Imagine withdrawing $20,000 from your retirement savings to take your grandchildren on a special vacation. You have the money, you’ve worked hard for it, and you expect to pay some taxes. But when tax season arrives, you discover that your withdrawal has also made more of your Social Security benefits taxable.
Your taxable income may have increased by far more than the $20,000 you withdrew. Depending on your circumstances, that extra income could also raise your Medicare premiums two years later. What seemed like a simple withdrawal can turn into an expensive surprise.
The account you withdraw from in retirement can matter almost as much as the amount you withdraw.
Why the Order of Retirement Withdrawals Matters More Than You Think
During your working years, managing money usually means earning a paycheck, paying your bills, and saving whatever remains. Retirement changes that arrangement because you must decide where your income will come from.
Social Security and pensions may cover part of your monthly expenses. The rest often comes from investments, retirement accounts, and personal savings that you’ve built over several decades.
Suppose a retired couple wants $80,000 per year to support their lifestyle. Their combined Social Security benefits provide $45,000, leaving a $35,000 spending gap before accounting for income taxes.
They could withdraw that money from a traditional IRA, sell investments in a brokerage account, or use their Roth savings. Each choice may provide the same amount of cash, but the tax results can be very different.
A traditional IRA withdrawal generally increases ordinary income. Selling investments in a brokerage account may create taxable capital gains only on the appreciation. A qualified Roth withdrawal usually adds nothing to taxable income.
This difference matters because retirement taxes are not based simply on how much money reaches your bank account. They depend on the types of income you receive and how those amounts interact.
Understand the Three Main Retirement Tax Buckets
Most retirees with investment savings have money in some combination of three account categories. Each serves a different purpose, and each comes with its own tax treatment.
| Account Type | Common Examples | Tax Treatment When Withdrawn |
|---|---|---|
| Taxable accounts | Brokerage accounts, stocks, mutual funds | Capital gains may apply when investments are sold at a profit |
| Tax-deferred accounts | Traditional IRA, traditional 401(k), 403(b) | Generally taxed as ordinary income, except for any after-tax basis |
| Tax-free accounts | Roth IRA, Roth 401(k) | Qualified withdrawals are generally free from federal income tax |
Taxable brokerage accounts have one important advantage: the entire amount withdrawn is not necessarily taxable income. If you sell $30,000 worth of shares that originally cost $24,000, your capital gain is $6,000, not $30,000.
Traditional retirement accounts work differently. If the entire account was funded with pretax contributions, a $30,000 withdrawal generally adds $30,000 to your ordinary income.
Roth accounts offer another option. Once the applicable age and five-year requirements are satisfied, qualified withdrawals can provide spending money without increasing federal taxable income.
That is why having money spread across several tax categories can be useful. You have more choices when you need additional cash, especially during years when your income is already high.
The First Tax Trap: Making More of Your Social Security Taxable
One of the most surprising features of retirement taxation is that withdrawals from a traditional IRA can make more of your Social Security benefits taxable.
The IRS uses a measure commonly called combined income. It includes your adjusted gross income, tax-exempt interest, and half of your annual Social Security benefits.
For 2026, the long-standing federal Social Security taxation thresholds remain unchanged.
| Filing Status | First Income Threshold | Second Income Threshold |
|---|---|---|
| Single | $25,000 | $34,000 |
| Married filing jointly | $32,000 | $44,000 |
Below the first threshold, Social Security benefits generally are not subject to federal income tax. Between the thresholds, up to 50% of benefits may become taxable. Above the second threshold, up to 85% may be included in taxable income.
There is an important distinction here. Having 85% of Social Security benefits treated as taxable income does not mean the government takes 85% of your benefits.
Consider a married couple receiving $48,000 annually in Social Security. Their benefits alone contribute $24,000 to the combined-income calculation.
When they add IRA withdrawals, taxable interest, or investment gains, they can move through the Social Security taxation thresholds fairly quickly. The additional income can cause part of their benefits to become taxable as well.
In certain parts of that calculation, an extra $20,000 IRA withdrawal can increase the amount subject to federal income tax by substantially more than $20,000.
The result is an effective marginal tax rate that may be much higher than the couple expected from looking at their ordinary tax bracket.
This is sometimes called the Social Security tax torpedo. It is one reason retirees should calculate the tax impact of a withdrawal before transferring a large amount from an IRA.
