Taxes · 4 min read · Updated November 10, 2026

Tax-efficient withdrawal order in retirement

Illustrative examples, education not advice.

In plain words

Most retirees have money in more than one kind of account:

Taxable: brokerage accounts, savings, CDs. You pay tax on interest each year, and on gains when you sell, often at long-term capital gains rates.
Tax-deferred: traditional IRAs and 401(k)s. Every dollar out is ordinary income.
Tax-free: Roth IRAs, Roth 401(k)s, health savings accounts used for medical costs, and, in some plans, cash value life insurance accessed within the rules.

The withdrawal order is the plan for which bucket pays the bills each year.

The classic rule of thumb is: taxable first, then tax-deferred, then tax-free. It lets tax-advantaged accounts grow longer. It’s simple, and it beats random withdrawals. But it has a flaw. If you spend only taxable money in your early 60s, your income can be very low, wasting cheap tax brackets. Then RMDs arrive at 73 or 75 and push you into higher ones.

The better approach many planners use is bracket filling: each year, take enough from tax-deferred accounts (or convert to Roth) to fill up a low bracket on purpose, and use taxable or Roth money for the rest.

How it helps real people

The goal is to smooth your taxable income over your whole retirement instead of having a very low-tax decade followed by a high-tax one. That can:

lower your lifetime tax bill,
keep more of your Social Security untaxed in later years,
reduce the risk of Medicare income-related premium surcharges (2026 surcharges start above $109,000 single or $218,000 joint, based on income two years earlier),
and leave a better mix of accounts for a surviving spouse and heirs.

Wealthy families plan withdrawals the same way they plan investments: on purpose, year by year, with a tax projection.

A worked example

Illustrative. Sam and Priya, both 65, retire in 2026. They need $90,000 a year. They have $400,000 taxable, $1,000,000 in traditional IRAs and $200,000 in Roth IRAs. They’ll delay Social Security to 70.

Plan A, the rule of thumb. They spend only taxable money first. Their taxable income is tiny for about five years. When Social Security and RMDs start, their combined income jumps, and much of it lands in the 22% and 24% brackets.

Plan B, bracket filling. Each year from 65 to 70, they:

Withdraw or convert enough from their IRAs to bring taxable income near the top of the 12% bracket ($100,800 for married filing jointly in 2026), after their $32,200 standard deduction and the extra deductions for being 65 or over.
Spend taxable savings for the rest of their needs. Long-term gains in the 0% range ($98,900 of taxable income for couples in 2026) may come out with no federal tax, though gains stacked above that threshold are taxed at 15%.
Leave the Roth untouched, as a reserve for big one-time costs and as a tax-free gift to heirs.

By 75, their IRA is smaller, their RMDs are lower, and their tax bill is steadier across the decades. These numbers are illustrative only. Real results depend on returns, spending and future law.

Who it’s for

Retirees with money in at least two of the three buckets.
People with a gap between retiring and starting Social Security or RMDs.
Couples who want to protect a surviving spouse from higher taxes.

Who it’s not for

People with all savings in one account type. The order matters less, though Roth conversions can create a mix.
People whose income is already high from pensions or rental property, leaving little low-bracket room.

Risks and trade-offs

It takes a yearly projection. Brackets, deductions and thresholds change each year.
Paying tax earlier. Bracket filling means paying some tax sooner, which only pays off if later rates are higher.
Health insurance before Medicare. Higher income in your early 60s can reduce marketplace premium credits.
Legacy goals. If heirs are in low brackets, or charity will inherit IRAs, leaving pre-tax money may make sense.
Market timing. Selling taxable investments after a drop may be cheaper than drawing from an IRA, or the reverse.

Common mistakes

Following the rule of thumb on autopilot. It ignores cheap brackets in the early years.
Forgetting the step-up. Highly appreciated stock in a taxable account may be better left to heirs, who usually get a new basis at death.
Spending the Roth first. Tax-free money is often the most valuable to hold longest and to leave last.
Ignoring the 85% rule. Social Security taxation can make the real marginal rate on IRA withdrawals higher than your bracket.

FAQs

What’s the “tax torpedo”?

It’s the zone where each extra dollar of IRA income also makes more Social Security taxable. Your real marginal rate there can be much higher than your bracket. Bracket filling before benefits start can help avoid it.

Where does life insurance cash value fit?

In some plans it sits with tax-free money. Withdrawals up to basis and policy loans are generally not taxed if the policy isn’t a MEC and stays in force. Loans reduce the death benefit, so it’s usually a reserve, not the main income source.

It’s a separate decision. Delaying raises lifetime income; bracket filling in the gap years often pairs well with delaying.

What about my HSA?

Use it for medical costs tax-free at any age. After 65, non-medical withdrawals are taxed like an IRA but without penalty.

How often should I revisit the order?

Every year, ideally in the fall, before year-end withdrawals and conversions.

Your next step

Take the Wealth Strategy Score (/score/) to see how balanced your buckets are, then ask VeraLife (/#ask) to model a withdrawal order.

Education, not advice. Examples are illustrative. VeraLife.ai is not a registered investment adviser, broker-dealer or insurance agency.