Where Should You Pull Funds From First in Retirement? (Avoid This Costly Tax Mistake)

You need $20,000 for a family trip, a new roof, or another large retirement expense. You have plenty of money in your IRA, so taking $20,000 from it seems like the simple answer. But the tax cost can reach beyond the withdrawal itself.

A traditional IRA withdrawal generally adds ordinary income. That extra income can also cause more of your Social Security to become taxable and can move your income closer to a Medicare IRMAA threshold.

In some situations, a $20,000 withdrawal can increase taxable income by more than $20,000 because additional Social Security benefits become taxable too.

That is why your retirement withdrawal order matters.

First, Separate Your Retirement Money Into 3 Tax Buckets

Once your paycheck stops, you have to build a replacement paycheck from the assets you spent decades saving.

Most retirees have money spread across three main tax buckets.

Traditional IRA distributions are generally taxable to the extent they represent deductible contributions and untaxed earnings. Qualified Roth distributions can generally come out free of federal income tax when the applicable requirements have been met.

Then you may have fixed income sources such as Social Security, a pension, annuity payments, rental income, or part time work.

Suppose you want $90,000 for the year and Social Security provides $45,000. Your investments need to supply roughly another $45,000 before considering the tax needed to support that spending.

The mistake is assuming all $45,000 should automatically come from whichever account has the largest balance.

Different dollars can create very different tax results.

Taking $45,000 from a traditional IRA could increase ordinary income by roughly the full taxable withdrawal. Selling $45,000 from a brokerage account could create much less taxable income if much of the sale represents your original investment rather than gains.

A qualified Roth withdrawal could produce no additional federal taxable income at all.

That difference gives you control.

Watch These 3 Tax Traps Before Taking Another Withdrawal

You cannot choose a smart retirement withdrawal order without looking at the tax thresholds surrounding it.

Three deserve special attention.

1. Social Security Can Become More Taxable

Social Security has its own federal taxation formula.

The IRS generally looks at half of your Social Security benefits plus your other income, including tax exempt interest. This figure is often called combined income or provisional income in retirement planning discussions.

For married couples filing jointly:

For single filers, the comparable key levels are $25,000 and $34,000.

Here is the part that catches retirees.

The IRS is not taxing your Social Security at an 85% tax rate. Instead, as much as 85% of the benefit can become part of taxable income.

Suppose another traditional IRA withdrawal raises your other income. That withdrawal can be taxable itself while also causing another portion of Social Security to enter taxable income.

That is one reason the effective tax cost of an IRA withdrawal can sometimes feel much larger than your tax bracket suggests.

2. Medicare Can Charge More When Income Rises

Medicare creates another important line to watch.

Higher income beneficiaries can pay an Income Related Monthly Adjustment Amount, commonly called IRMAA, on Medicare Part B and Part D.

For 2026, the standard Part B premium is $202.90 per month. The first IRMAA tier starts when modified adjusted gross income is above $109,000 for an individual filer or above $218,000 for a married couple filing jointly. At that first tier, the 2026 Part B premium rises to $284.10 per month per person. Higher tiers cost more.

And here is what makes planning tricky.

Medicare generally uses an older tax return. The Social Security Administration says 2026 IRMAA is generally based on the federal return filed in 2025 for tax year 2024.

So a high income event can affect Medicare later.

Large IRA withdrawals, large Roth conversions, investment gains, and property sales can therefore deserve extra attention once Medicare is part of your plan.

Certain life changing events can allow an IRMAA determination to be reconsidered, so a higher premium is not always permanent.

3. Required Minimum Distributions Can Reduce Your Choices

Traditional retirement money does not stay sheltered forever.

Under current law, many retirees begin required minimum distributions at age 73. SECURE 2.0 raises the applicable age to 75 for later birth groups beginning in 2033.

Once RMDs begin, part of your withdrawal decision is made for you.

That can become a problem if you enter your 70s with a very large traditional IRA and also receive substantial Social Security or pension income.

Your RMD adds ordinary income. That income may cause more Social Security to become taxable and can contribute to an IRMAA calculation.

This is why retirement tax planning often starts years before the first RMD.

Which Retirement Account Should You Withdraw From First?

You may have heard this simple rule:

Spend taxable accounts first, traditional retirement accounts second, and Roth accounts last.

That can be reasonable in some situations. But following it blindly can create another problem.

Suppose you retire at 62 with a large traditional IRA and delay Social Security. If you spend only brokerage money for eight years, your tax deferred account could continue growing untouched.

Then Social Security starts. Later, RMDs arrive.

You may discover that the years when you could have withdrawn IRA money at relatively low tax rates are gone.

