Which Accounts Should You Withdraw From First in Retirement?

Marcus Holzberg
5 days ago
7 min read

Key Takeaways:

Withdrawal order is a tax decision. The accounts you draw from first can shape your tax bill, your exposure to a down market, and how much flexibility you keep later in retirement.
A layered sequence usually beats a single rule. Many retirees move from cash to taxable accounts, then to pre-tax balances, and finally to Roth accounts and HSAs, weighing taxes and timing at each step.
The right order is meant to change. Income sources, markets, health costs, tax law, and family goals can all reshape the order in which accounts should be opened.

Retirement changes the job of your retirement savings. The dollars that once sat in the background now have to act like a paycheck, and the accounts you tap first can quietly shape your taxes, your investment risk, and how many options you keep down the road.

Getting that sequence right is rarely about one fixed rule. It depends on how your income sources, tax brackets, and spending needs fit together, and on knowing which dollars are worth using now and which are worth protecting for later.

Cash and Stable Assets Often Come First

The first dollars usually come from the safest, easiest places to reach. That can include checking, savings, money market funds, Treasury bills, short-term bond ladders, or a cash reserve set aside specifically for retirement spending.

This layer is not meant to fund the rest of your life. Its job is to cover near-term expenses, monthly withdrawals, irregular bills, and tax payments without forcing rushed moves inside your investment portfolio.

It also gives you breathing room when markets fall. If stocks or longer-term bonds have dropped, leaning on a reserve can keep you from selling investments at depressed prices just to free up spending money.

Once that reserve is drawn down, the question becomes more strategic. You need a tax-aware plan that specifies which account will refill it and where the next round of withdrawals should come from.

Taxable Brokerage Accounts Are Often Next for Flexibility

After cash and stable assets, a taxable brokerage account is often the next practical layer. Selling investments here does not automatically turn the full sale amount into ordinary taxable income, which is part of what makes it flexible.

The tax result usually depends on your cost basis instead. If you sell an investment for more than you paid, only the gain above that basis may be taxable, while the original amount is generally treated as a return of your own money.

The holding period matters too. If you sell an investment after holding it for one year or less, the gain is generally short-term and taxed at federal ordinary income rates of 10% to 37%. If you sell after holding it for more than one year, the gain generally qualifies for more favorable federal long-term capital gains rates of 0%, 15%, or 20%, based on your taxable income.¹

This gives you room to be selective. You may be able to raise spending cash by selling positions with smaller gains, using losses to offset gains, or prioritizing long-term holdings over short-term holdings when the portfolio allows. That can make the brokerage account a useful bridge before creating more ordinary income from pre-tax retirement accounts.

Pre-Tax Accounts Often Deserve Attention Before RMDs Begin

Pre-tax accounts like traditional IRAs, 401(k)s, and 403(b)s are not always meant to be left untouched until withdrawals are required. Drawing on them earlier, in a controlled way, can sometimes do more for your long-term tax picture than waiting:

Controlled ordinary income: Withdrawals from pre-tax accounts are generally taxed as ordinary income, so the amount should be coordinated with your tax bracket, Social Security taxation, and Medicare premiums.

Early retirement income gaps: The years after work ends but before Social Security, a pension, or required distributions begin can leave room for controlled pre-tax withdrawals. That window is often most useful for people who retire before full retirement age.

Required Minimum Distribution (RMD) pressure reduction: Drawing down some pre-tax money earlier can shrink the balance that later produces forced taxable distributions. For many IRA owners, the first required minimum distribution is due by April 1st of the year after reaching age 73.²

Planned Roth conversions: Some retirees use lower-income years to convert part of a traditional account into a Roth account. The trade-off is paying taxes now in exchange for greater tax flexibility later.

Multi-year tax smoothing: The goal is usually to avoid both extremes. Leaving pre-tax accounts alone too long can build future tax pressure, while pulling too much too soon can create an avoidable tax bill.

Please Note: Up to 85% of Social Security benefits can become taxable depending on your combined income.³

Roth Assets Are Often Best Saved for Their Most Valuable Uses

Roth assets often sit near the bottom of the withdrawal order. Because qualified withdrawals can be tax-free, holding them tends to make them far more useful in the right moments later in retirement for these reasons:

Tax-free cash flow: Qualified Roth withdrawals can fund spending without adding to your taxable income. That can matter most in years when investment income, pension payments, or pre-tax withdrawals have already made the tax year heavy.

Later-life flexibility: Roth dollars can be valuable when RMDs, rising healthcare costs, or the loss of a spouse make income control more important. Pulling from a tax-free account in those years can ease pressure.

