How to Withdraw from Retirement Accounts Tax-Efficiently (2026 Guide)

The order in which you withdraw from retirement accounts can save you tens of thousands of dollars in taxes over a 20–30 year retirement. The general rule is: spend taxable accounts first, tax-deferred accounts (traditional 401k and IRA) second, and Roth accounts last. But the real opportunity is in the gap between retirement and age 73 — a window to strategically convert traditional IRA money to Roth at low tax rates before Required Minimum Distributions force larger taxable withdrawals.

Done right, tax-efficient withdrawal sequencing can add the equivalent of hundreds of thousands of dollars of additional purchasing power over a retirement lifetime.

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Why Withdrawal Order Matters More Than Most People Realize

Most people think about retirement income as a single pool of money. In reality, different accounts are taxed in fundamentally different ways — and the order you draw from them permanently affects how much of your savings you keep versus pay to the IRS.

Consider two retirees with identical $1 million portfolios and identical $50,000/year spending needs:

• Retiree A withdraws $50,000/year entirely from a traditional IRA. Every dollar is taxed as ordinary income. Over 20 years, assuming a 22% effective tax rate, she pays approximately $220,000 in federal income taxes.

• Retiree B uses a strategic withdrawal sequence — spending from taxable accounts first, doing Roth conversions during low-income years, and mixing sources to stay in lower tax brackets. Over the same period, his effective tax rate averages 12%. He pays approximately $120,000 in taxes.

Same portfolio. Same spending. $100,000 difference in taxes paid.

That gap is real, achievable, and the core reason tax-efficient withdrawal strategy matters. The IRS doesn't care how you sequence your withdrawals — but your retirement account balance cares enormously.

Build your withdrawal plan around your actual budget: Use our free retirement budget calculator to map income sources against expenses and model the tax impact of different withdrawal strategies.

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The Three Account Types and How They're Taxed

Before building a withdrawal strategy, you need to understand exactly how different account types are taxed.

Taxable brokerage accounts

• Contributions: Made with after-tax dollars — no deduction
• Growth: Taxed annually on dividends and interest; capital gains taxed when you sell
• Withdrawals: Only the gain portion is taxed, at long-term capital gains rates (0%, 15%, or 20% depending on income) for assets held over one year
• Key advantage: Long-term capital gains rates are lower than ordinary income rates for most retirees — and the 0% rate applies to taxable income up to $47,025 (single) or $94,050 (married filing jointly) in 2026

Tax-deferred accounts (traditional 401k, traditional IRA, 403b, 457b)

• Contributions: Pre-tax — you got a deduction when you contributed
• Growth: Tax-deferred — no annual taxes on dividends, interest, or gains
• Withdrawals: Every dollar is taxed as ordinary income at your current marginal rate
• Key risk: Large balances force large RMDs at 73, potentially pushing you into higher brackets
• Early withdrawal: 10% penalty plus ordinary income tax if withdrawn before age 59½ (with exceptions)

Tax-free accounts (Roth IRA, Roth 401k)

• Contributions: After-tax — no deduction when contributed
• Growth: Tax-free — no taxes ever on qualified growth
• Withdrawals: Completely tax-free in retirement (after age 59½ with a 5-year seasoning period)
• Key advantage: No RMDs required during your lifetime (for Roth IRAs; Roth 401ks now also exempt from RMDs under current law)
• Strategic value: Provides tax-free income in high-income years and is the best account to leave to heirs

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The Standard Withdrawal Order

The conventional wisdom — and a solid starting framework:

Phase 1: Taxable accounts first Draw from brokerage accounts while traditional and Roth accounts continue to grow tax-deferred or tax-free. Long-term capital gains rates (often 0–15%) are typically lower than ordinary income rates on traditional account withdrawals. You also avoid triggering ordinary income while your tax-deferred accounts continue compounding.

Phase 2: Traditional IRA and 401k second Once taxable accounts are depleted, shift to traditional accounts. By this point, ideally you've done Roth conversions to reduce the traditional account balance and the resulting RMD burden. Withdraw strategically to stay within lower tax brackets.