A better retirement withdrawal order often looks more like this:

1. Use cash and taxable investments for part of your spending.
2. Take enough traditional IRA income or complete Roth conversions to use a chosen tax bracket when appropriate.
3. Coordinate Social Security claiming with the larger retirement plan.
4. Keep Roth money available for years when another taxable withdrawal would cause unwanted tax or Medicare consequences.

This is called tax diversification in practice.

You are choosing the source of each dollar rather than letting one account carry the entire burden.

Why Taxable Accounts Can Be Useful Early

A brokerage withdrawal is not automatically the same as taxable income.

Suppose you sell $20,000 of investments that originally cost you $15,000. Your economic withdrawal is $20,000, but the realized gain is $5,000.

The tax treatment depends on the investment, holding period, other gains and losses, dividends, and your total taxable income.

For 2026, married couples filing jointly can potentially fall within the 0% federal long term capital gains rate while taxable income remains within the applicable $98,900 ceiling. The threshold for individual filers is $49,450.

That does not mean a married couple can automatically realize $98,900 of gains tax free. Ordinary taxable income uses part of the same taxable income space.

Still, taxable accounts can be powerful retirement income tools.

Why Traditional IRA Money Should Not Always Wait Until RMD Age

Taking money from an IRA creates tax today.

But sometimes paying a modest amount of tax today can reduce larger taxable distributions later.

That is especially worth examining during the years after work ends but before Social Security and RMDs have filled your tax return with income.

You are trying to compare two numbers:

The tax rate on the withdrawal today versus the likely tax cost if the money remains in the account until later.

Nobody knows future tax rates with certainty. That is why projections matter more than simple rules.

Why Roth Money Is So Valuable

Qualified Roth withdrawals generally do not enter gross income. Roth IRAs also do not require lifetime RMDs for the original owner.

That gives a Roth IRA a second purpose beyond tax free growth.

It becomes a tax control account.

Suppose you need $30,000 for a roof and a new car in one year. Taking the whole amount from a traditional IRA could raise ordinary income.

A qualified Roth withdrawal may let you pay the expense without creating that same increase in gross income.

That flexibility can be extremely useful after Social Security and Medicare enter the picture.

Your 60s May Be the Best Time to Shrink a Large IRA

The years immediately after retirement can create an unusual opportunity.

Your salary may be gone. You might be delaying Social Security. RMDs may still be years away.

Your taxable income can temporarily fall.

For 2026, married couples filing jointly pay 10% on taxable income through $24,800. The 12% bracket then runs through $100,800. The 22% bracket extends from there through $211,400.

The standard deduction for married couples filing jointly is $32,200 for 2026 before considering other deductions for which they may qualify.

People age 65 and older may also qualify for a temporary enhanced senior deduction of up to $6,000 per qualifying person for tax years 2025 through 2028. The deduction begins phasing out when modified adjusted gross income exceeds $75,000 for individuals or $150,000 for joint filers.

Those numbers make actual tax planning more nuanced than simply looking at the top of a bracket.

Consider Filling a Tax Bracket on Purpose

Suppose a retired couple has very little taxable income this year but a $900,000 traditional IRA.

They could celebrate having almost no federal income tax.

But that may be a missed opportunity.

Instead, they could consider withdrawing some traditional IRA money or converting some traditional IRA assets to Roth.

The conversion creates taxable income now. In exchange, the converted amount moves into a Roth environment where qualified future withdrawals may be tax free.

The goal is not:

Pay no taxes this year.

A more useful goal may be:

Pay taxes at acceptable rates across your entire retirement.

That difference matters.

Do Not Convert Just Because You Can

Roth conversions have downsides.

A large conversion can increase current federal income tax. It can affect Medicare IRMAA later. It may change deductions or credits tied to income. State income taxes can change the result too.

And once money has been converted, you need cash available to pay the tax without damaging the rest of the plan.

That is why conversions should be calculated, not guessed.

See How the Withdrawal Order Changes for a Retired Couple

Consider Tom and Linda.

Tom is 67. Linda is 65.

They recently retired and want about $90,000 a year available for living costs and travel.

Their savings look like this:

Assume they have no pension.

Their future Social Security benefits would provide a major part of their basic retirement income, but Tom plans to wait until age 70 to claim his benefit.

These numbers are educational examples rather than a personalized recommendation.

Strategy A: Spend the Brokerage Account and Ignore the IRA

Tom and Linda could fund their early retirement almost entirely from the $500,000 brokerage account.

That might keep ordinary taxable income low for several years.

It sounds attractive.

But their $700,000 traditional retirement balance could keep growing. Eventually RMDs begin.

By then, Social Security will already be filling part of their income picture.

That could leave them taking larger taxable IRA distributions at the same time that Social Security taxation and Medicare thresholds matter more.

The low income years they had in their 60s would be gone.

