The smartest way to draw down retirement savings is to pull from taxable brokerage accounts first, tax-deferred accounts like traditional IRAs and 401(k)s second, and Roth accounts last. This sequence keeps your taxable income lower in early retirement, delays required minimum distributions, reduces the risk of Medicare premium surcharges, and lets your Roth savings grow tax-free for as long as possible. Getting the order right isn’t just a paperwork detail — it can mean tens of thousands of dollars more in your pocket over a 20- or 30-year retirement.
Why does the order you withdraw money matter so much?
Every dollar you take out of a traditional IRA or 401(k) is counted as ordinary income in the year you take it. That affects your federal tax bracket, how much of your Social Security benefit gets taxed, and whether you’ll owe Medicare IRMAA surcharges (more on those in a moment). By contrast, withdrawals from a Roth IRA are completely tax-free in retirement, and money sitting in a taxable brokerage account is only taxed on the gains, not the full amount. So the sequence you follow shapes your tax bill every single year.
Think of it like a chess game. Each move today changes what’s available — and what it costs — several moves from now.
What is the classic withdrawal sequence for retirees?
Most financial planners recommend this three-step order:
- Taxable accounts first — Savings accounts, brokerage accounts, CDs, and money market funds. Gains here are taxed at the lower long-term capital gains rate (0%, 15%, or 20% depending on income) rather than ordinary income rates, which can reach 22%, 24%, or higher.
- Tax-deferred accounts second — Traditional IRAs, 401(k)s, 403(b)s. Every dollar withdrawn is fully taxable as ordinary income. Delaying these withdrawals gives the money more time to grow, but don’t wait too long — see the RMD section below.
- Roth accounts last — Roth IRAs and Roth 401(k)s. These grow tax-free and, in the case of Roth IRAs, have no required minimum distributions during your lifetime. Keeping these accounts intact as long as possible is like holding a tax-free emergency fund.
This isn’t a rigid law — there are good reasons to adjust it — but it’s the right starting framework for most people.
When should I claim Social Security to maximise my benefit?
Claiming Social Security at age 70 gives you the largest possible monthly check — up to 32% more than claiming at your full retirement age (66 or 67 for most people today), and as much as 77% more than claiming at 62. Delaying is essentially buying a guaranteed inflation-adjusted income stream at a very favourable rate.
For withdrawal sequencing, this matters because the years between retirement and age 70 are often your lowest-income years — a golden window to make strategic Roth conversions (moving money from a traditional IRA to a Roth IRA and paying tax now at a lower rate) or to draw down taxable accounts before RMDs and Social Security kick in together.
How much of Social Security is taxable?
Up to 85% of your Social Security benefit can be taxed at the federal level — but whether it is depends on your “combined income” (adjusted gross income + non-taxable interest + half of your Social Security). If that figure exceeds $34,000 for a single filer or $44,000 for a married couple filing jointly, up to 85% of your benefit is taxable. Staying below these thresholds through careful withdrawal planning can meaningfully reduce your annual tax bill.
This is exactly why sequencing matters: taking large traditional IRA withdrawals on top of Social Security can push you into a higher bracket and trigger taxes on benefits you might otherwise have sheltered.
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What are the RMD rules for 2025 and 2026?
Required minimum distributions (RMDs) are the IRS’s way of making sure you eventually pay taxes on money that grew tax-deferred. Under current law (the SECURE 2.0 Act), RMDs begin at age 73. The amount you must withdraw each year is calculated by dividing your account balance by an IRS life-expectancy factor.
For 2025 and 2026, the rules remain the same: RMDs start at 73, apply to traditional IRAs and most 401(k)s, and missing a distribution triggers a 25% penalty on the amount you should have withdrawn (reduced to 10% if corrected promptly). Importantly, Roth IRAs are still exempt from RMDs during the original owner’s lifetime — another reason to preserve them.
If you’re approaching 73, plan ahead. Large RMDs can spike your income unexpectedly, pushing you into a higher bracket and triggering Medicare surcharges. Doing small Roth conversions in your 60s can reduce the size of future RMDs.
How do I avoid Medicare IRMAA surcharges?
IRMAA stands for Income-Related Monthly Adjustment Amount — it’s an extra charge added to your Medicare Part B and Part D premiums when your income exceeds certain thresholds. For 2025, the standard Medicare Part B premium is $185.00 per month, but it can jump to $259.00, $370.00, or higher depending on your income from two years prior.
The 2026 thresholds haven’t been finalised yet, but IRMAA kicks in for individuals with modified adjusted gross income above roughly $106,000 (or $212,000 for married couples) based on your 2024 tax return. Every large IRA withdrawal, Roth conversion, or capital gain that bumps you over a threshold can cost a married couple an extra $1,000 or more in Medicare premiums the following year.
The antidote is income smoothing — spreading withdrawals and conversions across multiple years to stay just below the next IRMAA tier. Your tax-efficient withdrawal sequence should always have one eye on your Medicare costs.
What’s the smartest move for someone just entering retirement?
If you’ve just retired and aren’t yet taking Social Security or facing RMDs, you’re sitting in one of the most valuable tax planning windows of your life. Consider:
- Drawing from taxable accounts to cover living expenses, keeping income low.
- Running Roth conversions to fill up your current tax bracket without triggering IRMAA surcharges.
- Deferring Social Security toward age 70 if your health and savings allow it.
- Mapping out your RMD years so large forced withdrawals don’t catch you by surprise.
A fee-only financial planner (one who charges a flat fee rather than earning commissions) can model these scenarios using your actual numbers. Even a single planning session can pay for itself many times over.
Retirement income planning isn’t set-and-forget. Tax laws change, your health changes, and markets move. Revisiting your withdrawal strategy every year — especially after major tax law updates — keeps you ahead of costs that compound quietly in the background.
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Frequently Asked Questions
When should I claim Social Security to maximise my benefit?
Claiming Social Security at age 70 gives you the highest possible monthly benefit — up to 32% more than claiming at full retirement age and up to 77% more than claiming at 62. For most healthy retirees with adequate savings to bridge the gap, waiting until 70 is the highest-value move available to them.
How much of Social Security is taxable?
Up to 85% of your Social Security benefit can be subject to federal income tax. Whether it is depends on your combined income (AGI plus non-taxable interest plus half your Social Security benefit) — above $34,000 for singles or $44,000 for married couples, 85% of benefits become taxable. Careful withdrawal sequencing can help you stay below these thresholds.
What are the RMD rules for 2025 and 2026?
Under the SECURE 2.0 Act, required minimum distributions from traditional IRAs and 401(k)s begin at age 73 for both 2025 and 2026. The annual amount is based on your prior year-end account balance divided by an IRS life-expectancy factor. Missing an RMD triggers a 25% penalty, reduced to 10% if corrected quickly. Roth IRAs are exempt from RMDs during the owner’s lifetime.
How do I avoid Medicare IRMAA surcharges?
IRMAA surcharges are triggered when your modified adjusted gross income from two years prior exceeds set thresholds — roughly $106,000 for individuals in 2025. You can reduce exposure by spreading IRA withdrawals and Roth conversions across multiple years to stay below each threshold tier, and by timing large one-time income events carefully. Working with a tax professional to model your income two years out is the most reliable approach.
What is the Medicare Part B premium for 2025?
The standard Medicare Part B premium for 2025 is $185.00 per month per person. Higher-income beneficiaries pay more through IRMAA surcharges, which can push the monthly premium to $259.00, $370.00, $480.90, or higher depending on income. Keeping your retirement income below IRMAA thresholds through smart withdrawal sequencing can save a couple more than $1,000 per year in premiums.