Phase 3: Roth accounts last Roth accounts are your most flexible and tax-efficient assets. They never require RMDs during your lifetime, they grow tax-free indefinitely, and withdrawals don't count as income for Medicare IRMAA calculations or Social Security taxation purposes. Leaving Roth money untouched as long as possible maximizes tax-free compounding and provides maximum flexibility.

The important caveat: this order isn't always optimal

The standard sequence is a starting point, not a rigid rule. The real goal is bracket management — keeping your taxable income in the lowest brackets possible across your entire retirement. Sometimes that means drawing from traditional accounts before taxable accounts in low-income years, or blending sources across multiple account types in the same year.

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How to Manage Your Tax Bracket in Retirement

The 2026 federal tax brackets for ordinary income:

The 12% bracket is the strategic sweet spot for most retirees. Income up to $48,475 (single) or $96,950 (married) is taxed at just 10–12%. Above that, you jump to 22% — an almost doubling of the marginal rate.

The bracket-filling strategy: In years when your income is low — particularly between retirement and age 73 when RMDs begin — deliberately draw from traditional accounts or convert to Roth up to the top of the 12% bracket. Pay 12% now rather than 22–24% later when RMDs force larger withdrawals.

Example for a married couple retiring at 65:

• Social Security: $36,000/year (85% taxable = $30,600)
• Standard deduction (2026): $32,300 (married, over 65)
• Taxable SS after deduction: effectively $0 in many scenarios
• Available 12% bracket space: up to $96,950 minus other income
• Opportunity: convert $40,000–$60,000/year from traditional IRA to Roth at 12%, reducing future RMDs significantly

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The Roth Conversion Window: Your Most Powerful Tax Tool

The years between retirement and age 73 — when RMDs begin — represent the most important tax planning window of your retirement. This is when Roth conversions can dramatically reduce your lifetime tax bill.

What is a Roth conversion? Moving money from a traditional IRA to a Roth IRA. You pay ordinary income tax on the converted amount now, but all future growth and withdrawals from the Roth are tax-free — and there are no RMDs.

Why the conversion window matters: Before RMDs kick in, many retirees are in unusually low-income years — they've stopped working, Social Security may be deferred, and they're not yet required to take distributions. This creates a temporary opportunity to convert traditional IRA money at lower tax rates than you'll pay later.

The math: Converting $50,000/year from a traditional IRA at the 12% rate costs $6,000 in taxes. That same $50,000 in a traditional IRA, when forced out as an RMD in a high-income year at 22%, costs $11,000. The conversion saves $5,000 on just one year's worth of money — multiplied across 5–8 years of the conversion window, the savings are substantial.

Conversion strategy framework:

What to watch: Roth conversions increase your taxable income in the conversion year, which can trigger Social Security taxation, IRMAA Medicare surcharges, or push you into a higher bracket. Model conversions carefully — ideally with a tax professional — before executing them.

For a deeper look at the Roth strategy, see: Roth IRA vs traditional IRA — which saves you more.

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The Social Security Taxation Trap

Social Security benefits become partially taxable once your "combined income" exceeds certain thresholds:

Combined income = AGI + nontaxable interest + 50% of Social Security benefits.

The hidden marginal rate problem: In the $25,000–$34,000 combined income range (single), every $1 of additional income triggers 50 cents more of taxable Social Security. Your effective marginal tax rate on that extra dollar isn't 12% — it's closer to 18% (12% × 1.5). In the range where 85% becomes taxable, the effective rate on additional income is approximately 22.2% (12% × 1.85).

This means pulling extra money from a traditional IRA in a year when you're near these thresholds can be significantly more expensive than it appears. Roth withdrawals, on the other hand, don't count as combined income — they don't trigger additional Social Security taxation.

The strategic response: In years when you're near Social Security taxation thresholds, prefer Roth withdrawals over traditional account withdrawals to avoid the combined income cascade.

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Planning Around Required Minimum Distributions

At age 73, the IRS requires you to begin taking minimum distributions from traditional IRAs, 401ks, and most other tax-deferred accounts. The amount is calculated by dividing your account balance by your life expectancy factor from the IRS Uniform Lifetime Table.

