Tax-Efficient Withdrawal Order in Retirement

You have three types of accounts — taxable brokerage, traditional IRA/401(k), and Roth. Which one you draw from first, and in what proportion, can change your lifetime tax bill by $50,000 to $200,000 or more. This guide walks through the 2026 tax math and the scenarios where the textbook order gets overridden.

Why the sequence matters

Consider a 67-year-old couple with $2.2M in total retirement savings: $400K in a joint taxable brokerage, $1.5M in a traditional 401(k)/IRA, and $300K in a Roth IRA. They need $95,000/year in spending. If they pull everything from the traditional IRA, they pay ordinary income tax on every dollar above the standard deduction. If they mix sources strategically, much of their income stays in the 12% bracket and some taxable gains come out at 0%.

The difference isn't just this year's tax bill — it's the trajectory of future RMDs. Drawing more from traditional accounts now, while in a lower bracket, reduces the balance that will generate mandatory distributions at age 73 or 75. Get the order wrong for five years and RMDs can stack on top of Social Security and push you into the 22–24% bracket for the rest of retirement.

The three buckets and their 2026 tax treatment

Taxable brokerage account

Dividends and interest taxed as ordinary income (or qualified dividends at long-term capital gains rates)
Appreciation on stocks and funds taxed at 0%, 15%, or 20% when sold, depending on total taxable income
2026 0% LTCG threshold: $49,450 taxable income for single filers; $98,900 for married filing jointly¹
Realized gains count toward MAGI — which affects Social Security taxation, IRMAA surcharges, and income-based deductions
Estate benefit: heirs receive a stepped-up basis at death, eliminating embedded capital gains entirely

Traditional IRA / 401(k)

Every dollar withdrawn is ordinary income — taxed at your marginal federal bracket, with no preferential rate
Also raises MAGI: affects the taxable portion of Social Security, IRMAA Medicare surcharges, and various deduction phaseouts
Subject to RMDs starting at age 73 (born 1951–1959) or 75 (born 1960+) under SECURE 2.0 § 107³
Heirs who inherit must generally fully distribute within 10 years — those distributions are ordinary income to them

Roth IRA / Roth 401(k)

Qualified distributions are 100% federal-tax-free and don't appear in MAGI⁴
No lifetime RMDs (Roth 401(k) lifetime RMDs were eliminated by SECURE 2.0 starting 2024)
Heirs still face the 10-year distribution window, but all distributions are tax-free to them
Best preserved for late retirement, high-income years, and estate transfer

The critical asymmetry: Roth distributions don't appear in MAGI. Traditional IRA distributions do. This means drawing down traditional IRA balances in low-income years — before Social Security and RMDs stack up — often produces a lower lifetime tax bill than holding traditional balances and relying on Roth later when income is higher.

The textbook withdrawal order

The classic sequence, appropriate for most retirees in their 60s before RMDs begin:

Take all RMDs. Non-negotiable once you reach age 73/75. Missing an RMD triggers a 25% excise tax on the missed amount, reduced to 10% if corrected within 2 years.
Draw from taxable accounts next. Long-term gains are taxed at preferential rates — 0% if your taxable income is under $98,900 (MFJ). Taxable accounts also get the step-up basis at death, so assets you plan to leave to heirs are sometimes better held than sold.
Draw from traditional IRA/401(k) to fill your tax bracket. Don't leave low brackets empty — see the bracket-fill section below.
Draw from Roth last. Preserve tax-free growth as long as possible; use Roth when traditional distributions would push you into a higher bracket or over an IRMAA threshold.

This order saves tax two ways: (1) it captures the 0% LTCG rate on taxable gains, and (2) it preserves Roth's tax-free growth for years when income is higher or healthcare costs spike.

The bracket-fill technique — the most valuable move most retirees miss

In 2026, the 12% federal bracket tops out at $100,800 of taxable income for married couples ($50,400 for single filers).¹ With the $32,200 standard deduction for MFJ couples, the equivalent gross income limit before the 22% bracket starts is roughly $133,000.

If your RMDs, Social Security, and other income leave you below that ceiling, you have room to pull additional dollars from your traditional IRA at 12% — instead of waiting until RMDs force distributions at 22% or higher. This is the same logic behind Roth conversions: use the low-bracket years while they exist.

Example — bracket fill: A 69-year-old couple has $48,000 combined Social Security (85% taxable = $40,800), a $12,000 pension, and no RMDs yet. Total income: $52,800. After the $32,200 standard deduction: $20,600 taxable income — deep in the 12% bracket. They have room for another $80,200 in traditional IRA distributions before hitting the 22% bracket ($100,800 − $20,600). At 12% now versus 22–24% after RMDs begin at 73, the savings per dollar withdrawn early can be 10–12 cents on the dollar. Over 4 pre-RMD years, they could draw or convert $320K+ at favorable rates.

Use the Roth conversion calculator to model whether to withdraw and spend those traditional IRA dollars or convert them to Roth (which has the additional benefit of reducing future RMDs).

IRMAA: how withdrawal order affects your Medicare premiums

IRMAA surcharges are assessed based on your MAGI from 2 years prior. Traditional IRA distributions, Roth conversions, and realized capital gains all count toward MAGI. Roth distributions do not. QCDs do not.

