Where Should I Pull Funds From First in Retirement?

When you approach retirement, you will likely hear a standard rule of thumb regarding your withdrawals. Spend your taxable accounts first. Then, draw from tax-deferred accounts like IRAs and 401(k)s. Finally, hold off on touching Roth IRAs as long as possible.

There is a lot of truth to that logic. You are preserving the most tax-favored money for the longest period of time. However, that basic approach misses how to minimize your overall tax bracket throughout your retirement years.

Following the conventional sequence blindly can mean accidentally pushing yourself into higher tax brackets year after year. This creates a bigger tax bill.

The Tax Trap Example 

Let’s look at a hypothetical scenario. Imagine you and your spouse have Social Security and a pension that generates about $60,000 of taxable income. To support your lifestyle, you need to pull another $50,000 from your investments.

In 2025, the 12% federal tax bracket for married couples ends at roughly $96,950. Anything above that jumps to 22%. If you follow the standard advice and pull that entire $50,000 from your IRA, your taxable income shoots up to $110,000. While some of that money stays in the 12% bracket, about $15,000 spills over into the 22% bracket.

You are effectively paying nearly double the taxes on that last portion of income simply because of where you pulled the money from.

The Solution: Strategic Withdrawal Planning 

The goal isn’t just preservation. It is tax bracket management. Instead of treating all dollars the same, you must be intentional about which accounts you tap and when.

This is the four-step approach that can help you avoid the higher tax bracket:

Step One: Identify Fixed Income Sources

 Before touching your portfolio, list the income that shows up automatically. This includes Social Security, pensions, rental income, or annuities. These are the foundational dollars that do not require you to sell investments.

Step Two: Calculate Your Shortfall 

Determine the gap between your fixed income and what you actually need to live your ideal lifestyle. This gap is exactly what your savings and investments must cover.

Step Three: Manage Your Tax Bracket 

Going back to the example, you have $60,000 in fixed income and need $50,000 more. Instead of taking it all from the IRA, you could take just $36,000 from the IRA. That fills up your 12% tax bracket perfectly. Then, you take the remaining $14,000 from a tax-free source, like a Roth account. By doing this, you keep all your income in the 12% bracket rather than spilling into the 22% bracket.

Step Four: Consider Long-Term Impacts 

You also need to look ahead. If you leave your tax-deferred accounts untouched for too long, you may face massive Required Minimum Distributions (RMDs) starting at age 73. Sometimes it makes sense to spend down your IRA early to keep those future balances manageable. You also need to watch out for IRMAA surcharges on Medicare premiums if your income creates a spike in specific years.

Remember: There is no one-size-fits-all way to pull funds in retirement. By being intentional with your withdrawals, you can keep your taxes lower for longer. That means more money for your retirement lifestyle and less for the IRS.

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