Retirement Income Planning: Which Accounts Should You Withdraw From First?

Retirement Income Planning: Which Accounts Should You Withdraw From First?

One of the biggest shifts in retirement is moving from saving money to spending it.

During your working years, the goal may have been simple: save consistently, invest wisely, and build retirement accounts over time. But once you retire, the question changes:

Which accounts should I withdraw from first in retirement?

The answer is not always obvious. Many retirees have several account types, each with different tax rules. You may have a taxable brokerage account, a traditional IRA, a 401(k), a Roth IRA, cash savings, Social Security, pension income, or other assets. Taking money from one account instead of another can affect your tax bill, Medicare premiums, future required minimum distributions, and long-term retirement flexibility.

Texas Assured Financial Planning helps Texas retirees evaluate retirement withdrawal strategies through tax-efficient retirement income planning, retirement planning, and year-round tax planning. As a CFP® professional and Enrolled Agent, Texas Assured Financial Planning helps clients coordinate retirement income decisions with taxes, investments, Social Security, Medicare, and long-term goals.

Learn more about tax-efficient retirement income here.

Why Withdrawal Order Matters

Retirement income planning is not just about how much you withdraw. It is also about where the money comes from.

Different account types are taxed differently. A withdrawal from a taxable brokerage account may create capital gains. A withdrawal from a traditional IRA may be taxed as ordinary income. A qualified Roth IRA withdrawal may be tax-free. Social Security may be partly taxable depending on your other income.

The order of withdrawals can affect:

• Annual taxable income
•  Federal income tax brackets
•  Social Security taxation
•  Medicare IRMAA thresholds
•  Required minimum distributions
•  Roth conversion opportunities
•  Capital gains planning
•  Portfolio longevity
•  Cash flow stability
•  Legacy planning
•  Surviving spouse tax planning

For Texas retirees, there is no Texas state income tax, but federal tax planning still plays a major role. Retirement tax planning can help you avoid unnecessary tax surprises and make more intentional income decisions year by year.

Common Retirement Withdrawal Buckets

Most retirees have some combination of three main account buckets: taxable, tax-deferred, and Roth.

Taxable Accounts

Taxable accounts may include individual or joint brokerage accounts, bank accounts, CDs, money market funds, and other non-retirement investment accounts.

These accounts may generate:

• Interest income
•  Dividends
•  Capital gains
•  Capital losses



Withdrawals from a bank account are generally not taxable by themselves, but selling investments in a taxable brokerage account may create capital gains or losses. Taxable accounts can be useful in early retirement because they may provide cash flow without automatically creating ordinary income like IRA withdrawals do.

Tax-Deferred Accounts

Tax-deferred accounts may include traditional IRAs, pre-tax 401(k)s, 403(b)s, 457 plans, SEP IRAs, SIMPLE IRAs, and similar retirement accounts.

Withdrawals from pre-tax retirement accounts are generally taxed as ordinary income. These accounts may also be subject to required minimum distributions once you reach the applicable RMD age.

Tax-deferred accounts are often a major retirement income source, but large balances can create future tax pressure if withdrawals are delayed too long.

Roth Accounts

Roth accounts may include Roth IRAs and Roth 401(k)s. Qualified Roth withdrawals are generally tax-free, and Roth IRAs do not have lifetime required minimum distributions for the original account owner.

Roth accounts can provide valuable retirement income flexibility because they may allow you to access money without increasing taxable income. That can be useful when managing tax brackets, Medicare premiums, large expenses, or estate planning goals.

Cash Reserves

Cash is not usually thought of as a tax bucket, but it plays an important role in retirement income planning. A cash reserve can help cover short-term expenses, reduce the need to sell investments during market downturns, and provide flexibility when tax-sensitive decisions need more time.

A retirement income plan may use cash for:

• Monthly spending needs
•  Emergency expenses
•  Large upcoming purchases
•  Tax payments
•  Health care costs
•  Market downturn protection

The right amount of cash depends on your spending, income sources, risk tolerance, and overall plan.

Why “Taxable First, IRA Later” May Not Always Be Best

A traditional rule of thumb says retirees should spend taxable accounts first, tax-deferred accounts second, and Roth accounts last.

That approach can work in some cases. It may allow tax-deferred accounts to keep growing and preserve Roth assets for later. But it can also create problems.

If you spend only taxable accounts early in retirement and delay IRA withdrawals until required minimum distributions begin, your tax-deferred accounts may grow larger. Later, RMDs may force higher taxable income, which can increase taxes, affect Medicare premiums, and reduce flexibility.

A “taxable first, IRA later” strategy may miss opportunities to:

• Fill lower tax brackets before RMDs begin
•  Complete Roth conversions at favorable tax rates
•  Reduce future required minimum distributions
•  Manage Social Security taxation
•  Avoid large tax jumps later in retirement
•  Improve surviving spouse tax outcomes
•  Coordinate income with Medicare thresholds



For example, a retiree who stops working at 62 but delays Social Security until 70 may have several lower-income years. If they only spend taxable assets during that window, they may miss a chance to withdraw from an IRA or complete Roth conversions at a lower tax rate.

