Medicare IRMAA is based on Modified Adjusted Gross Income from two years prior. Withdrawals from taxable and tax-deferred accounts add to MAGI; qualified Roth withdrawals don't. Withdrawal source can directly affect IRMAA tier positioning.
Does Ohio tax affect withdrawal order? Yes. Ohio income tax applies to traditional account withdrawals when they're federally taxable. School district income tax may also apply in many Ohio districts. Roth withdrawals avoid both, making them more attractive for retirees in districts with traditional-base school taxes.
How often should I review my withdrawal order? Annually. The right answer can change year to year as circumstances evolve. Year-end tax planning (October-December) is typically the best time for an annual review.
Should I work with a tax professional on withdrawal order? Yes. Withdrawal order interacts with federal taxes, Ohio taxes, Social Security taxation, Medicare IRMAA, RMDs, charitable giving, and estate planning. The best results typically come from coordinating between a financial advisor and a qualified tax professional.
Build a Framework, Not a Rule
For Ohio retirees, withdrawal order is one of the most consequential ongoing decisions in retirement income planning. The conventional "taxable first, tax-deferred next, Roth last" sequence offers a useful starting point — but the right strategy is rarely a fixed rule applied across all years.
The pattern that produces better outcomes: annual review of the current year's tax picture, current year's planning objectives, and available withdrawal sources, choosing the source that best fits both. The framework is flexible. The discipline is annual.
For the bigger picture of how withdrawal order fits into the broader tax planning framework, see mypillar guide on how to plan a tax-efficient retirement in Ohio.
At Blue Advisors, we work with Columbus-area retirees and pre-retirees to develop and review withdrawal strategies as part of a coordinated retirement tax plan. We work alongside our clients' tax professionals rather than replacing them — withdrawal strategy benefits most when an advisor and tax professional are working from the same picture.
Schedule a conversation: If you're an Ohio retiree or pre-retiree thinking through retirement withdrawal strategy, you can book an introductory call here: calendly.com/jimblue/blue-advisors-meeting.
By James Blue, Fee-Only Advisor | Blue Advisors
James Blue is the founder of Blue Advisors, a fee-only registered investment advisory firm based in Columbus, Ohio, serving retirees, pre-retirees, and busy professionals across Central Ohio and nationally.
This content is provided for informational and educational purposes only and should not be construed as personalized investment, tax, or legal advice. Retirement withdrawal strategy is highly individual, and the right approach depends on each household's specific tax situation, income picture, and planning goals. Tax laws and rules change frequently, and individual situations vary significantly. The views expressed are those of the author as of the date published and are subject to change without notice. Blue Advisors is a fee-only registered investment advisory firm and is not a tax preparation firm or law firm. Readers should consult a qualified tax professional, the IRS, the Ohio Department of Taxation, and where applicable an attorney before making tax or financial decisions. Advisory services are offered only pursuant to a written advisory agreement and to clients in the State of Ohio, the Commonwealth of Pennsylvania, and other jurisdictions where Blue Advisors is properly registered or exempt from registration. Past performance is not indicative of future results.