Roth vs. Traditional Withdrawals in Retirement: Which Account to Tap First and Why

Most people spend their entire lives focused on one singular financial goal: accumulation. They save, they invest, they diligently build a nest egg for retirement. It’s a decades-long game of climbing a mountain. But here’s the uncomfortable truth that almost no one talks about: reaching the summit is only half the battle. The descent—the process of spending that money, known as de-accumulation—is where most people stumble, leaving a shocking amount of their hard-earned wealth behind for the IRS.

You’ve been trained to think of your retirement accounts as a single pot of money. But this is a dangerously flawed mental model. In reality, you likely have three distinct pots, each with its own complex set of tax rules: the taxable bucket, the tax-deferred bucket, and the tax-free bucket. The order in which you draw from these buckets in retirement is one of the most consequential financial decisions you will ever make. Getting it wrong can cost you tens, or even hundreds, of thousands of dollars in unnecessary taxes.

Here’s where things get interesting. The conventional wisdom peddled for years—to drain your taxable accounts first, then your tax-deferred accounts, and save your precious Roth accounts for last—is often spectacularly wrong. It’s a simple, linear strategy for a complex, dynamic problem. And this is just a very long way of saying that if your withdrawal strategy doesn’t feel like you’re playing a strategic game of chess against the tax code each year, you’re almost certainly losing.

Why Your Intuition Is Your Worst Enemy

Before we build the right strategy, we have to dismantle the wrong one. Why is the “taxable first, Roth last” approach so appealing? The problem is that it feels logical. Your brain sees the Roth account, with its glorious tax-free withdrawals, and thinks, “That’s my best asset. I should protect it and let it grow for as long as possible.” The tax-deferred 401(k) or IRA, meanwhile, has a tax bill attached to every withdrawal, so your instinct is to put off paying that bill for as long as you can.

This logic seems sound, but it ignores a ticking time bomb baked into the tax code: Required Minimum Distributions (RMDs). Going straight to the point, the government let you defer taxes on your Traditional 401(k) and IRA contributions for decades, but they won’t let you do it forever. Starting at age 73, the IRS forces you to start withdrawing a certain percentage of that money each year, whether you need it or not.

The funny thing is that by “saving” your Traditional accounts for later, you’re not avoiding taxes; you’re often just guaranteeing you’ll pay a higher tax rate on a much larger balance down the road. By ignoring those accounts for the first decade of retirement, you allow them to swell into a massive taxable beast. When the RMDs finally kick in, they can be so large that they push you into much higher tax brackets, creating a cascade of negative consequences, including higher taxes on your Social Security benefits and increased Medicare premiums.

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The Three Buckets: Know Your Financial Arsenal

To build a winning strategy, you first need to understand the tools at your disposal. Every investment dollar you have lives in one of three buckets, defined by their tax treatment.

1. The Taxable Bucket (Brokerage Accounts): This is money you’ve already paid income tax on. When you sell an investment here, you only pay tax on the growth (the capital gain). If you’ve held the asset for more than a year, this gain is taxed at preferential long-term capital gains rates, which can be as low as 0%.
2. The Tax-Deferred Bucket (Traditional 401(k)s, Traditional IRAs): This is pre-tax money. You got a tax deduction when you put the money in, so every single dollar you withdraw—both your original contributions and all the growth—is taxed as ordinary income. Think of this as a partnership with the IRS; they own a piece of this account, and they’ll collect when you make a withdrawal.
3. The Tax-Free Bucket (Roth 401(k)s, Roth IRAs): This is post-tax money. You paid taxes on your contributions upfront. In exchange, all qualified withdrawals, including decades of investment growth, are completely and permanently tax-free. Roth IRAs also have the significant advantage of not having RMDs for the original owner. This is your financial superpower.

The conventional strategy is a rigid, sequential march through these buckets: Bucket 1 -> Bucket 2 -> Bucket 3. The superior strategy is a dynamic dance between them, guided by one principle: tax bracket management.

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The Strategic Withdrawal Method: Playing the Brackets

The goal is not to avoid taxes entirely—that’s impossible. The goal is to pay the lowest possible average tax rate over the entire course of your retirement. This means smoothing your taxable income out over 20 to 30 years, rather than enjoying low-tax years early on only to be slammed with massive tax bills later. This sounds like a trade-off, but it’s actually a desirable thing: we covet a predictable, manageable tax bill each year.

Here’s the game plan, year by year, once you retire:

Step 1: Fill Up the Low Brackets with Traditional Withdrawals. Instead of avoiding your tax-deferred bucket, you lead with it. But you do so strategically. Look at the federal income tax brackets for the current year. Your first goal is to generate just enough taxable income from your Traditional 401(k) or IRA to “fill up” the lowest brackets. For a married couple filing jointly in 2025, the 12% bracket extends up to $96,950 of taxable income. You might decide to withdraw enough from your Traditional IRA to take you right to the top of that 12% bracket, covering a large portion of your living expenses at an exceptionally low tax rate.

Step 2: Use Your Taxable Bucket for 0% Capital Gains. What if you need more income than what the 12% bracket provides? Now you turn to your taxable brokerage account. Here’s where things get really interesting. The long-term capital gains tax rate is 0% for married couples with taxable income up to $96,700 in 2025. Since your income from the Traditional IRA withdrawal already “used up” some of that income space, you can carefully sell appreciated stocks or funds from your brokerage account and potentially pay 0% tax on the gains. This is a powerful combination: locking in low rates on your ordinary income while simultaneously realizing tax-free capital gains.

