Which Account Should You Spend First?
The order you withdraw money matters. And it should match what you’re trying to accomplish.
What This Means
Which account should you withdraw money from first — your IRA, Roth IRA, or taxable investment account?
The answer depends on what you’re trying to accomplish.
Each account is taxed differently, and the order you withdraw money can have a significant impact on your taxes, retirement income, and how much money you leave behind.
Withdrawals from a traditional IRA are generally taxed as ordinary income. Qualified Roth IRA withdrawals are tax-free, while selling investments in a taxable account may trigger capital gains taxes.
But there is no one-size-fits-all withdrawal strategy.
If your goal is to minimize taxes, you may want to spread withdrawals across multiple accounts. If leaving money to your children is a priority, preserving your Roth IRA could make more sense. And if you’re planning a large purchase, like a vacation home, where that money comes from could make a big difference.
The goal isn’t simply to pay the least amount of taxes this year. It’s to make better financial decisions over your lifetime.
That’s why your withdrawal sequence should match your financial plan and, most importantly, what you’re trying to accomplish with your money.
Common Questions
Is it better to withdraw from multiple accounts instead of just one?
Sometimes. Combining withdrawals from traditional IRAs, Roth IRAs, and taxable investment accounts can help manage taxable income, preserve assets for future goals, and potentially reduce lifetime taxes.
What happens if I withdraw too much money from my IRA in one year?
Taking a large withdrawal from a traditional IRA can create unintended tax consequences. You could push yourself into a higher income tax bracket, trigger higher Medicare premiums through IRMAA, increase the amount of Social Security benefits subject to taxes, or lose eligibility for certain tax deductions and credits.
That’s why it’s important to look at your total income and tax situation before deciding how much to withdraw from your IRA in any given year
What makes a Roth IRA withdrawal qualified and tax-free?
Generally, you need to be at least 59½ years old and have had a Roth IRA for at least five tax years. Once you meet both requirements, you can withdraw your money, including any growth, completely tax-free.
What should I know before withdrawing money from a taxable investment account?
Unlike an IRA, you’re generally only paying taxes on the gains when you sell investments, not your original investment.
How long you’ve held them matters too. Short-term gains are generally taxed as ordinary income, while long-term gains may qualify for lower tax rates.
You also want to be mindful of which investments you’re selling. Some may have large gains, others smaller gains or losses. Spreading sales across different positions or tax years can help manage your tax bill.
Remember This:
Your withdrawal sequence matters just as much as your investment decisions. Protecting what you’ve accumulated is a key part of your financial plan.
Keep Learning:
Not All Inheritances Are Created Equal: Understand how inherited money is treated as you withdraw it and how to plan when inheriting money.
How IRAs Are Taxed — And How to Pay Less: Learn how traditional and Roth IRAs are taxed and why planning ahead matters.
Taxable Accounts & Taxes: Learn how capital gains impact your holdings in taxable accounts.