Which Retirement Accounts Should I Withdraw From First?

Why does withdrawal order matter?

Traditional retirement account withdrawals are generally taxable income. Taxable investment accounts may create taxes on gains, dividends, or interest. Qualified Roth withdrawals are generally tax-free. Review IRS guidance on traditional and Roth IRAs.

Taking money from one account today can change future required minimum distributions (RMDs), Roth savings, and taxes. See why RMDs matter even when you do not need the money.

Thomas and Karen: A retirement plan with three types of savings

Thomas and Karen Bennett are a hypothetical household. Thomas is 64 and Karen is 62. They plan to retire at ages 67 and 65. Their starting savings total $760,000: $500,000 in pretax accounts, $180,000 in taxable savings, and $80,000 in Roth savings. They expect Social Security benefits and plan to spend $65,000 a year after taxes, with spending rising over time.

SageonRQ compared their Current Plan with a Modeled Plan. The modeled strategy combines withdrawal choices, Roth conversions, and a potentially different investment mix. The Audit did not independently test every possible withdrawal sequence.

What did SageonRQ find?

The Modeled Plan includes $333,100 in projected Roth conversions. Both plans project savings remaining through age 90 under the assumptions used.

What does the improvement mean?

The Modeled Plan projects $95,204 more in net-of-tax ending value, $13,055 less in lifetime federal taxes, and $1,511,066 more in ending Roth savings. Its $235,019 reduction in lifetime RMDs is separate from the federal tax savings. RMDs are withdrawals, not tax bills.

The $95,204 difference cannot be attributed to withdrawal order alone. The strategy also includes Roth conversions and may use a different investment mix. Its reported overall annual return assumptions are 7.4% for Current and 7.6% for Modeled. Read more about Roth conversion tradeoffs.

How can the account choices differ?

Using taxable savings first may preserve tax-deferred funds but could lead to larger RMDs later. Using pretax savings earlier may reduce future RMDs but increase current taxable income. Using Roth savings may help manage taxable income today but leaves less Roth money for later. The best approach may change from year to year.

What can you do next?

The Retirement Opportunity Audit compares your Current Plan with a modeled strategy based on the facts you enter. Retirement Strategy Navigator is planned to build on the Audit with a year-by-year roadmap and additional comparisons of withdrawal choices, conversion timing, Social Security timing, and changes in spending or income. Those Navigator capabilities are planned, not results from this Audit.

Frequently asked questions

Should I always withdraw from taxable accounts first?

Not always. That may work in some years but may increase taxes or required withdrawals later. Your account mix and income needs matter.

Should I save my Roth account for last?

Not necessarily. Qualified Roth withdrawals can help manage taxable income, but using Roth funds now leaves less for future years.

Can Roth conversions change my withdrawal plan?

Yes. Conversions generally create taxable income when made and can reduce future pretax balances. Whether they help depends on your circumstances.

Does a lower RMD mean the same amount of tax savings?

No. RMDs are distributions, not taxes. The tax effect depends on your total income and applicable rules.

Can Navigator help me decide what to withdraw each year?

Navigator is planned to provide a year-by-year strategy and additional comparisons to help review possible withdrawal and conversion choices.