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The conventional order is taxable brokerage first, then tax-deferred (Traditional IRA/401k), then Roth last. That rule is a reasonable default, and for many retirees it is close to right.
But it optimizes the wrong thing. It minimizes tax this year while quietly building a larger problem for later — because every year you leave a Traditional IRA untouched, it grows into bigger required distributions at 73 or 75, taxed on top of Social Security. The better approach for most people is a blend: draw enough from the Traditional IRA each year to fill up your low tax brackets, and cover the rest from taxable and Roth.
Below is a worked 2026 example where the same $120,000 of spending money produces a federal tax bill of $8,204, $1,250, or $0 — depending on nothing but which accounts the money came from. Then the part most articles skip: why the $0 answer is probably not the one you want.
Retirement savings usually sits in three buckets, and the IRS treats a dollar from each one completely differently.
| Account | How a withdrawal is taxed | Counts toward MAGI? |
|---|---|---|
| Traditional IRA / 401(k) | Every dollar is ordinary income, at rates from 10% to 37% | Yes — all of it |
| Taxable brokerage | Only the gain is taxed, at long-term capital gains rates of 0%, 15% or 20% | Only the gain |
| Roth IRA | Nothing, once qualified | No |
Two consequences fall out of that table, and they drive everything else.
Selling $120,000 of stock does not create $120,000 of income. If half your position is your original cost basis, you only realize $60,000 of gain. The rest is your own money coming back. This is the single most misunderstood point in retirement withdrawal planning, and it is why brokerage withdrawals are so much cheaper than they look.
Roth withdrawals are invisible. They do not raise your taxable income, they do not push you into a higher bracket, they do not affect how much of your Social Security is taxed, and they do not count toward the Medicare IRMAA thresholds. A Roth dollar is the most flexible dollar you own — which is exactly why spending it first is usually a mistake.
Withdrawal sequencing is bracket management, so it helps to see the actual thresholds. These are the 2026 figures for a married couple filing jointly.
| Rate | Taxable income |
|---|---|
| 10% | $0 – $24,800 |
| 12% | $24,800 – $100,800 |
| 22% | $100,800 – $211,400 |
| 24% | $211,400 – $403,550 |
| 32% | $403,550 – $512,450 |
| 35% | $512,450 – $768,700 |
| 37% | Over $768,700 |
Note the width of that 12% band. A married couple can have $100,800 of taxable income and still not have paid a dollar at more than 12%. That gap between the top of the 12% bracket and where you actually land is the space withdrawal sequencing plays in.
| Rate | Taxable income |
|---|---|
| 0% | $0 – $98,900 |
| 15% | $98,900 – $613,700 |
| 20% | Over $613,700 |
That 0% band is not a typo. A married couple with taxable income under $98,900 pays no federal tax at all on long-term capital gains. Capital gains stack on top of ordinary income, so the more ordinary income you generate, the less of that 0% room survives.
| Deduction | Married filing jointly, both 65+ |
|---|---|
| Standard deduction | $32,200 |
| Additional age-65 deduction | $3,300 ($1,650 each) |
| Senior bonus deduction (2025–2028) | $12,000 ($6,000 each) |
| Total | $47,500 |
The senior bonus deduction is new — created by the July 2025 tax law and scheduled to expire after 2028 unless Congress extends it. It phases out at 6% of modified adjusted gross income above $150,000 for joint filers, with each spouse's $6,000 phasing out separately, so a couple loses it entirely by $250,000 of MAGI.
That phase-out creates a hidden bracket worth knowing about. Between $150,000 and $250,000 of MAGI, each extra dollar of income also costs you 12 cents of deduction — so a dollar of IRA withdrawal in that range adds $1.12 to taxable income. At a 22% marginal rate, the real cost is closer to 24.6%. It is one of several places where your posted bracket and your actual marginal rate are not the same number.
Meet a married couple, both 67, both on Medicare, delaying Social Security to age 70. They need $120,000 to live on in 2026. They are not yet subject to required minimum distributions. Their savings:
Their total deductions are $47,500, as above. Here is what happens under three different withdrawal orders.
Take the whole $120,000 from the IRA. Every dollar is ordinary income.
| Ordinary income | $120,000 |
| Less deductions | −$47,500 |
| Taxable income | $72,500 |
| Tax at 10% on first $24,800 | $2,480 |
| Tax at 12% on remaining $47,700 | $5,724 |
| Federal tax | $8,204 |
Sell $120,000 from the brokerage account. Only the 40% gain portion is income — $48,000. The other $72,000 is return of basis and is not taxed at all.
| Ordinary income | $0 |
| Long-term capital gain | $48,000 |
| Less deductions | −$47,500 |
| Taxable income | $500 |
| All of it long-term gain, under the $98,900 threshold | 0% rate |
| Federal tax | $0 |
| Ordinary income (IRA) | $60,000 |
| Long-term gain (40% of $60,000 brokerage sale) | $24,000 |
| Less deductions | −$47,500 |
| Taxable income | $36,500 |
| Ordinary portion: $12,500 taxed at 10% | $1,250 |
| Gains stack to $36,500 — still under $98,900 | 0% rate |
| Federal tax | $1,250 |
| Strategy | Federal tax | IRA balance left |
|---|---|---|
| A — Traditional only | $8,204 | $1,080,000 |
| B — Brokerage only | $0 | $1,200,000 |
| C — Blended | $1,250 | $1,140,000 |
Strategy A costs $8,204 more than Strategy B for identical spending. That gap is the entire argument for paying attention to withdrawal order, and it recurs every year for the rest of retirement.
Here is the part most articles leave out.
