Retirement & Income

By the Retiree Report Editorial Team · Updated 2026-05-25 · 7 min read

This article is general information, not financial, tax, or legal advice. Consult a licensed professional before acting on it.

Spending down your 401(k), IRA, and brokerage in the right order

Most retirement books still teach a tidy rule: drain the taxable brokerage first, then the traditional 401(k) and IRA, and leave the Roth for last. It’s a fine starting point, and it’s wrong often enough that it’s worth questioning before you spend a dime. The order that actually minimizes your lifetime tax bill depends on the gap between your retirement date and your first required withdrawal — and on how close you are to the income lines where Social Security and Medicare start punishing you.

Why the textbook order isn’t always right

The classic sequence assumes your goal is to let tax-advantaged money keep compounding as long as possible. That part is true. What the rule misses is what happens when you finally do touch the traditional 401(k) or IRA — usually all at once, in your mid-70s, when required minimum distributions force the issue. By then the balance has had a decade or more of growth, and the withdrawals can land in a higher tax bracket than the one you sat in during your early retirement years.

Fidelity’s own modeling on tax-savvy withdrawal sequencing suggests a proportional approach — pulling a slice from each account type every year — can cut lifetime taxes meaningfully compared with the strict sequential rule. Vanguard reaches a similar conclusion: the standard order is a default, not an answer. The right answer comes from the interaction of three levers — Social Security timing, partial Roth conversions, and which bucket you tap each year.

Here’s the practical version. If you have a long stretch of low-income years between when the paycheck stops and when RMDs kick in at age 73, use those years aggressively. They are the most valuable tax real estate you will ever own.

The bracket-filling years between retirement and RMDs

Under SECURE 2.0, the IRS requires most traditional IRA and 401(k) holders to start taking RMDs at 73 (or 75 if you were born in 1960 or later). The penalty for missing one is steep — 25% of the shortfall, dropping to 10% if you fix it within two years. RMDs aren’t optional, and they grow as a percentage of the account every year you age.

That gives you a window. If you retire at, say, 65 and delay Social Security to 70, you may have five or six years with very little taxable income. Doing nothing during that window is the most expensive thing most retirees do. The traditional balance keeps growing, and when RMDs finally hit, they arrive on top of Social Security and pension income, often in the 22% or 24% federal bracket.

The fix is to fill the low brackets on purpose. For 2026 the IRS set the standard deduction at $32,200 for a married couple filing jointly and $16,100 for a single filer, according to the IRS inflation adjustments for tax year 2026. Add the new $6,000-per-person bonus deduction for taxpayers 65 and older — created by the One Big Beautiful Bill for tax years 2025 through 2028 and phasing out above $75,000 in modified adjusted gross income for single filers ($150,000 joint) — and a 65-year-old couple can routinely shield $44,000 to $46,000 before a dime is taxed. That’s room to either pull from a traditional 401(k) or convert that amount to a Roth, locking in a 0% effective federal rate on money that would otherwise be taxed at 22% later.

This is the move most often called a Roth conversion ladder. It’s worth reading a dedicated walkthrough on Roth conversions in the years right after retirement before you commit, because the math changes once you add state taxes and IRMAA.

What about the tax torpedo on Social Security?

This is where the textbook order quietly hurts people. Social Security benefits are taxed based on your “combined income,” which the Social Security Administration defines as adjusted gross income, plus tax-exempt interest, plus half of your benefits. The thresholds, set in IRS Publication 915, are unforgiving and haven’t moved since 1994: above $25,000 single (or $32,000 joint), up to 50% of your benefits become taxable; above $34,000 single (or $44,000 joint), up to 85% do.

Now picture what happens if you obediently drain the brokerage first and then, at 73, start taking RMDs while also drawing full Social Security. The RMD pushes your combined income well past the 85% threshold, and suddenly $0.85 of every benefit dollar is taxable on top of the RMD itself. The marginal hit on each extra dollar of IRA withdrawal can climb into the 40% range, even if your nominal bracket is 22%. That’s the so-called tax torpedo, and it’s a one-way trip.