Tax bracket control: Roth withdrawals can help you meet a spending need without pushing more income into higher ordinary brackets. That can be useful when other sources are already filling the lower brackets.

Longer-term growth: Roth IRAs give the original owner more flexibility because lifetime RMDs do not apply, leaving more opportunity for continued compounding.

Legacy value: Roth assets may be more attractive to leave to heirs than pre-tax retirement accounts because qualified withdrawals are generally tax-free. That can make them useful assets to preserve when your own retirement income needs can be met from other sources.

HSAs Can Work Differently Before and After Age 65

HSAs deserve their own treatment because the right move depends on your age and on what you are paying for. The same account can behave very differently for a qualified medical bill than it does for general spending.

For eligible healthcare costs, HSA withdrawals can be tax-free, making the account one of the first places to turn when medical bills arrive. That can include certain medical, dental, and Medicare-related expenses when the rules are met.

Some people deliberately leave HSA dollars invested and pay current medical costs from other accounts. The idea is to let the HSA continue growing to cover larger healthcare expenses that often arise later in life. After age 65, non-qualified HSA withdrawals avoid the 20% additional tax but are still taxed as ordinary income.⁴ This causes the account to start behaving much like a traditional IRA for non-medical spending.

Your Withdrawal Order Should Evolve With Your Retirement

The order above is a general framework, not a permanent rule. The right sequence can shift as your income, health, the markets, tax law, and family goals change over time.

These common changes can reshape which account comes next:

New income sources, such as Social Security benefits, annuity payments, part-time work, a pension, or rental income, can change which withdrawals make the most sense.
A spouse’s death, a divorce, a remarriage, or another filing-status change can move your tax brackets and weaken an approach that worked before.
Large or unexpected expenses, including healthcare costs, home repairs, family support, or long-term care, may call for tapping different accounts.
Strong or weak market years can affect whether it is better to sell investments, lean on cash, rebalance, or delay a planned withdrawal.
Medicare premium thresholds can make a large withdrawal, gain, or conversion worth a closer look before year-end, since Medicare uses your income from two years earlier to set those premiums.
Estate and charitable goals can shift the order if you want to preserve Roth assets, use qualified charitable distributions (QCDs), donate appreciated securities, or leave certain accounts to heirs.

Retirement Withdrawal Order FAQs

1. Which accounts do retirees usually withdraw from first?

Many retirees start with cash or other stable assets for near-term spending, then move to taxable brokerage accounts, pre-tax accounts, and Roth assets. However, the best order depends on your full retirement picture, not a single rule of thumb.

2. Should I use cash before selling investments in retirement?

Often, yes. Keeping a cash reserve can cover near-term bills without pushing you to cash out investments during a down market. The balance to strike is holding enough cash for flexibility without keeping so much that long-term growth suffers.

3. Why are taxable accounts often used before traditional IRAs?

Taxable accounts can give you more control over what gets taxed and when. Investments held for more than one year may qualify for federal long-term capital gains rates of 0%, 15%, or 20%, which can be more favorable than pulling the same dollar amount from a pre-tax IRA taxed as ordinary income.

4. When does it make sense to tap pre-tax accounts earlier?

Earlier pre-tax withdrawals can make sense in lower-income years before Social Security, a pension, or RMDs begin. Used carefully, they can help you manage your tax bracket now and reduce the forced income that large balances create later.

5. Should Roth accounts usually be saved for last?

Often, yes. Roth withdrawals can provide tax-free cash flow in years when other income already fills your brackets, and the accounts can carry real value for later-life flexibility and heirs. Preserving Roth assets can also give you a tax-free source to draw from when a large expense or high-income year would make additional taxable withdrawals less attractive.

Get Help Choosing Which Accounts to Withdraw From First

A thoughtful withdrawal order turns your savings into income while balancing taxes, market risk, healthcare costs, RMDs, flexibility, and future spending. Done well, the sequence should make retirement feel more organized, not more restrictive.

Our team can help you view cash reserves, taxable accounts, pre-tax balances, Roth assets, HSAs, Social Security, pensions, and projected spending as a single, connected picture. From there, we can build a withdrawal approach that supports both your lifestyle and your long-term financial security.

We can also revisit that order as your retirement evolves, adjusting for changes in taxes, markets, and personal goals along the way. If you would like help deciding which accounts to withdraw from first, schedule a complimentary consultation with our team.

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About the Author

Holzberg Wealth Management is a family-owned and operated financial planning and investment management firm based in Marin County, CA. As your financial advisors, we serve you as a fiduciary and are fee-only, so we never receive commissions of any kind. We help individuals and families like you in the greater San Francisco Bay Area and nationwide with the financial decision-making process to organize, grow, and protect your assets.