Retirement Withdrawal Strategy: Which Accounts to Tap First

Most people think retirement planning ends when they stop working. The withdrawal sequence is just as important as the accumulation phase. Choosing the wrong order can cost $50,000–$150,000 in unnecessary taxes over a 25-year retirement. Here's the optimal strategy and when to deviate from it.

The standard withdrawal sequence

The conventional wisdom — and generally sound — order for drawing down retirement accounts:

1. Required Minimum Distributions (RMDs) first — mandatory once you reach 73. Not optional.
2. Taxable accounts (brokerage) — capital gains rates apply, often lower than ordinary income rates. Long-term gains: 0% if taxable income under $94,050 (married 2026), 15% up to $583,750.
3. Tax-deferred accounts (traditional 401k, traditional IRA) — withdrawals taxed as ordinary income. Deplete these before Roth to let Roth grow tax-free longer.
4. Roth accounts last — tax-free growth, no RMDs, best for legacy planning and high-need years.

Why RMDs can create a "tax bomb"

Required Minimum Distributions force withdrawals from tax-deferred accounts whether you need the money or not. If you've accumulated $2M in a traditional 401k and take no voluntary withdrawals before 73, your first RMD at 73 could be $77,000+ in a single year (based on IRS life expectancy tables). Combined with Social Security, this can push you into a higher bracket and trigger Medicare IRMAA surcharges.

Roth conversion strategy — the detail

Target: fill your current bracket without crossing into the next. In 2026:

• 12% bracket tops out at $89,075 (married filing jointly)
• 22% bracket tops out at $190,750 (married)

If your income is $50,000 in a low-income retirement year, you have room to convert $39,000 of traditional IRA to Roth at 12% ($50,000 + $39,000 = $89,000 — just under the limit). Repeat annually for 5–10 years to systematically reduce the traditional IRA balance and future RMD amounts.

Capital gains harvesting in the 0% bracket

If your taxable income is under $94,050 (married) or $47,025 (single) in 2026, you owe 0% federal tax on long-term capital gains. Retirees with significant brokerage accounts can sell appreciated assets, realize gains tax-free, and repurchase the same assets at a higher cost basis — a process called "tax gain harvesting." This reduces future taxable gains permanently.

RMD calculation and planning

RMDs are based on December 31 balance of the prior year. Missing an RMD triggers a 25% excise tax on the missed amount (reduced from 50% under SECURE 2.0). Always set calendar reminders.

Social Security timing affects the optimal sequence

Delaying Social Security to 70 while drawing from Roth or low-tax accounts early is a powerful strategy. It avoids income during the years Social Security benefits build 8%/year, and lets Roth accounts grow tax-free. For many retirees: draw taxable accounts ages 60–67, delay SS to 70, then layer SS + small RMDs + Roth for tax-efficient income in the 70s and 80s.