The Second Tax Trap: Higher Medicare Premiums Two Years Later
Medicare creates another surprise for retirees who take large distributions without planning ahead.
Most people pay the standard Medicare Part B premium, but higher-income beneficiaries may pay an additional charge called the Income-Related Monthly Adjustment Amount, or IRMAA.
The surcharge can apply to both Medicare Part B and Part D prescription drug coverage.
For 2026, the standard Part B premium is $202.90 per month. The first IRMAA tier begins when the modified adjusted gross income used for Medicare exceeds $109,000 for an individual or $218,000 for a married couple filing jointly.
These 2026 Medicare premiums are generally based on income reported on 2024 federal tax returns.
| 2024 Income Used for 2026 Medicare | Individual | Married Filing Jointly |
|---|---|---|
| No IRMAA surcharge | $109,000 or less | $218,000 or less |
| First surcharge tier | Over $109,000 | Over $218,000 |
| Second surcharge tier | Over $137,000 | Over $274,000 |
| Third surcharge tier | Over $171,000 | Over $342,000 |
Crossing an IRMAA threshold can increase your Medicare bill even if you exceed the limit by a small amount.
For example, moving from the standard 2026 Part B premium to the first higher-income tier adds $81.20 per month for each person. The Part D surcharge adds another $14.50 per month per affected person, if enrolled.
For a married couple who both pay these additional amounts, the combined annual increase is approximately $2,297.
A large IRA withdrawal or Roth conversion can create this result because both can increase the income used in Medicare calculations.
The timing matters. A large taxable withdrawal made in 2026 could affect Medicare premiums in 2028, based on whatever IRMAA limits apply then.
Retirement or another qualifying life-changing event may provide grounds to request a lower surcharge. Still, avoiding an unnecessary income spike can be easier than correcting the Medicare bill afterward.
The Third Tax Trap: Waiting Until Required Minimum Distributions Begin
Traditional IRAs and many workplace retirement plans cannot remain untouched indefinitely.
The IRS requires account owners to begin taking required minimum distributions, commonly called RMDs, once they reach the applicable age.
For people born from 1951 through 1959, the starting age is generally 73. For those born in 1960 or later, it is generally 75. Older retirees may already be subject to earlier starting-age rules.
Roth IRAs and designated Roth accounts in workplace plans do not require lifetime RMDs for their original owners.
The required amount depends on your account balance and the IRS life expectancy tables. A larger balance generally means a larger required distribution.
Suppose you reach age 73 with $700,000 in traditional retirement accounts. Using the standard IRS Uniform Lifetime Table factor of 26.5, the first annual RMD would be approximately $26,415.
That amount must generally be withdrawn even when you do not need it for everyday expenses. If you also receive Social Security, a pension, rental income, or investment income, the RMD adds to your existing tax picture.
Now suppose you had spent several years making carefully planned IRA withdrawals or Roth conversions before RMDs began.
Your traditional account balance could be smaller, which could lower your required withdrawals later. The benefit depends on investment returns, tax rates, conversion costs, and how long you live.
The goal is not to avoid paying taxes forever. It is to avoid paying unnecessarily high taxes because too much income arrives in the same year.
Which Retirement Account Should You Withdraw From First?
For many retirees, a reasonable starting point is to use cash and taxable investments for spending, make controlled withdrawals from traditional retirement accounts, and preserve Roth savings for years when tax-free income is especially helpful.
But this is not a rule that works for everybody. Spending down one account completely before touching another can create unnecessary taxes later.
A better approach is to decide how much income you need and then choose a combination of withdrawals that keeps your overall tax burden manageable.
| Withdrawal Priority | Account | Main Reason |
|---|---|---|
| First consideration | Cash and taxable brokerage | Can provide spending money with limited taxable income |
| Use strategically | Traditional IRA or 401(k) | Allows controlled use of lower tax brackets and may reduce future RMDs |
| Use when helpful | Roth IRA or Roth 401(k) | Qualified withdrawals can help avoid income spikes |
| Mandatory when due | Accounts subject to RMDs | Required distributions must be completed under IRS rules |
For someone retiring at 60 with substantial taxable savings and traditional retirement accounts, using taxable investments while making modest IRA withdrawals may work well.
For someone already receiving Social Security and approaching an IRMAA threshold, a Roth withdrawal might be the better source for an unexpected expense.