Strategy B: Blend Brokerage Money With Traditional IRA Income

Instead, Tom and Linda could use taxable investments for much of their spending while intentionally realizing some traditional IRA income each year.

They could also consider converting selected traditional IRA amounts to Roth.

The exact conversion amount would depend on their deductions, investment gains, tax basis, state taxes, Medicare status, Social Security timing, charitable giving, and other income.

But the idea is simple.

They use part of their lower income years now instead of saving every traditional retirement dollar for later.

Why This Can Help

Each dollar converted reduces the traditional account that can produce future RMDs.

The Roth balance grows larger.

Later, when Social Security is active, Tom and Linda have more flexibility.

Suppose they suddenly need $35,000 for home repairs.

Taking $35,000 from their traditional IRA would add ordinary income.

Taking a qualified $35,000 Roth IRA withdrawal generally would not add federal gross income.

They can choose the account based on that year’s tax picture.

But Do Not Promise Huge Lifetime Savings

You will sometimes see retirement examples claiming that changing withdrawal order creates hundreds of thousands of dollars in guaranteed savings.

That claim cannot be made from account balances alone.

The result depends on future investment returns, longevity, tax law, Social Security claiming, Medicare costs, spending, state taxes, inheritance goals, and future tax rates.

A coordinated withdrawal plan can reduce taxes in the right situation, but the amount should come from a full projection rather than a dramatic guess.

That is the safer way to make this decision.

How RMDs Change the Strategy Later in Retirement

Once required minimum distributions begin, your withdrawal order changes.

You must first satisfy the required distribution from the accounts covered by the RMD rules.

That income can become part of the tax return regardless of whether you actually need the money for spending.

Traditional IRA withdrawals after age 59½ generally avoid the additional early distribution tax, but the taxable portion still generally enters ordinary income.

After taking an RMD, you can decide where additional spending money should come from.

You might use:

• Taxable investments if realizing the gains fits the tax plan
• Additional IRA withdrawals if you still have room in the tax bracket you are targeting
• Qualified Roth withdrawals when you want additional spending without adding the same amount to gross income

Your Roth can become especially useful during unusually expensive years.

Think about a new vehicle, major home renovation, family gift, or large vacation.

If taking another $40,000 from an IRA would push income into an unwanted range, Roth money may provide another source.

There is another important difference.

Traditional IRAs generally require lifetime RMDs once the applicable age is reached. Roth IRAs generally do not require distributions during the original owner’s lifetime.

That can make Roth assets useful for both late retirement flexibility and estate planning.

Do Not Make These 5 Retirement Withdrawal Mistakes

1. Emptying One Account Before Touching the Others

Retirement income planning is rarely as simple as taxable first, IRA second, Roth last.

Using several accounts together can give you more control over taxable income.

2. Avoiding IRA Withdrawals Just to Keep Today’s Tax Bill Tiny

A zero tax year may feel good.

But leaving a very large tax deferred balance untouched can increase future RMD exposure.

Compare taxes across many years instead of celebrating one unusually low tax return.

3. Making a Huge Roth Conversion Without Checking Medicare

A conversion adds previously untaxed traditional retirement money to income.

That may be reasonable from a lifetime tax perspective, but the Medicare impact still needs to be checked.

For 2026 Medicare premiums, the first IRMAA threshold is above $109,000 for individuals and above $218,000 for married couples filing jointly.

Because Medicare commonly uses earlier tax return information, you need to think ahead rather than waiting until the premium changes.

4. Treating the 0% Capital Gains Rate Like Unlimited Free Income

The 0% long term capital gains rate is valuable.

But it applies within taxable income limits, and ordinary income takes up part of that space.

For 2026, the top of the 0% capital gains range is $98,900 of taxable income for married couples filing jointly and $49,450 for most single filers.

Run the numbers before selling a large position.

5. Spending Roth Money First Because It Has No Current Tax Bill

Roth money looks tempting because qualified withdrawals can be tax free.

But that same feature makes Roth money valuable later when you need control over taxable income.

Using it too quickly can remove one of your best sources of flexible retirement cash.

There are situations where spending Roth first makes sense. A retiree expecting lower future tax rates, someone with estate planning concerns, or a household with unusual account balances may reach a different answer.

This is why there is no universal withdrawal order.

Austin Becker

I’m Austin Becker, an advocate for living life with intention and resilience. I write for men who are actively navigating life’s major transitions, tackling the realities of reinvention and finding renewed purpose with grit and honesty. I believe that personal growth doesn’t have a deadline it’s about continuously gearing up for the chapters that matter most.
Through my work, I aim to strip away the clichés of modern manhood, offering practical, no-nonsense insights on health, mindset, and legacy for those who want to move forward with strength and clarity.