Step 3: Deploy Your Roth Superpower for Everything Else. This is what your Roth account is for. It’s your ultimate tool for flexibility and tax control. Did a large, unexpected expense pop up, like a new roof or a medical bill? Do you want to take a dream vacation? If covering this expense with Traditional or taxable withdrawals would push you into a higher tax bracket (e.g., from the 12% to the 22% bracket), you use your Roth money instead. The Roth withdrawal is a ghost to the IRS; it doesn’t show up on your tax return and doesn’t affect your taxable income, preventing a one-time expense from creating a long-term tax headache.

This flexible, three-step dance allows you to proactively manage your tax liability each year. You are essentially setting your own tax rate by choosing which bucket to draw from. You get the gist: you are the pilot, not a passenger.

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Defusing the RMD Time Bomb with Proactive Withdrawals

This strategy’s true genius lies in how it addresses the RMD problem. By strategically withdrawing from your tax-deferred accounts in your 60s and early 70s, you are systematically reducing the balance that will be subject to RMDs later on. You are essentially letting the air out of the balloon slowly and under controlled conditions, rather than letting it grow until it pops in your face when you’re 75 or 80.

Each dollar you withdraw from a Traditional account in the 12% bracket is a dollar you won’t be forced to withdraw later in a potentially much higher 24% or 32% bracket. This also has the downstream effect of potentially lowering the amount of your Social Security benefits that are subject to taxation and keeping you below the income thresholds that trigger higher Medicare premiums (known as IRMAA). And this is just a very long way of saying that paying a little bit of tax now can save you a whole lot of tax later.

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The Advanced Move: Roth Conversions as a Pre-Retirement Weapon

For those who are ultra-strategic, you can begin this process even before you stop working. If you have a year with unusually low income, or in the years between retirement and when RMDs begin, you can execute a Roth conversion. This involves moving money from your Traditional IRA to a Roth IRA. You pay ordinary income tax on the amount you convert in that year, but from that point on, the money grows and can be withdrawn completely tax-free.

This is the exact same principle as the withdrawal strategy, just executed earlier. You are proactively “filling up” low tax brackets with conversion income. By doing this in small, deliberate chunks over several years, you can significantly shrink your future RMD liability and build a massive bucket of tax-free funds to use with the flexible strategy described above. It’s the ultimate offensive move in retirement tax planning.

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The Bottom Line: You Are the Chief Tax Officer of Your Retirement

For decades, the entire financial industry has focused on accumulation. But the new frontier of financial planning, the one that will determine the actual quality of your life in retirement, is the science of de-accumulation. It’s about recognizing that a dollar is not just a dollar; its value is determined by which bucket it comes from.

The conventional “taxable, deferred, Roth” sequence isn’t a strategy; it’s a default setting that cedes control of your financial future to the IRS tax code. A proactive, dynamic approach that blends withdrawals from all three buckets to manage your annual tax bracket puts you firmly in control. It turns your tax return from a source of anxiety into a tool for wealth preservation. Remember, you won the game of saving. Don’t lose the game of spending.

This article is for educational purposes only and should not be considered personalized financial advice. Consider consulting with a financial advisor for guidance specific to your situation.

Retirement Withdrawal FAQ

What is the conventional wisdom for retirement withdrawals, and why is it often wrong?

The conventional wisdom is to withdraw from taxable accounts first, then tax-deferred (Traditional), and finally tax-free (Roth) accounts last. This can be wrong because it ignores tax bracket management and can lead to a massive, tax-inefficient Required Minimum Distribution (RMD) problem later in retirement, forcing you into higher tax brackets.

What is a more tax-efficient way to sequence retirement withdrawals?

A more tax-efficient strategy is to manage your tax bracket annually. This often involves withdrawing from Traditional tax-deferred accounts up to the limit of a low tax bracket (e.g., 12% or 22%), then using taxable and Roth accounts for further spending needs. This approach smooths out your taxable income over time and reduces future RMDs.

How do Required Minimum Distributions (RMDs) affect withdrawal strategy?

RMDs force you to withdraw a certain percentage from your Traditional retirement accounts starting at age 73. If you only withdraw from other accounts first, your Traditional balance can grow so large that your future RMDs push you into a much higher tax bracket. A smart withdrawal strategy starts drawing down these accounts earlier to minimize the future RMD “tax bomb.”

When should I use my Roth IRA money in retirement?

Your Roth IRA is your most powerful tool. Its tax-free withdrawals should be used strategically. Use it to cover large, one-time expenses or to fund your lifestyle after you’ve already filled up the lower tax brackets with withdrawals from your Traditional accounts. This prevents a large expense from pushing your other income into a higher tax bracket.

Can I pay 0% tax on withdrawals from a taxable brokerage account in retirement?

Yes, it’s possible. Long-term capital gains are taxed at 0% for individuals with taxable income up to a certain threshold. For 2025, that threshold is up to $96,700 for married couples filing jointly. By carefully managing your income from other sources (like Traditional IRA withdrawals), you can strategically sell appreciated assets from a brokerage account and pay no federal tax on the gains.