Which Retirement Accounts Should You Withdraw From First?

While conventional financial wisdom suggests a specific order for account withdrawals, Ryan emphasizes that the focus should be on long-term tax liabilities. IRAs, being 100% taxable upon withdrawal, can cause significant tax burdens, especially with mandated distributions starting around age 72.

He underscores the benefits of diversifying retirement savings into various accounts such as Roth IRAs, broker accounts, and savings accounts, allowing retirees to have more control over their tax situations.

By managing the composition of accounts and leveraging these various types for income, retirees can avoid higher tax brackets and ensure more of their hard-earned money goes to their intended beneficiaries and less to taxes. He further encourages viewers to start diversifying their savings well before retirement and to always take advantage of company matches in 401(k) plans.

Which Retirement Accounts Should You Withdraw From First?

Are you approaching retirement and wondering about the best strategy for withdrawing funds from your various retirement accounts? The decision of which accounts to tap into first can have a significant impact on your tax liability and your overall financial well-being in retirement. In this article, we’ll explore the factors to consider when deciding which retirement accounts to withdraw from first, including your traditional IRA, Roth IRA, brokerage account, and bank account.

The Composition of Your Accounts

Before diving into the strategy, it’s essential to understand the composition of your retirement accounts. These accounts can include:

  1. IRA (Individual Retirement Account): This is typically the largest retirement account for many people. Contributions to traditional IRAs are often tax-deductible, and the money grows tax-free, but withdrawals are taxed.
  2. Roth IRA: Contributions to Roth IRAs are made with after-tax dollars, and both contributions and earnings can be withdrawn tax-free in retirement.
  3. Brokerage Account: Funds in a brokerage account are already taxed, so there are no tax implications when you withdraw money.
  4. Bank Account: Your bank account is not a traditional retirement account but can be part of your retirement strategy, especially for emergency funds or short-term expenses.

The way you distribute your retirement income can significantly impact your overall tax burden, especially if you have a substantial amount in traditional IRAs.

The Conventional Approach

Traditionally, the recommended approach has been to spend down your IRA first. This strategy makes sense because every dollar withdrawn from a traditional IRA is fully taxable. However, there’s a problem with this conventional approach.

As you reach your mid-70s, the IRS mandates Required Minimum Distributions (RMDs) from your retirement accounts. If you’ve saved a significant amount in your IRA and haven’t spent it down earlier, these RMDs can become substantial and result in higher tax bills, potentially pushing you into a higher tax bracket.

A Better Strategy: Diversifying Your Withdrawals

Rather than following the conventional approach, consider a more flexible and tax-efficient strategy. The idea is to diversify your sources of income during retirement to manage your tax liability better. Here’s how it works:

1. Start with Your IRA

Begin by withdrawing funds from your traditional IRA. This will help you manage the tax impact early in retirement when your income might be lower. By doing this, you can avoid larger RMDs later on and potentially stay in a lower tax bracket. If you want to pursue a more aggressive approach, you might even consider a Roth IRA conversion strategy in the early years of retirement.

2. Utilize Your Roth IRA

Your Roth IRA is an invaluable asset. It provides tax-free withdrawals, making it an excellent source of income in retirement. Since contributions to a Roth IRA have already been taxed, you can withdraw both contributions and earnings without any additional tax. Using this account strategically can help you control your tax liability and enjoy tax-free income.

3. Tap into Your Brokerage Account

The money in your brokerage account has already been taxed, so withdrawals do not have a significant tax impact. Using this account for discretionary spending, vacations, or unexpected expenses can be a tax-efficient way to fund your lifestyle without increasing your tax liability.

4. Utilize Your Bank Account

Your bank account can serve as a buffer for short-term expenses and emergencies. It’s not a retirement account, but it’s an essential part of your financial strategy. You can use it to cover immediate financial needs without affecting your retirement accounts’ tax status.

Benefits of Diversifying Your Withdrawals

Diversifying your sources of retirement income offers several advantages:

  1. Tax Control: By spreading your withdrawals across different accounts, you can have more control over your tax situation. This approach can help you avoid jumping into a higher tax bracket, preserving more of your hard-earned money.
  2. Legacy Planning: Leaving a legacy for your loved ones can be more tax-efficient. If your children inherit a mix of Roth IRAs, brokerage accounts, and bank savings, they have more flexibility in managing the tax implications of their inheritance.
  3. Lifestyle Flexibility: Diversifying your withdrawals allows you to maintain a comfortable lifestyle without worrying about the tax consequences of your spending decisions.


In retirement, managing your tax liability is essential to maximize your income and financial security. Rather than adhering to the conventional wisdom of spending down your traditional IRA first, consider a more flexible approach that involves diversifying your sources of income.

Remember that your financial situation is unique, and it’s advisable to consult with a financial advisor or tax professional who can help you create a withdrawal strategy tailored to your specific needs and goals. By implementing a diversified withdrawal strategy, you can enjoy a more tax-efficient and financially secure retirement.

Also read: 6 Things You Must Pay Off Before Retirement


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