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Most retirees with $2 million or more saved are drawing from the wrong accounts first.
Not because they are careless or uninformed. Because nobody ever explained that the order of withdrawals matters as much as the size of the portfolio. In some cases, it matters more.
The sequence in which you draw from your accounts determines how much of each dollar you actually keep, how much goes to the IRS, and whether you have the flexibility to spend freely during the years when health and energy make spending worthwhile and meaningful. Getting the order right during the Go-Go years, roughly your mid-60s through early 70s, is one of the highest-leverage decisions in all of retirement planning.
This article walks through the withdrawal sequence we use at Arcadia, why it works, and what it actually means in dollar terms.
When you retire with multiple account types, you have something most people do not fully appreciate: optionality. You can choose which accounts to draw from, in what amounts, and in what sequence. That choice has direct tax consequences.
Draw too heavily from your Traditional IRA or 401(k) early in retirement, and you accelerate ordinary income taxes into years when you did not have to. You potentially push yourself into higher Medicare IRMAA surcharge tiers. You leave less room for Roth conversions at low rates. And you reduce the tax-free assets available to you (and your beneficiaries) later when your tax situation may be less favorable.
Draw from the right accounts in the right order, and you can fund the same retirement spending at a dramatically lower effective tax rate. The difference over a decade in the Go-Go years is often $100,000 to $200,000 in unnecessary taxes avoided.
The common default is to spend from wherever the money is easiest to access. That default is expensive.
Most retirees approaching or in retirement hold assets across three broad account types, each with different tax treatment:
The general sequence: Taxable accounts first, strategic pre-tax withdrawals second, Roth last. Here is what that looks like in practice.
The taxable brokerage account is typically the right starting point, for one primary reason: it is often the most tax-efficient source of funds in early retirement.
When you sell investments held more than a year in a taxable account, the gains are taxed at long-term capital gains rates, not ordinary income rates. In 2026, a married couple with taxable income up to approximately $96,700 pays zero federal tax on long-term capital gains. Even above that threshold, the rate is 15% for most retirees, compared to 22% to 24% ordinary income rates on Traditional IRA withdrawals.
Drawing from taxable first also preserves your pre-tax accounts for later, which is important for two reasons. First, your Traditional IRA and 401(k) continue growing tax-deferred while untouched. Second, and more importantly, keeping your ordinary income low in early retirement creates the single most valuable tax planning window in a retiree's financial life: the Roth conversion opportunity.
ACA consideration: For retirees who retire before age 65, keeping income lower by drawing from taxable accounts can also preserve eligibility for ACA marketplace subsidies. An unnecessary Traditional IRA withdrawal can cost thousands in lost healthcare premium credits in a single year.
The second source of funds is the Traditional IRA or 401(k), but the strategy here is deliberate, not default. The goal is not to avoid pre-tax withdrawals. It is to control when and how much you take, so that you are choosing your tax bracket rather than having it chosen for you by RMDs, Social Security, and whatever else hits your tax return at age 73.
In the years between retirement and age 73, many retirees are in a period of lower income, RMDs have not yet begun, and earned income has mostly stopped. Taxable income is likely lower than it has been in decades.
This is not a period to minimize income. It is a period to optimize it.
In 2026, a married couple filing jointly can have approximately $128,000 in gross income before reaching the 22% federal bracket, after the standard deduction. If your living expenses require $80,000 and you are drawing $40,000 from a taxable account, you have roughly $48,000 of space in the 12% bracket. Filling that space with a Traditional IRA withdrawal, rather than leaving the money to grow until RMDs force you to take it at higher rates later, is often the right call.
The goal is to pay 12% now rather than 22% or 24% later. That is not hypothetical tax savings. It is the arithmetic of choosing when to recognize income.
The strategic pre-tax withdrawal step often includes Roth conversions: intentionally moving money from a Traditional IRA to a Roth IRA, paying taxes today at low rates, in exchange for tax-free growth and tax-free withdrawals later.