That does not mean everyone should withdraw from IRAs early. It means the decision should be modeled based on your actual tax picture.

How Roth Accounts Can Provide Flexibility

Roth accounts can be especially valuable in retirement because qualified withdrawals may not increase taxable income.

This flexibility can help retirees manage:

• Large one-time expenses
•  Tax bracket limits
•  Medicare IRMAA thresholds
•  Social Security taxation
•  Investment withdrawals
•  Legacy goals
•  Surviving spouse planning
•  Unexpected cash needs

For example, suppose you need extra money in one year for a home repair, family support, medical expense, vehicle purchase, or travel. Taking the full amount from a traditional IRA could increase taxable income and possibly push you into a higher tax bracket or Medicare premium tier. Taking some or all of the money from a Roth account may help manage that tax impact.

Roth accounts can also help retirees avoid drawing too heavily from taxable or tax-deferred accounts during certain market or tax conditions.

However, Roth accounts should not always be spent first. In many cases, preserving Roth assets can provide long-term tax flexibility. The right use of Roth accounts depends on your overall retirement income plan.

RMD Planning: Why Required Minimum Distributions Matter

Required minimum distributions, or RMDs, are mandatory withdrawals from certain tax-deferred retirement accounts once you reach the applicable RMD age.

RMD planning matters because these withdrawals can create taxable income whether you need the money or not. If your traditional IRA or 401(k) balance is large, future RMDs may push you into higher tax brackets or affect other parts of your financial life.

RMDs may influence:

• Federal income taxes
•  Social Security taxation
•  Medicare IRMAA thresholds
•  Cash flow
•  Charitable giving strategy
•  Roth conversion planning
•  Investment allocation
•  Estate planning
•  Surviving spouse tax exposure

A strong retirement withdrawal strategy should not wait until RMDs begin. Planning earlier may help you decide whether to take strategic IRA withdrawals, complete Roth conversions, or use qualified charitable distributions when eligible.

The goal is not always to minimize this year’s tax bill. Sometimes it may make sense to pay some tax earlier to reduce larger tax pressure later.

Texas Assured Financial Planning helps retirees evaluate RMD planning as part of tax-efficient retirement income planning.

Social Security Timing and Withdrawal Strategy

Social Security timing can affect which accounts you withdraw from first.

If you claim Social Security early, you may need less from your investment accounts in the first years of retirement. But your monthly Social Security benefit may be permanently lower.

If you delay Social Security, you may need to draw more from savings before benefits begin. However, delaying may increase your monthly benefit and may improve long-term income security.

The decision can also create tax planning opportunities. For example, the years after retirement but before Social Security begins may be useful for:

• Strategic IRA withdrawals
•  Roth conversions
•  Capital gains planning
•  Tax bracket management
•  Reducing future RMD pressure
•  Coordinating Medicare income thresholds

Social Security income may become partially taxable depending on your other income. That means IRA withdrawals, pensions, capital gains, and investment income can affect how much of your Social Security benefit is taxed.

A retirement withdrawal strategy should coordinate Social Security timing with tax planning, investment withdrawals, and cash flow needs.

Learn more about retirement planning here.

Medicare IRMAA Considerations

Medicare premiums can be affected by income. IRMAA, or income-related monthly adjustment amount, can increase Medicare Part B and Part D premiums when income exceeds certain thresholds.

This matters because retirement withdrawals can increase income.

Income sources that may affect Medicare premium calculations include:

• Traditional IRA withdrawals
•  401(k) withdrawals
•  Roth conversions
•  Capital gains
•  Pension income
•  Business income
•  Rental income
•  Interest and dividends
•  Social Security income

A withdrawal strategy that looks tax-efficient at first may create higher Medicare premiums if it pushes income above an IRMAA threshold. That does not always mean the strategy is wrong. Sometimes it may still be worthwhile to complete a Roth conversion or realize gains. But the decision should include the Medicare impact.

Annual tax projections can help retirees understand whether a planned withdrawal, conversion, or investment sale may affect Medicare premiums in future years.

Why Annual Tax Projections Matter

Retirement income planning is not a one-time decision. Your income, tax rules, investment returns, spending, health costs, and goals can change from year to year.

Annual tax projections can help you decide which accounts to use each year.

A tax projection may help answer:

• How much taxable income will I have this year?
•  What tax bracket am I in?
•  How much room is left in this bracket?
•  Should I withdraw from an IRA before year-end?
•  Should I complete a Roth conversion?
•  Should I realize capital gains or losses?
•  How will Social Security be taxed?
•  Will Medicare premiums be affected?
•  Should I adjust withholding or estimated payments?
•  How will this year’s decision affect future RMDs?

Year-round tax planning can be especially valuable for retirees because many decisions need to happen before December 31. Waiting until tax preparation season may be too late to change the outcome.