A modest dose of traditional withdrawals earlier — or partial Roth conversions before benefits begin — defuses it. Once Social Security is on, every extra dollar from a traditional IRA risks dragging another $0.50 to $0.85 of benefits into the taxable column. Better to pull harder from the IRA when no benefits are flowing yet.

It doesn’t take much. Even $20,000 a year of Roth conversions during the 65-to-70 window can shrink the eventual RMD enough to keep a couple comfortably below the 85% line for the rest of retirement.

Capital gains, IRMAA, and the proportional approach

Two more lines matter. The first is the long-term capital gains 0% bracket. For 2026, Kiplinger reports the 0% rate applies to taxable income up to $49,450 single and $98,900 married filing jointly. If you sit below that, gains realized in your brokerage are federally tax-free. That’s a strong argument for harvesting some long-held appreciated positions during the same low-income window you’re using for conversions — though not both at once, since each fills the same bracket space.

The second line is IRMAA. Cross the first 2026 Medicare income-related monthly adjustment amount threshold — $109,000 single, $218,000 joint, per Kiplinger’s 2026 IRMAA brackets — and your Part B and Part D premiums jump for the whole year, based on your tax return from two years earlier.

It’s a cliff, not a slope.

One extra dollar of income can cost a couple over a thousand dollars in premiums. So large conversions or asset sales need to be sized to stay under whichever IRMAA tier you’re targeting, with room to spare for surprise dividends. If you’re close to a bracket, check the current numbers against our IRMAA 2026 income thresholds breakdown before you pull the trigger.

Put all of this together and the practical sequence usually looks more like this than the textbook:

• Ages 60-72 (the gap years). Live primarily off the taxable brokerage, but each year withdraw or convert enough from the traditional 401(k) and IRA to fill the 12% bracket (and the 0% capital gains bracket, if those are separate dollars). Top off the Roth.
• Ages 73+. Take the RMD first because you must. Then fill remaining spending needs from the brokerage, harvesting losses when possible, and use the Roth only as a release valve for big one-off costs (a new roof, a long-term care year) that would otherwise push you across an IRMAA or Social Security threshold.

A purist proportional strategy — pulling, say, 60% from traditional, 30% from taxable, 10% from Roth every single year — is simpler and produces most of the same benefit, especially if you don’t enjoy spreadsheets. The exact mix matters less than the principle: don’t let any one bucket grow unchecked into your 70s.

How to put this together

Start with three numbers: your projected RMD at 75, your expected Social Security at the age you plan to claim, and the top of the 12% bracket for your filing status (roughly $98,000 taxable for a couple in 2026 after the standard deduction). If those add up to more than the 12% top, you have an RMD problem worth solving with conversions now.

The IRS Tax Withholding Estimator is a decent free check on whether your current withholding tracks the new mix; AARP Foundation Tax-Aide can help model multi-year scenarios in person at no charge. And if charitable giving is already in your budget after age 70½, a qualified charitable distribution moves money straight from the IRA to the charity and never appears on your 1040 — the cleanest way to shrink an RMD without paying tax on it. None of this is a substitute for sitting down with a fee-only fiduciary if your balances are large; a single missed IRMAA bracket can cost more than a year of advice.

What to remember

The accounts you saved into for 30 years aren’t taxed the same way, and the order you spend them in changes how much you keep. The years between retirement and your first RMD are the cheapest tax years you’ll ever have — use them, either by pulling small amounts from the traditional 401(k) and IRA or by converting to Roth, instead of letting those balances quietly grow into a bigger problem at 73. Watch the cliffs: the Social Security taxation thresholds and the IRMAA brackets do more damage than your nominal tax rate suggests.

Doesn’t it feel strange that the best move is often to pay a little tax earlier than you have to? It usually is. But the math, year after year, comes out ahead.