Which Account Should You Draw From First in Retirement? Taxable, IRA, or Roth

Most retirees enter retirement with money in three kinds of accounts: a taxable brokerage account, a traditional IRA or 401(k), and — increasingly — a Roth IRA. Each is taxed differently on the way out, which means the order you draw from them changes how much tax you pay over a retirement, not just this year. The most-repeated rule of thumb is "taxable first, IRA second, Roth last." It's a reasonable starting point. It's also wrong often enough that it deserves a closer look.

What does each account cost to tap?

Taxable brokerage account. Selling an investment triggers capital gains tax on the growth only — not the whole withdrawal — and long-term gains are taxed at 0%, 15%, or 20% depending on your taxable income, per IRS Topic 409. Dividends and interest are taxed each year whether or not you spend them.

Traditional IRA or 401(k). Withdrawals are ordinary income, taxed at your regular bracket, except for any after-tax basis. And once you reach age 73, the IRS requires you to withdraw a minimum amount each year whether you need it or not — we covered the timing details in your first RMD at 73.

Roth IRA. Qualified withdrawals are tax-free and there are no lifetime required distributions for the original owner. The catch is the five-year rules, which decide whether earnings come out tax-free.

For New York residents there is one more layer: the state allows taxpayers 59½ and older to exclude up to $20,000 per person of qualifying pension and annuity income — including IRA distributions — from state taxable income, per the Form IT-201 instructions. Withdrawals above that are taxed at ordinary New York rates.

Why is "taxable first" the default?

The logic is simple: spending the taxable account first lets the tax-deferred and tax-free accounts keep compounding without annual tax drag, and taxable withdrawals cost only the tax on the gain, not on the principal. If your income stays roughly constant across retirement, that sequence tends to hold up.

When does the standard order break down?

The default assumes your tax bracket stays the same. For many people it doesn't — it drops sharply in the years between leaving work and the start of Social Security and RMDs. During that window, income may be low enough that the bottom brackets go unused.

That is where "taxable first" can cost you. If you spend only from the brokerage account in those years, you may pay little or no tax now — and then hit 73 with a large IRA whose required distributions land on top of Social Security, pushing you into a higher bracket than you ever needed to be in. Drawing some IRA money (or converting some to Roth) during the low-income years fills those brackets deliberately instead of letting a larger RMD fill higher ones later.

Worth noting: the goal is not to minimize tax in any single year. It's to avoid paying a high rate in one year and a low rate in another when a steadier path would have cost less overall.

What else pulls on the answer?

• Social Security taxation. Up to 85% of benefits become taxable once your combined income exceeds $25,000 (single) or $32,000 (joint), per the Social Security Administration. Because those thresholds aren't indexed, IRA withdrawals can pull benefits into taxation.
• Medicare premiums. Income-related surcharges on Part B and D premiums are based on the income reported on an earlier tax return — generally two years prior, per SSA — so a large withdrawal at 63 can show up as a higher premium at 65.
• Heirs. A Roth passes to beneficiaries income-tax-free, while an inherited traditional IRA must generally be emptied within ten years — see the inherited-IRA 10-year rule. That can argue for spending the IRA and preserving the Roth, or the reverse, depending on the heirs' brackets.
• Charitable giving. After 70½, a qualified charitable distribution lets IRA money go to charity without ever hitting your return.

The bottom line

"Taxable, then IRA, then Roth" is a sensible default for someone whose income and bracket stay level. For many retirees the better path is a blend — spending from the taxable account while deliberately drawing or converting enough from the IRA each year to use the brackets that would otherwise go to waste, and keeping the Roth for last or for the years when an extra dollar of income would cost the most.

Which version applies to you depends on your account balances, your bracket now versus later, when you claim Social Security, your health coverage before Medicare, your state, and what you want the accounts to do for the next generation. That is a year-by-year plan, not a rule — and it's worth mapping before you take the first withdrawal, not after.