The Conventional Wisdom: Taxable, Then Tax-Deferred, Then Roth

The traditional rule of thumb comes from a straightforward principle: taxable accounts are already subject to tax each year on interest, dividends, and realized gains, while tax-deferred and Roth accounts grow without that annual drag. Spending down the taxable account first, then the tax-deferred account, and saving the Roth account for last gives the tax-advantaged accounts the maximum amount of time to compound before their value is either taxed (tax-deferred) or never taxed again (Roth). Academic research on this question, going back to a widely cited 2006 study, found that this general sequence can extend how long a portfolio lasts compared with tapping retirement accounts first. ¹

That same research identified two specific situations where the conventional order stops being optimal, both of which are common enough in practice that they deserve their own explanation below. ¹

Why the Conventional Order Often Costs More Than It Saves

The conventional approach has a structural weakness: it lets tax-deferred accounts grow untouched for years, which means required minimum distributions, once they begin, can be substantially larger than they would have been with a more deliberate approach. Large RMDs stacked on top of other income can push a retiree into a higher tax bracket precisely in the years they can least plan around it, and can trigger a “tax torpedo,” where an increasing share of Social Security benefits becomes taxable as other income rises. ²

Research modeling realistic retirement scenarios has found that blending withdrawals across taxable, tax-deferred, and Roth accounts, rather than draining each one in sequence, can keep a retiree in a lower bracket for years longer than the conventional approach, reducing lifetime federal taxes by tens of thousands of dollars in some cases and increasing the after-tax amount passed to heirs by a similar or larger amount. ² The exact numbers depend heavily on account balances, income needs, and tax bracket, but the underlying mechanism, smoothing taxable income across more years instead of concentrating it, applies broadly.

The Two Windows Where Deviating From Conventional Wisdom Pays Off

The academic case for the conventional order breaks down in two common situations. ¹

The low-income years before RMDs begin. Many retirees have a period, often between when they stop working and when Social Security and required distributions begin, where taxable income is unusually low. That window is an opportunity to withdraw from, or convert, tax-deferred accounts specifically to fill up low tax brackets that would otherwise go unused, rather than leaving the tax-deferred balance untouched during the one stretch where withdrawing from it is cheapest.

When assets will pass to heirs in a higher tax bracket. Assets in a taxable account generally receive a step-up in cost basis at death, meaning built-in gains can pass to heirs without ever being taxed. Assets in a tax-deferred account carry no such benefit; heirs pay ordinary income tax on withdrawals, often at their own, sometimes higher, bracket. In this situation, drawing down the tax-deferred account during life and preserving the taxable account for heirs can produce a larger after-tax inheritance, even when it doesn’t meaningfully reduce the original owner’s own lifetime tax bill. ^{1, 2}

What Required Minimum Distributions Change About the Order

Required minimum distributions are not optional once they begin, and they remove some of the flexibility a purely tax-driven withdrawal order would otherwise have. Under current law, RMDs generally begin at age 73 for retirement account owners, rising to age 75 for those born in 1960 or later. ^{3, 4} Once the required beginning date arrives, the account owner must withdraw at least the calculated minimum each year regardless of whether the income is needed, which is exactly why the pre-RMD years matter so much: withdrawals or Roth conversions taken voluntarily before age 73 can reduce the size of future mandatory distributions and the tax bracket they land in.

Turning Required Distributions You Don’t Need Into a Tool

Once RMDs begin, a retiree who doesn’t need the full distribution for spending still has options rather than simply accepting the tax bill. Reinvesting the after-tax portion of an unneeded RMD in a taxable account keeps that money growing, generally at more favorable capital gains rates going forward. For charitably inclined retirees over age 70½, a qualified charitable distribution allows up to $111,000 in 2026 to be sent directly from an IRA to a qualified charity; the amount counts toward the RMD but is excluded from taxable income entirely, which is generally more efficient than withdrawing the funds and donating them afterward. ⁵