Why RMDs create tax problems:

• RMDs are fully taxable as ordinary income — regardless of whether you need the money
• Large traditional IRA balances create large RMDs that can push you into higher brackets
• RMD income triggers additional Social Security taxation
• RMD income counts toward IRMAA Medicare premium calculations

Example — the RMD snowball:

Even as the portfolio declines through withdrawals, the shrinking life expectancy factor means RMDs as a percentage of the account keep rising. A retiree who ignored Roth conversions in their 60s may find themselves taking $40,000–$50,000/year in forced taxable distributions in their 80s — on top of Social Security — regardless of whether they need or want that income.

The solution is preventive: Use the conversion window between retirement and 73 to reduce your traditional account balance. Every dollar converted to Roth before RMDs begin is a dollar that won't generate a forced taxable distribution later.

For full RMD rules and strategies, see: required minimum distributions explained and RMD strategies: how to minimize the tax hit.

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IRMAA: The Medicare Surcharge Most Retirees Don't See Coming

IRMAA — the Income-Related Monthly Adjustment Amount — is a Medicare surcharge that applies to Part B and Part D premiums for retirees with higher incomes. It's based on your income from two years prior, which means a high-income year at 70 affects your Medicare premiums at 72.

2026 IRMAA thresholds (Part B monthly premium):

A married couple whose combined income jumps from $210,000 to $215,000 — perhaps due to a large Roth conversion or RMD — crosses the first IRMAA threshold and pays an extra $74/month each ($888/year combined) in Medicare premiums two years later.

The IRMAA planning strategy:

• Be aware of threshold amounts when planning Roth conversions — sometimes stopping a conversion $5,000–$10,000 short of an IRMAA threshold saves more in future Medicare premiums than you'd pay in current taxes
• Roth withdrawals don't count as MAGI for IRMAA purposes — another advantage of the Roth-last strategy
• If you cross an IRMAA threshold due to a one-time event (home sale, large conversion), you can appeal to have the surcharge waived

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A Practical Year-by-Year Withdrawal Framework

Here's how a married couple with $1.2M in traditional IRA/401k, $150K in Roth, and $100K in taxable accounts might approach withdrawals over a 15-year period:

Ages 65–67: Bridge to Social Security

• Spend from taxable accounts ($100K over ~2–3 years)
• Convert $40,000–$60,000/year from traditional IRA to Roth (fill to top of 12% bracket)
• Defer Social Security until 70

Ages 67–70: Aggressive conversion window

• Continue Roth conversions up to IRMAA thresholds
• Traditional IRA balance declining; Roth balance growing
• Continue deferring Social Security

Age 70: Claim Social Security

• SS income now $28,800–$32,400/year
• Adjust conversion amounts to account for new SS income and bracket impact
• Continue modest conversions as bracket space allows

Ages 70–73: Final conversion years

• Traditional IRA balance now substantially reduced through conversions
• Roth balance substantial — years of tax-free compounding
• Minimal traditional account withdrawals beyond what Roth conversions couldn't cover

Age 73+: RMDs begin

• Traditional IRA balance smaller due to decade of conversions — RMDs are manageable
• Supplement with Roth withdrawals in years when RMDs don't cover expenses
• Roth withdrawals don't trigger Social Security taxation or IRMAA

This framework isn't one-size-fits-all — the right approach depends on your specific account balances, income sources, tax situation, and state taxes. But the underlying logic applies broadly: use low-income years to convert at low rates, preserve Roth money as long as possible, and manage bracket exposure proactively rather than reactively.

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State Taxes: The Overlooked Layer

Federal taxes get most of the attention, but state income taxes matter significantly for retirees with large traditional account balances. Thirteen states don't tax Social Security benefits. Many states exempt pension income or have retirement income exclusions. Nine states have no income tax at all.

For retirees with flexibility on where to live, relocating from a high-tax state to a retirement-friendly one before taking large traditional IRA withdrawals or RMDs can save $5,000–$15,000/year in state taxes. See the full breakdown: best states to retire for taxes.

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Putting It All Together With Your Real Budget

Tax-efficient withdrawal strategy is only meaningful in the context of your actual income needs. The right approach depends on:

• How much you need from your portfolio each month
• How much Social Security income you have
• What accounts you hold and their relative balances
• Your current and projected tax brackets
• Your state of residence
• Whether you have RMDs coming and when

Our free retirement budget calculator helps you understand your income picture clearly — so you can bring specific, accurate numbers to the withdrawal strategy conversation rather than working from rough estimates.