The right withdrawal order can change from one year to the next. That flexibility is more useful than following one fixed rule throughout retirement.
Why Taking Money Only From Your IRA First Can Be Expensive
Traditional IRA withdrawals are usually treated as ordinary income. That means a large withdrawal can push part of your income into a higher federal tax bracket.
For 2026, married couples filing jointly face the following federal ordinary income tax brackets.
| Federal Tax Rate | 2026 Taxable Income |
|---|---|
| 10% | $0 to $24,800 |
| 12% | $24,801 to $100,800 |
| 22% | $100,801 to $211,400 |
| 24% | $211,401 to $403,550 |
These figures apply to taxable income after applicable deductions, not simply the money withdrawn from retirement accounts.
A married couple filing jointly receives a standard deduction of $32,200 for 2026. Eligible taxpayers age 65 or older may also qualify for additional deductions.
Under the federal rules for 2025 through 2028, eligible adults age 65 and older can claim an enhanced deduction of up to $6,000 per person. This benefit begins phasing out when modified adjusted gross income exceeds $150,000 for married couples filing jointly or $75,000 for single filers.
These deductions can create additional planning opportunities, but they do not automatically make Social Security benefits tax-free or prevent Medicare surcharges.
A couple should therefore look at the full tax calculation rather than assuming that every withdrawal falling within the 12% bracket costs exactly 12%.
Why Your Taxable Brokerage Account May Be the Best Starting Point
Taxable brokerage accounts can provide an advantage that traditional retirement accounts generally cannot.
When you sell an investment, you normally calculate the gain by subtracting its adjusted cost basis from the sale proceeds. Only the resulting gain, not the full proceeds, is potentially subject to capital gains tax.
For example, suppose you sell $50,000 in investments that originally cost $40,000. You receive $50,000 in cash, but your capital gain is $10,000.
If the investments were held for more than one year, the gain may qualify for favorable long-term capital gains rates.
In 2026, the 0% federal long-term capital gains bracket extends through $98,900 of taxable income for married couples filing jointly and $49,450 for single filers. The applicable limit takes other taxable income into account.
This does not mean every married couple can realize $98,900 of investment gains tax-free. Ordinary taxable income uses part of that threshold, and certain gains follow special rules.
Still, retirees with relatively low taxable income may be able to sell appreciated investments while paying little or no federal tax on qualifying long-term gains.
One detail deserves attention: additional IRA withdrawals or Roth conversions can reduce how much room remains in the 0% capital gains bracket.
That is why the two decisions should be calculated together.
Your 60s May Offer a Valuable Window for Lower Retirement Taxes
For some Americans, the years between retirement and the start of Social Security or RMDs offer a useful tax planning opportunity.
Your paycheck may have stopped, but you might not yet receive your full retirement income. That can leave you in a lower federal income tax bracket than you occupied during your working years.
This is a period when controlled IRA withdrawals or partial Roth conversions may make sense.
A Roth conversion moves eligible money from a traditional retirement account into a Roth account. The converted amount is generally included in taxable income for the year, to the extent the funds were pretax.
The advantage comes later, when qualified Roth withdrawals can be made without federal income tax. Conversions can also reduce the amount remaining in traditional retirement accounts that may eventually be subject to RMDs.
However, converting too much can raise your current tax bill, increase the taxable portion of Social Security, reduce certain deductions, or cause future Medicare surcharges.
Age matters as well. Because Medicare normally examines income from two years earlier, a large conversion at age 63 can affect premiums at age 65.
The planning opportunity is strongest when today’s tax cost is expected to be lower than the tax cost of leaving the money in the traditional account for later.
How Tom and Linda Could Arrange Their Withdrawals Differently
Consider a hypothetical retired couple named Tom and Linda. Tom is 67, Linda is 65, and both recently stopped working.
They have saved consistently and want to maintain a comfortable retirement that includes travel, family visits, and enough money for unexpected expenses.
Their finances look like this:
| Retirement Detail | Amount |
|---|---|
| Desired annual spending after taxes | $90,000 |
| Taxable brokerage account | $500,000 |
| Traditional IRAs and 401(k)s | $700,000 |
| Roth IRAs | $300,000 |
| Total investment savings | $1,500,000 |
| Combined Social Security if claimed now | Approximately $48,000 annually |
| Pension income | $0 |
These figures are illustrative rather than a completed retirement income projection. Their future taxes and account balances would depend on investment results, filing circumstances, benefit decisions, and withdrawals.