For retirees with large pre-tax balances, this is one of the most important planning moves available. Every dollar converted at 12% today is a dollar that will never be subject to ordinary income tax again. It reduces future RMDs. It builds tax-free assets for later spending or inheritance. And it can reduce Medicare IRMAA exposure over the long run by keeping future income lower.
Roth conversions work best during the low-income years between retirement and age 73. Once Social Security is started and RMDs have begun, the available bracket space narrows considerably. The window for this tax planning opportunity is finite.
Medicare Part B and Part D premiums are income-tested through IRMAA surcharges. In 2026, a married couple with income above $218,000 begins paying more for Medicare than a couple below that threshold. The surcharges are assessed two years after the income is earned, meaning income decisions made today affect Medicare costs in 2028.
The cliff effects can be meaningful. A single IRA withdrawal that pushes income over an IRMAA threshold by a few thousand dollars can cost thousands in Medicare surcharges the following two years. Strategic withdrawal planning explicitly accounts for these thresholds, not just the income tax brackets.
The Roth IRA is, in most cases, the last account to spend from during retirement.
Roth money is the most valuable type of money a retiree can own. We call it, “the sacred account.” It grows without annual tax drag. Qualified withdrawals are completely free of federal income tax. Roth distributions do not count as income for IRMAA calculations or for determining how much of your Social Security is taxable. And Roth IRAs have no Required Minimum Distributions during the owner's lifetime.
Every year you allow a Roth IRA to sit untouched, compounding tax-free, is a year of the most efficient wealth growth available in the American tax code. Spending it before you need to gives up that advantage unnecessarily.
There are some exceptions. If you have a large one-time expense in a year when ordinary income is already elevated, drawing from the Roth prevents stacking more income on top of what is already there. In a year with an unusually high income event, like a business sale or large capital gain, Roth distributions can fill spending needs without pushing into a higher bracket. During a significant market downturn, drawing from the Roth rather than selling pre-tax assets at depressed prices can preserve the recovery potential of those accounts.
But as a default, the Roth goes last. Let it compound.
Consider a hypothetical couple, ages 64 and 62, recently retired in the San Diego area. Their portfolio:
From ages 64 to 70, using the strategic sequence:
Compare this to pulling the full $130,000 from the Traditional IRA each year:
Additionally: The remaining bracket space each year is used to execute Roth conversions, moving additional Traditional IRA funds to Roth at 12% rates while that window remains open.
When Social Security starts at 70, the calculation shifts. Social Security income occupies bracket space that was previously available for conversions or IRA withdrawals. Up to 85% of Social Security benefits are taxable depending on combined income.
At this point, the taxable account may be largely depleted. Pre-tax withdrawals become the primary income source, coordinated with RMDs that begin at 73. Roth assets remain in reserve for large one-time expenses, market volatility events, or inheritance.
The work done between retirement and 70 determines how much flexibility exists in the years that follow.
Every retirement income plan should be reviewed before year-end to assess the current year's income, identify remaining bracket space, execute any additional Roth conversions before December 31, plan the following year's withdrawal amounts, and check exposure to the following year's IRMAA thresholds based on current income.
This is not a set-it-and-forget-it exercise. It is an annual optimization that, done well, compounds into meaningful tax savings over the course of a retirement.
At Arcadia Private Wealth, retirement income planning and tax strategy are integrated components of the same plan, not separate exercises. The withdrawal sequence, the Roth conversion strategy, the IRMAA management, and the investment portfolio are all built around the same goals: maximum after-tax income during the years it matters most, and maximum flexibility as circumstances change.
If you would like to understand how your current withdrawal approach compares to an optimized sequence for your specific situation, we would welcome that conversation.
Disclosure: Arcadia Private Wealth LLC is a registered investment adviser. Registration doesn't imply a specific skill level or endorsement. Not legal/accounting advice. Information is believed accurate but not guaranteed and isn't a complete analysis. All investments carry risk of profit or loss. Consult a professional before investing. Opinions reflect authors' views at time of posting and may change. Not responsible for third-party comments. Nothing here is an offer to buy/sell securities or personalized financial, legal, or tax advice. Consult an attorney or tax professional for your specific situation.
Grant Webster, CFP®, TPCP®
Founder, Wealth Advisor