Strategy B wins this year by paying nothing. But it also leaves the entire $1,200,000 Traditional IRA untouched and compounding. At 73 this couple must begin required minimum distributions, on a much larger balance, stacked on top of the Social Security they will have started at 70. Those dollars could easily be taxed at 22% or 24% — and if one spouse dies, the survivor pays them at single-filer rates, where the brackets are half as wide. That last effect is sometimes called the widow's penalty, and it is brutal.
Strategy C pays $1,250 this year. But look at what it bought: it moved $60,000 out of the IRA at an effective rate of about 2%. The alternative is leaving those dollars to be taxed at 22% or more, fifteen years from now, with less flexibility. Paying $1,250 today to avoid perhaps $14,000 later is not a cost. It is one of the best trades available in retirement planning.
Do not ask "which account should I empty first?" Ask "how much ordinary income should I deliberately generate this year, and where does the rest come from?"
For most retirees in the gap years between retiring and starting RMDs, the answer is: pull enough from the Traditional IRA to fill the 10% and 12% brackets, keep total taxable income under the 0% capital gains threshold if you can, cover the remainder from the brokerage account, and touch the Roth last — or use it precisely, to fund spending that would otherwise push you over a threshold.
If you are on Medicare, income above certain levels triggers an income-related monthly adjustment amount — a surcharge on your Part B and Part D premiums. The standard 2026 Part B premium is $202.90 per person per month. The first surcharge tier raises that to roughly $284.
| MAGI — married filing jointly | MAGI — single | Monthly Part B, each |
|---|---|---|
| Up to $218,000 | Up to $109,000 | $202.90 |
| $218,001 – $274,000 | $109,001 – $137,000 | ~$284 |
| $274,001 – $342,000 | $137,001 – $171,000 | ~$406 |
| $342,001 – $410,000 | $171,001 – $205,000 | ~$528 |
| $410,001 – $749,999 | $205,001 – $499,999 | ~$649 |
| $750,000 and above | $500,000 and above | ~$690 |
Two things make IRMAA unusually punishing.
It is a cliff, not a ramp. One dollar of MAGI over a threshold moves you to the next tier in full. A couple who exceeds the first threshold by $1 pays roughly $81 more per person per month for Part B, plus a Part D surcharge — around $2,300 for the year, for that one dollar.
It looks back two years. Your 2026 premiums are set by your 2024 tax return. Which means the withdrawals you take in 2026 determine your 2028 premiums. A large Roth conversion or a one-off IRA withdrawal today shows up as a Medicare bill two years later, long after you have stopped thinking about it.
Under SECURE 2.0, RMDs begin at 73 if you were born between 1951 and 1959, and at 75 if you were born in 1960 or later. Your first RMD can be deferred to April 1 of the following year — but doing so stacks two RMDs into one tax year, which is usually a bad idea. Missing one carries a penalty of 25% of the shortfall, reduced to 10% if you correct it within two years.
RMDs are the reason the gap years matter so much. Between the day you stop working and the day RMDs begin, you have an unusual amount of control over your taxable income. That window is where withdrawal sequencing earns most of its money, and it closes on a fixed date.
It is the most flexible money you own. Spending it early trades away the ability to fund a large expense later without touching your bracket at all.
Only the gain is income. People routinely avoid selling appreciated stock because they overestimate the tax by a factor of two or three, and take an IRA withdrawal instead — the more expensive option.
If your taxable income lands at $40,000 and the 12% bracket runs to $100,800, you left roughly $60,000 of cheap conversion room on the table. It does not roll over. Every unused year is gone permanently.
The mirror image of the first three. Minimizing tax every single year, in isolation, is exactly how you arrive at 73 with a very large IRA and no remaining flexibility.
No. It is a sensible default and often close to right, but it is not a rule. Following it strictly leaves your Traditional IRA compounding into larger required distributions later, taxed at higher rates. A blend that deliberately fills your low brackets usually beats it over a full retirement.
In 2026, a married couple both 65 or older has $47,500 of deductions available — $32,200 standard, $3,300 in additional age-65 deductions, and $12,000 in senior bonus deductions. With no other income, roughly the first $47,500 of IRA withdrawals is taxed at 0%, and the next $24,800 at just 10%.
No. Qualified Roth withdrawals do not appear in modified adjusted gross income, so they do not push you toward an IRMAA threshold. Roth conversions are the opposite — the converted amount is ordinary income and counts in full.
In 2026, married couples with taxable income up to $98,900 pay no federal tax on long-term capital gains. Because gains stack on top of ordinary income, large IRA withdrawals consume this room. Retirees living mainly on brokerage assets are frequently in it without realizing.
Age 73 if you were born 1951–1959, and age 75 if you were born in 1960 or later. Your first RMD may be delayed to April 1 of the following year, though that stacks two distributions into one tax year.
Yes, and significantly. The share of Social Security subject to tax depends on provisional income, which counts IRA withdrawals and capital gains but not qualified Roth withdrawals. In some income ranges an extra dollar of IRA withdrawal makes an additional 50 to 85 cents of Social Security taxable, producing marginal rates well above the posted bracket. This article's example assumes Social Security has not started yet, precisely because that interaction deserves its own treatment.
DrawDownIQ runs this comparison across your actual account balances and shows the withdrawal sequence with the lowest tax for the current year, including IRMAA threshold warnings and side-by-side scenarios.
Start a 7-day free trialThis is educational information, not advice. DrawDownIQ is a modeling tool. It does not provide tax, financial, or investment advice of any kind. Every example here is a simplification — it ignores state income tax, the taxation of Social Security benefits, the net investment income tax, ACA premium credits, and the specifics of your own situation. Tax law changes, and the senior bonus deduction described above is currently scheduled to expire after 2028. Review any withdrawal decision with a qualified tax professional before acting on it.