Texas Assured Financial Planning offers year-round tax planning to help clients make proactive decisions before deadlines arrive.

Learn more here.

Examples of Different Withdrawal Strategies

There is no single withdrawal order, but several common approaches may be considered.

Taxable Accounts First

This approach uses taxable savings or brokerage accounts first while leaving retirement accounts to grow. It may work for retirees who need flexibility, want to delay IRA withdrawals, or are managing current taxable income carefully.

However, it may also allow future RMDs to grow larger.

Tax Bracket Filling

This approach intentionally uses IRA withdrawals or Roth conversions to fill a lower tax bracket before RMDs begin. It may help reduce future tax pressure and create more long-term flexibility.

This approach requires tax projections and careful coordination.

Roth Preservation

This approach saves Roth accounts for later retirement, large expenses, tax-sensitive years, or heirs. It may help preserve tax-free flexibility.

However, Roth accounts should still be considered within the full withdrawal plan.

Blended Withdrawals

Some retirees may benefit from taking income from multiple account types in the same year. For example, they may use taxable accounts for part of their spending, take some IRA income to fill a tax bracket, and preserve Roth assets for future flexibility.

A blended approach can be more customized than a simple rule of thumb.

RMD-Based Withdrawals

Some retirees wait until RMDs begin and then use those distributions for income. This may be appropriate in some cases, but it can miss earlier planning opportunities.

The best strategy depends on your numbers, not a generic order.

Retirement Tax Planning for Texas Retirees

Texas retirees do not pay Texas state income tax, but that does not eliminate the need for retirement tax planning.

Federal tax planning may still affect:

• IRA and 401(k) withdrawals
•  RMDs
•  Roth conversions
•  Social Security taxation
•  Capital gains
•  Investment income
•  Medicare premiums
•  Charitable giving
•  Estate and legacy planning

Texas retirees in Houston, Dallas, Fort Worth, San Antonio, Austin, and communities across the state may benefit from a withdrawal strategy that considers both lifestyle goals and federal tax rules.

Texas Assured Financial Planning helps clients across Texas evaluate retirement income decisions through a tax-aware lens.

How Texas Assured Financial Planning Helps Build a Withdrawal Strategy

Texas Assured Financial Planning helps retirees create withdrawal strategies that are coordinated with tax planning, investment planning, Social Security, Medicare, and long-term financial goals.

The process may include reviewing:

• Retirement spending needs
•  Cash reserves
•  Taxable investment accounts
•  Traditional IRA and 401(k) balances
•  Roth IRA assets
•  Pension income
•  Social Security timing
•  RMD projections
•  Medicare IRMAA thresholds
•  Investment allocation
•  Capital gains exposure
•  Roth conversion opportunities
•  Charitable giving goals
•  Estate planning considerations
•  Surviving spouse tax impact
•  Annual tax projections

As a CFP® professional and Enrolled Agent, Texas Assured Financial Planning can help retirees evaluate not only which accounts to withdraw from first, but why one strategy may be more effective than another.

Common Mistakes to Avoid

When deciding which accounts to withdraw from first in retirement, avoid these common mistakes:

• Following a generic withdrawal order without tax projections
•  Ignoring future required minimum distributions
•  Using Roth accounts too quickly without a strategy
•  Never using IRA withdrawals before RMDs begin
•  Forgetting about Medicare IRMAA thresholds
•  Claiming Social Security without coordinating withdrawals
•  Selling investments without considering capital gains
•  Holding too much cash or too little cash
•  Failing to plan for a surviving spouse
•  Waiting until tax filing season to think about taxes
•  Assuming the lowest tax bill this year is always best

A tax-efficient retirement income plan should balance current income needs with future flexibility.

Which Accounts Should I Withdraw From First in Retirement? Start With a Projection

The best withdrawal order depends on your full retirement picture.

For some retirees, it may make sense to use taxable accounts first. For others, strategic IRA withdrawals or Roth conversions before RMDs begin may create better long-term results. Roth accounts may provide valuable flexibility, but they should be used thoughtfully. Social Security timing, Medicare premiums, and tax projections can all change the answer.

Instead of relying on a rule of thumb, build a plan that answers:

• How much income do I need this year?
•  Which accounts can provide it most efficiently?
•  What tax bracket am I in now?
•  What tax bracket might I be in later?
•  How will RMDs affect future income?
•  How will Social Security be taxed?
•  Will Medicare premiums be affected?
•  Should I preserve Roth assets for later?
•  How does this year’s withdrawal affect the long-term plan?

That is the foundation of tax-efficient retirement income planning.

Schedule a Tax-Aware Retirement Income Review

Texas Assured Financial Planning helps Texas retirees create retirement withdrawal strategies that coordinate income, taxes, investments, Social Security, Medicare, and long-term goals.

If you are wondering which accounts you should withdraw from first in retirement, a tax-aware retirement income review can help you compare options before making decisions.

Schedule a consultation with Texas Assured Financial Planning here.