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

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. Withdrawal order is one of the few retirement decisions where the sequence alone changes the tax bill.

The default rule is taxable accounts first, tax-deferred individual retirement accounts (IRAs) next, Roth last. That logic holds when all else is equal, which is rare.

The Low-Income Window Is the Whole Opportunity

Between roughly age 60 and the start of required minimum distributions (RMDs), which begin at 73 if you were born from 1951 through 1959 and at 75 if you were born in 1960 or later, many retirees sit in an unusually low-income stretch. Wages have stopped, Social Security may not have started, and RMDs have not begun. Taxable portfolio income alone often leaves you in the 12% bracket.

Ignoring that gap has a cost. Suppose you hold a $1.2M traditional IRA and spend only from taxable accounts for a decade. If the balance keeps growing until RMDs begin, distributions may push $80,000 to $100,000 or more per year into ordinary income, potentially at 22% or 24%. Pulling from the IRA in the low-income years, or converting to Roth, smooths that curve before it is forced on you.

Three Thresholds That Reward Early Planning

ACA premium subsidies. If you retire before Medicare eligibility at 65 and buy coverage on the Affordable Care Act (ACA) exchange, the premium tax credit shrinks as income rises. The enhanced credits of 2021 through 2025 have expired, so for 2026 coverage the credit stops entirely above 400% of the federal poverty level. For a 62-year-old couple in the lower 48 states, that line is about $84,600 of modified adjusted gross income (MAGI), and crossing it can cost several hundred dollars a month or more. Drawing from Roth instead keeps MAGI lower.

IRMAA cliffs. Medicare Part B and Part D surcharges, called the Income-Related Monthly Adjustment Amount (IRMAA), start at specific thresholds. In 2026, a single filer whose MAGI crossed $109,000 ($218,000 for married couples filing jointly) pays about $81 more per month for Part B alone, based on income from two years prior. A large conversion or asset sale in 2024 shows up in your 2026 Medicare bill.

The widow's tax bracket. When one spouse dies, the survivor files as a single filer the following year. Income that fit comfortably in the 22% bracket for a couple can land in the 24% bracket for the survivor, and income in the couple's 24% bracket can land in the 32% or 35% bracket. Conversions during the joint-filing years are one of the most underused moves available to married couples.

The Takeaway

The size of your traditional IRA relative to everything else decides your sequence. If tax-deferred money dominates the balance sheet, the low-income window is the only cheap chance you get to move it, and spending taxable-first for a decade wastes it. If your assets already spread across taxable, deferred, and Roth, the default order may be close to right.

Careful planners still get caught. They run the bracket math, size a conversion perfectly against the 22% bracket, and forget that the same MAGI figure is simultaneously measured against an IRMAA tier and an ACA subsidy cliff. Missing one by a dollar can cost more than the conversion saved, and the Medicare consequence takes two years to appear.

If you are inside that window between retiring and your first RMD, the sequence is worth mapping out before this year's conversion decision.

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.