Which Account Do You Spend First? A Pre-Retiree's Guide to Withdrawal Sequencing

Most retirement planning focuses on accumulation, but how you pull money out matters just as much as how you put it in. Spend from the wrong account in the wrong year and you can permanently raise your Medicare premiums, lose a health insurance subsidy, or hand a larger tax bill to a surviving spouse. The order of withdrawals is one of the highest-leverage tax decisions you'll make in your early retirement years.

The "Taxable First" Rule Is a Starting Point, Not a Law

Conventional wisdom says: spend taxable brokerage accounts first, let tax-deferred IRAs compound, and leave Roth accounts for last. That logic is sound when all else is equal. The problem is that all else is rarely equal.

Between roughly age 60 and 73, many retirees sit in an unusually low-income window. Wages have stopped, Social Security may not have started, and required minimum distributions haven't kicked in yet. Taxable portfolio income alone often leaves you in the 12% bracket, or lower. That gap is an opportunity.

If you have a $1.2 million traditional IRA and you spend only from taxable accounts for a decade, that IRA keeps growing. When RMDs begin at 73, the distributions may push $80,000 to $100,000 or more per year directly into ordinary income, potentially at 22% or 24%. The smarter move is often to deliberately pull from the IRA during the low-income years, or to do Roth conversions, to smooth the income curve before it gets forced on you.

Three Costs That Reward Early Planning

ACA premium subsidies. If you retire before Medicare eligibility at 65 and buy coverage on the exchange, your premium tax credit phases out as income rises above 100% of the federal poverty level. For a 62-year-old couple in 2026, crossing $80,000 in modified adjusted gross income can cost several hundred dollars a month in lost subsidies. Pulling heavily from a Roth account instead of a traditional IRA keeps MAGI lower and the subsidy intact.

IRMAA cliffs. Medicare Part B and Part D surcharges kick in at specific income thresholds. In 2026, a single filer crossing $106,000 in MAGI pays roughly $70 more per month for Part B alone, and the surcharge is based on income from two years prior. A large Roth conversion or asset sale in 2024 shows up in your 2026 Medicare bill. Knowing your IRMAA thresholds before you act is simply table stakes.

The widow's tax bracket. When one spouse dies, the survivor files as a single filer starting the following year. The same income that fit comfortably in the 22% bracket for a couple can jump to 32% for the survivor. Reducing the traditional IRA balance through conversions during the joint-filing years is one of the most underused estate and tax strategies available to married couples.

What to Do This Week

Pull up your most recent tax return and estimate where your household income will land in each year from now through age 73. If there's a meaningful gap between your current bracket and the one your RMDs would push you into, that gap has a dollar value. Calculate how much Roth conversion you can do this year before crossing the next bracket threshold, the next IRMAA tier, or the ACA subsidy cliff. Even a $20,000 to $30,000 annual conversion, done consistently over several years, can meaningfully reduce lifetime taxes and protect a surviving spouse. If you haven't mapped this out with your advisor, it's worth putting on the agenda before year-end planning season arrives.

The information provided is for educational purposes only and does not constitute investment, legal, or tax advice. Consult with qualified professionals for guidance specific to your situation.