2024 MAGI	Single/MFS	Married (MFJ)	Annual surcharge (per person)
No surcharge	≤ $109,000	≤ $218,000	$0
Tier 1	$109,001–$137,000	$218,001–$274,000	~$1,148/year
Tier 2	$137,001–$171,000	$274,001–$342,000	~$2,885/year
Tier 3	$171,001–$205,000	$342,001–$410,000	~$4,620/year

Part B base premium $202.90/month (2026, CMS). Surcharges are per Medicare enrollee — a couple pays double the per-person amounts.²

The IRMAA thresholds are cliffs, not gradients. A single year where MAGI crosses a threshold — from a large Roth conversion, a big IRA distribution, or an appreciated stock sale — triggers the surcharge for the following two years. If your projected MAGI is near a threshold, drawing from Roth instead of traditional in that year can prevent a $1,148–$4,620 annual hit per person for 2 future years.

Use the IRMAA calculator to see your 2026 tier and how far you are from the next threshold.

Estate planning changes the calculus

If your goal includes leaving assets to heirs, the standard withdrawal order may not be optimal:

Taxable accounts get a step-up in basis at death. Appreciated stock passed to heirs resets to current market value — the embedded gain is eliminated. This argues for holding appreciated taxable positions and drawing from traditional IRA during your lifetime instead of selling.
Roth is the best asset to inherit. Your heirs face the 10-year distribution rule, but all distributions are tax-free to them. If your children are in the 32%+ bracket, leaving them Roth instead of traditional IRA can save them six figures in income tax.
Traditional IRA is the worst asset to inherit if your heirs will be in a high bracket. Every dollar they distribute over 10 years is ordinary income. Spend this down during your lifetime — or convert it to Roth — if you expect your heirs will be in a higher bracket than you are now.

Under OBBBA (enacted July 2025), the estate tax exemption is permanently $15M per person, indexed for inflation.⁵ For most retirees, estate taxes are not the concern — income taxes on inherited IRAs are.

When to deviate from the standard order

Situation	Adjustment
MAGI near IRMAA threshold	Use Roth instead of traditional to avoid the cliff; consider a QCD to reduce MAGI
Low-bracket years before RMDs begin	Pull more from traditional (bracket-fill) or do Roth conversions — don't leave the bracket empty
Large appreciated taxable position you plan to leave to heirs	Hold for step-up in basis; draw from traditional IRA instead of selling
High-income heirs who will inherit	Accelerate traditional IRA drawdown or conversions now; leave Roth to heirs
Early retirement before Social Security (ages 55–62)	Lowest-bracket window of your life — prime time for aggressive traditional drawdown or Roth conversion
Charitable goals	QCDs from IRA (up to $111,000/year at age 70½+) satisfy RMD, reduce MAGI, and cost nothing if you were going to donate anyway⁶

Common mistakes

Drawing Roth first "to preserve the IRA." Spending down Roth in early retirement wastes years of tax-free compounding and leaves you relying on fully-taxable traditional distributions in your 80s when healthcare costs are highest.
Taking only the RMD and nothing more. If you're in the 12% bracket with room left, you're leaving a low-rate window unused. The extra dollars you don't draw now will be forced out at 22%+ when RMDs begin.
Ignoring IRMAA cliffs. A $2,000 larger Roth conversion or capital gain can cost $1,148+ in Medicare premiums that year — more than the marginal tax on the income itself.
Selling appreciated taxable positions when you're above the 0% LTCG threshold. If your taxable income is under $98,900 (MFJ), long-term gains are free. Plan asset sales to fall within the 0% window by managing other income sources.
Not coordinating Social Security timing with account drawdown. Claiming Social Security at 62 while also drawing heavily from traditional IRA can stack income unexpectedly. Delaying SS to 70 and living on IRA or taxable distributions for 8 years often produces a lower lifetime tax and a higher guaranteed income floor.

The bottom line: The optimal withdrawal sequence isn't a fixed rule — it's an annual optimization across your tax brackets, IRMAA thresholds, RMD projections, estate goals, and Social Security timing. Most retirees benefit from having a specialist model 10–20 years forward, not just the current year, to avoid locking in a high-tax path.

Sources

IRS Revenue Procedure 2025-32. 2026 tax brackets: 12% tops at $50,400 single / $100,800 MFJ (taxable income); standard deduction $16,100 single / $32,200 MFJ; 0% LTCG threshold $49,450 single / $98,900 MFJ.
CMS — 2026 Medicare Parts A & B Premiums and Deductibles. Base Part B premium $202.90/month; IRMAA thresholds: Tier 1 $109,000 single / $218,000 MFJ; surcharges per enrollee per month.
SECURE 2.0 Act §§ 107, 325. RMD age 73 (born 1951–1959) / 75 (born 1960+); Roth 401(k) lifetime RMDs eliminated starting 2024.
IRS Publication 590-B — Distributions from IRAs. Roth IRA qualified distribution requirements: 5-year rule and age 59½. Qualified distributions excluded from gross income.
One Big Beautiful Bill Act (OBBBA, July 2025). Estate and gift exemption permanently set at $15M per person, indexed for inflation; eliminated the TCJA sunset provision.
IRC § 408(d)(8) — Qualified Charitable Distributions. Annual QCD limit $111,000 in 2026 (indexed per SECURE 2.0). Available at age 70½. Excluded from gross income and MAGI.

Tax values verified against IRS Rev. Proc. 2025-32, CMS.gov, and SSA.gov for 2026. Withdrawal sequencing strategy should be reviewed annually as income, legislation, and individual circumstances change. Values current as of April 2026.