See also:

• What is the best order to withdraw from retirement accounts
• How are 401k withdrawals taxed in retirement
• How to reduce taxes on required minimum distributions

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Frequently Asked Questions

What is the most tax-efficient way to withdraw from retirement accounts?

The general framework is: spend taxable accounts first (paying lower capital gains rates), then traditional accounts (paying ordinary income tax), then Roth accounts last (tax-free). The real opportunity is using the low-income years between retirement and age 73 to convert traditional IRA money to Roth at lower tax rates — reducing future RMDs and building a larger tax-free pool.

Should I withdraw from my IRA or 401k first?

If you have both a traditional IRA and a 401k, the tax treatment is identical — both are taxed as ordinary income when withdrawn. For practical purposes, most people roll a 401k into an IRA when they leave a job, consolidating into a single account. If you have a Roth 401k and a traditional IRA, the Roth 401k can be rolled into a Roth IRA with no tax consequences — and that Roth money should generally be spent last.

How do I avoid paying taxes on retirement withdrawals?

You can't avoid all taxes on traditional account withdrawals — those taxes are deferred, not eliminated. But you can minimize them by: withdrawing strategically to stay in lower brackets, converting to Roth during low-income years, using Roth withdrawals in high-income years (they don't count as taxable income), and taking qualified charitable distributions (QCDs) from IRAs after age 70½ to satisfy RMDs tax-free.

What are the tax brackets for retirement income in 2026?

Federal ordinary income tax rates in 2026 are 10%, 12%, 22%, 24%, 32%, 35%, and 37%. The 12% bracket runs to $48,475 for single filers and $96,950 for married couples. Traditional IRA and 401k withdrawals, pension income, and a portion of Social Security are taxed as ordinary income. Long-term capital gains from taxable accounts are taxed at 0%, 15%, or 20% — with the 0% rate applying to income below $47,025 (single) or $94,050 (married).

At what age do required minimum distributions start?

RMDs must begin by April 1 of the year after you turn 73 (for people born 1951–1959) or 75 (for those born in 1960 or later, under current law). The SECURE 2.0 Act raised the RMD age and further changes are possible. Roth IRAs are currently exempt from RMDs during the owner's lifetime.

Does it make sense to do Roth conversions in retirement?

For many retirees, yes — particularly in the years between retirement and age 73 when income is temporarily lower. Converting at the 12% rate to avoid 22%+ rates on future RMDs is mathematically advantageous in most scenarios. The ideal conversion amount fills tax bracket space without triggering IRMAA surcharges or pushing significant Social Security benefits into taxability.

How do Roth withdrawals affect Social Security taxes?

Roth withdrawals are not included in combined income for Social Security taxation purposes. This is one of the most valuable features of Roth accounts in retirement — you can draw from them without triggering additional taxes on your Social Security benefit or crossing IRMAA Medicare premium thresholds.

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The Bottom Line

Tax-efficient withdrawal sequencing is one of the highest-value retirement planning strategies available — and one of the most overlooked. The decisions you make about which accounts to draw from, in what order, and in what amounts can easily be worth $50,000–$200,000 in reduced lifetime taxes for a typical retiree.

The framework:

1. Spend taxable accounts first — pay capital gains rates, not ordinary income
2. Convert traditional IRA money to Roth during low-income years before RMDs begin
3. Manage your bracket — don't leave 12% bracket space unused in low-income years
4. Watch the thresholds — Social Security taxation, IRMAA, and bracket jumps all have significant marginal consequences
5. Preserve Roth money longest — tax-free, no RMDs, lowest income impact

None of this replaces a qualified tax professional for your specific situation. But understanding the framework means you can have a much more productive conversation with your advisor — and avoid the common mistakes that cost retirees tens of thousands in unnecessary taxes.

Build your retirement income picture with our free calculator to understand your baseline before building your withdrawal strategy.

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Last updated: May 2026. This article is for educational purposes and does not constitute personalized financial advice. Consult a licensed financial advisor or CPA for guidance specific to your tax situation.