Taxes

By the Retiree Report Editorial Team · Updated 2026-06-24 · 7 min read

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

Which retirement account should you drain first in 2026?

The standard answer is short: spend your taxable brokerage and bank money first, your traditional IRA and 401(k) next, and your Roth last. That order lets your tax-sheltered accounts keep growing and pushes your biggest tax bills further into the future. But the standard answer is also where a lot of retirees quietly overpay — because the years before required withdrawals kick in are the cheapest tax years you’ll ever get, and most people waste them.

The default order, and why it usually works

Picture three buckets. Your taxable account holds money you’ve already paid tax on, so you only owe tax on the growth — and long-term gains get their own favorable rates. Your traditional IRA and 401(k) are fully untaxed until you pull money out, at which point every dollar counts as ordinary income. Your Roth is the prize at the bottom: qualified withdrawals come out completely tax-free, and there’s no required withdrawal during your lifetime.

Spending the taxable bucket first makes sense because it’s usually the least expensive to tap. In 2026, a married couple filing jointly pays 0% on long-term capital gains as long as their taxable income stays at or below $98,900, according to Kiplinger’s reporting on the IRS thresholds (the single-filer ceiling is $49,450). Compare that to a traditional IRA withdrawal, where the same dollar is taxed as ordinary income at 10% to 37%. Leaving the Roth for last gives its tax-free growth the longest possible runway, and it’s the account you’d most want to hand to heirs.

That’s the textbook sequence, and for a retiree who simply needs a steady paycheck, it’s a perfectly reasonable default.

Why would you ever break that order?

Because the years between the day you stop working and the day required minimum distributions begin are a tax window that slams shut at age 73.

Here’s the trap. If you follow the default order too faithfully, you spend down your taxable account in your late 60s while your traditional IRA keeps compounding untouched. Then the required minimum distribution rules force you to start emptying a now-enormous IRA at 73 — and those forced withdrawals can land you in a higher bracket than you ever paid while working. The IRS sets the penalty for missing an RMD at 25% of the shortfall (reduced to 10% if you fix it within two years), so this isn’t a deadline you can quietly skip.

The smarter play for many people is to deliberately pull some traditional IRA money — or convert it to Roth — during those low-income gap years, filling up the cheap brackets on purpose. In 2026 a married couple can have taxable income up to $100,800 and still sit inside the 12% bracket, per the Tax Foundation’s 2026 figures. Paying 12% now to avoid 22% or 24% on the same dollars later is the whole game.

A quick example shows the size of the prize. Say you’re a 67-year-old couple who retired at 65, haven’t claimed Social Security yet, and have only $20,000 of taxable income this year from interest and dividends. You’ve got roughly $80,000 of headroom before you’d leave the 12% bracket. Convert $60,000 of your traditional IRA to Roth and you’ll owe about 12% on it now. Leave that same $60,000 in place and it might come out at 22% or 24% once RMDs and your Social Security check are both flowing — a difference of $6,000 to $7,000 on this one move, repeated across several gap years. We walk through the mechanics in our guide to the Roth conversion window after retirement, and the forced-withdrawal math in our explainer on RMD rules for 2026.

How the three buckets actually compare

It helps to see the tax treatment side by side, because the differences are the entire reason sequencing matters.

Notice the middle row does the most damage if you let it grow unchecked. A $1.2 million traditional IRA can throw off a first-year RMD well into five figures, all of it ordinary income stacked on top of your Social Security and pension. The 2026 standard deduction softens the blow — $32,200 for a married couple filing jointly, plus an extra $1,650 per spouse who’s 65 or older, and a temporary senior deduction of up to $6,000 per person that phases out above $150,000 of joint income — but deductions don’t erase a large forced withdrawal.

There’s also a wrinkle the default order ignores: assets in a taxable account generally get a “stepped-up” cost basis when you die, which can wipe out the capital-gains tax your heirs would otherwise owe. That’s a reason not to drain the taxable bucket completely if leaving an inheritance matters to you.

Three traps that quietly raise the bill

The first is the Social Security squeeze. The amount of your benefit that gets taxed depends on your “combined income” — your adjusted gross income, plus tax-exempt interest, plus half your benefits. Cross $32,000 as a couple and up to 50% of your benefits become taxable; cross $44,000 and up to 85% do, according to the IRS and AARP. Those dollar lines haven’t moved since the 1980s and aren’t indexed to inflation, so a poorly timed IRA withdrawal can drag more of your benefit into the taxable column.

The second is IRMAA. A large withdrawal two years before a given Medicare year can push your income over an income-related surcharge threshold and raise your Part B and Part D premiums — a cost most retirees never see coming. (We break down the brackets in our piece on the 2026 IRMAA income thresholds.)

The third is RMD bunching, which we’ve already met: skip the gap years, and you hand your future self a stack of forced, fully taxable income all at once.

Does this mean you should obsess over every dollar? No. It means the order isn’t really “taxable, traditional, Roth” — it’s “whatever keeps your taxable income smooth, year after year.” Fidelity calls one version of this a proportional approach, pulling a little from each bucket to flatten the spikes.

What to do next

Start by estimating your income in each year between now and 73, then ask where the cheap bracket room is. If you’ve got a low-income year coming — say you’ve retired but haven’t claimed Social Security yet — that’s prime territory to either take extra traditional IRA money or run a Roth conversion up to the top of the 12% or 22% bracket. The IRS Tax Withholding Estimator and your plan’s RMD calculator can help you model the numbers before you act.

This is one area where a few hours with a fee-only financial planner or a tax professional usually pays for itself, because the right move depends on your bracket, your Social Security timing, and your estate goals. Nothing here is individualized tax advice — it’s the framework to bring to that conversation.

What to remember

The default withdrawal order — taxable first, traditional IRA second, Roth last — is a fine starting point, but it’s a starting point, not a rule. The real savings come from smoothing your taxable income across the years, especially by using the low-tax gap before RMDs begin at 73 to draw down or convert traditional accounts at 12% instead of paying 22% or more later. Keep one eye on the thresholds that bite quietly — Social Security taxation, IRMAA surcharges, and the bracket you’ll land in once withdrawals become mandatory — and you’ll keep far more of what you saved.