Which account do I spend first?

When you retire, you stop being handed a paycheck and start writing your own. The question of which account that paycheck comes from sounds like a detail. It is not. Over a long retirement, the order in which you draw down your accounts is one of the biggest levers you have on how much tax you pay and how long your money lasts. It is also a decision you never had to make while you were working, which is exactly why it catches capable people off guard.

Why the order matters at all

Most people retire with money in a few different kinds of accounts, and the tax rules for each are different.

A traditional 401(k) or IRA is money you never paid tax on. Every dollar you take out is taxed as ordinary income.

A Roth account is money you already paid tax on. Withdrawals, done right, come out tax free.

A regular brokerage or savings account is money you already paid tax on as well, but its growth is taxed differently, generally at capital gains rates when you sell, which are often lower than ordinary income rates.

Because these three buckets are taxed in three different ways, the account you pull from decides how much of your withdrawal the government takes. Take a dollar from the traditional account and it is taxed as income. Take a dollar from the Roth and it may not be taxed at all. Same dollar in your pocket, very different tax bill. Multiply that choice across every year of a retirement and the difference becomes real money.

The conventional order, and why it is only a starting point

The standard advice you will read is to spend accounts in this order: taxable brokerage first, then traditional tax-deferred accounts, then Roth last. The logic is reasonable. You spend the money that is taxed most gently first, and you let the tax-advantaged accounts, especially the Roth, keep growing as long as possible.

For many people, most of the time, that order is a sensible default. But treating it as a rule you follow blindly is where people leave money on the table, because the best order depends on your whole picture, and it changes from year to year.

Here is the problem with drawing down the taxable account first and leaving the traditional 401(k) untouched for years. That traditional balance does not disappear. It keeps growing, and eventually the government forces you to start withdrawing from it through required minimum distributions. If you spent your early retirement years pulling only from the taxable account, you can arrive at that point with a very large tax-deferred balance and get pushed into a high tax bracket in your seventies, whether you need the money or not. The strict conventional order can quietly set up a tax problem years down the road.

The better way to think about it

The sharper approach is not a fixed order at all. It is to look at your tax bracket each year and fill it deliberately. The goal is simple to say and harder to do. You want to make sure the IRS gets paid what you owe, without leaving them a tip on the way out.

In your early retirement years, especially before Social Security starts and before required distributions begin, your income may be unusually low. That low-income window is valuable. It can be a chance to draw from the traditional account on purpose, at a low rate, or to convert some of it to Roth, precisely so that you are not sitting on an enormous taxable balance later. Rather than defaulting to spend the taxable account first, you might blend withdrawals across accounts to keep your income in a target range that makes sense across your whole retirement, not just this year.

That is the shift. The question is not simply which account to empty first. It is how to draw from all of them in a way that manages your tax bracket over decades, so you are not solving this year's tax bill while creating a much larger one down the road.

This is work I do directly with clients and their accountants. Each year we look at your tax brackets together, often in a joint meeting with your CPA, and decide how much to draw and from where before the year closes and the window to act is gone. The goal in a low-income year is often to deliberately stuff your lower tax brackets, pulling or converting just enough to fill up the low-rate room while it is available, without spilling into the higher brackets above it. One of us is watching the tax return and one is watching the whole retirement picture, and that deliberate choice, filling a bracket on purpose or holding income down to preserve room for a conversion, is the kind of thing that is hard to see when you are looking at a single year on your own. The brackets reset every year, which means this is not a one-time decision but a recurring one, and it rewards being looked at fresh each year rather than set once and forgotten.

Where this sits in the bigger picture

This decision is the top of a chain. Which account you spend from sets your taxable income for the year. Your taxable income determines your tax bracket, whether a Roth conversion makes sense, and even what you pay for health coverage before Medicare. It sets up the size of your required distributions later, which affects your tax bill in your seventies and beyond. Pull this lever one way and everything downstream shifts.

That is why sequencing is genuinely hard to do well alone. Getting it right in a single year is manageable. Getting it right across a whole retirement, with every downstream effect in view, is the part that takes seeing the full picture at once rather than one year at a time. It is also the kind of planning where working alongside your accountant matters, because the tax projection and the withdrawal strategy are two halves of the same decision.

The specific brackets and thresholds move over time, so the exact numbers are worth confirming for the current year. What does not change is the principle: the order you spend your accounts is a lever, not a detail, and the person who manages it deliberately keeps more of their own money than the person who empties one bucket at a time.

If you want to look at your own accounts and map out a withdrawal strategy that considers the whole arc rather than just the next twelve months, that is work I am glad to do with you. Start a conversation.

DISCLOSURE: Riverstone Wealth Planners and LPL Financial do not provide legal or tax advice. Please consult with your tax or legal advisor regarding your personal situation.