Which Account Should You Draw From First?

Your advisor helps you figure out how much you can spend in retirement. But which account you take that money from, and in what order, is a separate question. Most retirement plans never explicitly answer it.

Most retirees think of their savings as one pool of money. In practice, it is three pools, each taxed differently, each growing at a different rate, and each interacting differently with Social Security, Medicare premiums, and required minimum distributions. The order in which you draw from them determines how much of your own money you actually keep.

New research from the TIAA Institute and Nuveen, published in June 2026, found that only 22% of individuals have given serious thought to how they will withdraw their savings in retirement, and nearly half could not correctly answer a single question about the topic. That gap is not a minor oversight. Research from multiple sources, including T. Rowe Price, Morningstar, and the Financial Planning Association, consistently shows that thoughtful withdrawal sequencing can save households tens of thousands of dollars in unnecessary taxes over a 20-year retirement. Not from better investments. From the order in which perfectly good accounts are tapped.

The Three Buckets Most Households Bring Into Retirement

Before sequencing can be discussed, the three account types need to be clearly understood. They are taxed differently at the time of contribution, during growth, and at withdrawal. That difference is what makes the order matter.

Bucket	Account Types	Tax at Withdrawal	RMD Required?
Taxable	Brokerage accounts, savings, CDs, money market	Capital gains rates on growth (0%, 15%, or 20%); ordinary income on interest and dividends	No
Tax-Deferred	Traditional IRA, 401(k), 403(b), SEP-IRA, SIMPLE IRA	Ordinary income tax on the full withdrawal amount	Yes, beginning at age 73
Tax-Free	Roth IRA, Roth 401(k), Health Savings Account	No tax on qualified withdrawals; no tax for heirs	No (Roth IRA); Roth 401(k) subject to RMDs unless rolled to Roth IRA

Most households bring all three buckets into retirement in some combination. The household with only a traditional 401(k) has less flexibility but also less complexity. The household with all three has significant choices, and those choices have real dollar consequences.

The Default Sequence Most People Follow, and the Problem It Creates

The default withdrawal sequence most people follow, often without consciously deciding to: draw from taxable accounts first, then tax-deferred when taxable runs out, then Roth last. Most people treat the Roth as a last resort to be preserved as long as possible.

The logic is intuitive. Taxable accounts are taxed on growth each year whether you withdraw or not. Tax-deferred and Roth accounts grow without annual tax drag. So pulling from taxable first gives the sheltered accounts more time to compound.

The problem is what happens at the other end. By leaving the traditional IRA and 401(k) untouched through the early years of retirement, the balance continues to grow. At age 73, required minimum distributions begin, and the IRS requires withdrawals regardless of whether you need the money. If the balance has grown substantially, those forced withdrawals can be large. A $900,000 IRA at age 73 produces a first-year required withdrawal of approximately $34,000. Combined with Social Security, that alone can push total income into the 24% bracket, trigger Medicare premium surcharges, and increase the taxable portion of Social Security benefits, all at the same time.

What the Research Actually Recommends

The research on this topic is both consistent and underappreciated. Rather than fully depleting one account type before touching another, the evidence points toward a more dynamic approach that adjusts sequencing based on the current tax environment, available brackets, and the interaction with other income sources.

T. Rowe Price’s retirement income research shows that households who coordinate withdrawals across all three buckets in proportion to their tax situation may reduce lifetime taxes and extend portfolio longevity meaningfully. The key difference from the conventional approach: they do not exhaust accounts in a fixed order. Their analysis found that selectively drawing from tax-deferred accounts in the early years of retirement is one of the highest-value adjustments available to most retirees. The goal: fill lower tax brackets before RMDs and Social Security compound the taxable income picture.

Morningstar’s Christine Benz has written that it will often make sense to pull from multiple account types during each year of retirement, rather than draining one completely before touching the next. The logic is that drawing from multiple buckets each year keeps your taxable income more stable. That stability tends to produce a lower lifetime tax bill than the large spikes that happen when one account is drained completely and the next one is opened.

A peer-reviewed analysis published in the Journal of Financial Planning found that drawing enough from traditional accounts to fully use low tax brackets in early retirement produced the highest final account balance across nearly all scenarios tested. The researchers called this approach the most tax-efficient sequence available to most households. The conventional sequence, by contrast, was never the optimal approach in these studies.

Three Key Interactions That Change the Calculus

Withdrawal sequencing does not exist in isolation. It interacts with three other income systems in ways that can significantly change the right answer for any individual household.

1. Social Security taxation

Up to 85% of Social Security benefits can become taxable income. The threshold is based on a formula: add up your other income and half of your Social Security benefit. If that total exceeds $34,000 for a single filer or $44,000 for a married couple, most of your Social Security becomes taxable. Traditional IRA and 401(k) withdrawals count toward this calculation. Roth withdrawals do not. In years where a retiree is near these thresholds, the choice of which account to draw from can determine whether a meaningful portion of Social Security is taxed or untaxed.

2. Medicare premium surcharges

Medicare Part B and Part D premiums go up for higher-income households. The surcharge is based on your income from two years earlier. For 2026, the extra charge kicks in above $109,000 for individuals and $218,000 for married couples filing jointly. A large traditional IRA withdrawal or a sizable Roth conversion in one year can trigger a premium increase two years later that persists for the entire year. Roth withdrawals do not count toward these Medicare surcharges. Managing the size of taxable withdrawals in the years before and during early Medicare can reduce the premium exposure significantly.

3. The Medicare premium trap at ages 63 and 64

This is one of the most underappreciated timing interactions in retirement planning. Income at age 63 determines Medicare premiums at age 65. Income at age 64 determines premiums at age 66. A retiree who takes a large IRA withdrawal or completes a large Roth conversion at 63 or 64 without considering the downstream effect may face higher Medicare costs in the first two years of eligibility. Planning for the two years before Medicare enrollment is as important as planning for the enrollment itself.

What Changes in the Current Environment

The Federal Reserve’s June 2026 projections shifted from an expectation of rate cuts to a lean toward rate hikes, a reversal driven by persistent inflation above 4%. That shift does not change the fundamental mechanics of withdrawal sequencing, but it adds urgency to the planning question for two specific reasons.

First, rising rates affect the income generated by taxable accounts, particularly those holding CDs, money market funds, and bonds. Higher interest income in taxable accounts increases your total taxable income and can affect both Social Security taxation and Medicare premium surcharges. A withdrawal sequence that worked cleanly at 2% interest rates may produce different tax outcomes at 4% to 5% rates.

Second, rate uncertainty itself is a reason to build withdrawal flexibility into a plan rather than locking into a fixed sequence. A plan that draws proportionally from multiple buckets each year can adjust to changing income levels more smoothly than one that is committed to draining accounts in a predetermined order.

What Getting This Right Actually Takes

Getting withdrawal sequencing right is not a one-time decision. It is an annual review. The right answer this year may not be the right answer next year if income changes, tax law shifts, or one account grows faster than expected. The households who manage this well share a few common characteristics.

They know their current marginal tax bracket. They have estimated what their required withdrawals will be at age 73 based on current balances. They have modeled the Social Security taxation thresholds and know how close their income is to them. And they have had an explicit conversation with an advisor about the order of withdrawals, not just the total amount.

The households who do not manage it well are not making bad investment decisions. They are simply drawing from accounts in whatever order feels natural, without a plan, and discovering the tax consequences later rather than earlier.