Tom and Linda must decide how to fund their $90,000 spending goal without paying more tax than necessary.
Phase One: Before Their Full Social Security Income Begins
Suppose Tom delays claiming Social Security until age 70, while Linda plans to claim at her full retirement age of 67.
For the first few years, they need to rely mainly on their savings.
One approach would be to use cash and carefully selected sales from their taxable brokerage account for living expenses. They could then evaluate how much traditional IRA income or Roth conversion activity fits comfortably within their desired tax range.
For example, they might sell investments with a relatively high cost basis, limiting the gains realized while providing cash for spending.
At the same time, they could consider converting part of their traditional IRA balances to Roth accounts. That would create additional taxable income today but potentially leave less money subject to future RMDs.
They would also need to set aside money for any tax due on those conversions.
The goal is not to make every year completely tax-free. Instead, they want to avoid wasting potentially lower-tax years only to face larger taxable distributions later.
Phase Two: After Tom Reaches 70
Once Tom begins receiving Social Security at age 70 and Linda is receiving her benefit, they have a more dependable income base.
Their need for investment withdrawals may fall, but their Social Security benefits introduce another tax calculation.
A large IRA withdrawal could now make more of their benefits taxable. It may also move them closer to an IRMAA threshold.
At this stage, they may choose to use taxable brokerage investments for ordinary spending while preserving Roth funds for occasions when additional taxable income would be costly.
Suppose they need $30,000 to replace a roof. Taking that amount from a traditional IRA may create an income spike.
If they instead qualify to withdraw $30,000 tax-free from a Roth IRA, they can cover the expense without increasing their federal adjusted gross income.
That does not automatically make the Roth withdrawal their best financial choice. They must also consider the future value of keeping money invested in the Roth.
But the ability to choose gives them an advantage.
Phase Three: When Required Minimum Distributions Begin
As Tom and Linda grow older, required distributions from their remaining traditional accounts become part of the annual calculation.
At that point, they must satisfy their RMD obligations before deciding how much additional money to withdraw.
Because they may have reduced some traditional balances during earlier years, their required withdrawals could be smaller than if they had left everything untouched.
They can then use taxable investments or Roth money to cover spending beyond their Social Security benefits and RMDs.
The possible benefit is greater control over taxable income, especially during years when medical costs or other large expenses increase.
However, without a detailed lifetime projection, it would be misleading to promise that Tom and Linda will save a particular dollar amount.
Their example shows how thoughtful withdrawal timing creates opportunities for savings rather than guaranteeing a specific outcome.
When Using Your Roth Account First May Actually Make Sense
Although many retirement plans aim to preserve Roth accounts for later years, keeping them completely untouched is not always the best strategy.
Some retirees benefit from Roth withdrawals much earlier.
Consider a retired couple who has already received enough taxable income to come close to the next Medicare surcharge tier.
They unexpectedly need $25,000 for home repairs. Taking the entire amount from a traditional IRA may push them across that threshold.
A qualified Roth withdrawal could cover the bill without increasing their Medicare income calculation.
The same approach may help during a year when additional ordinary income would make more Social Security benefits taxable.
Roth withdrawals may also be useful when a retiree wants to avoid realizing large investment gains in a taxable account.
The important distinction is between using Roth money strategically and emptying Roth accounts simply because the withdrawals are tax-free.
Tax-free growth can be valuable over many years. Preserving at least some Roth savings can provide flexibility later in life and may benefit heirs, depending on the applicable inheritance rules.
Five Common Withdrawal Mistakes That Can Cost Retirees Money
Even retirees with substantial savings can lose money through decisions that seem harmless at first.
1. Emptying taxable accounts before touching traditional IRAs. This can leave large pretax balances that produce substantial RMDs later. A measured combination may work better.
2. Taking large IRA withdrawals without checking Social Security taxes. Extra ordinary income can cause additional benefits to become taxable, raising the effective tax rate.
3. Making a large Roth conversion without considering Medicare. Conversions increase income in the conversion year and can affect Medicare premiums two years later.
4. Assuming every Roth conversion is beneficial. Converting at a high tax rate today may be more expensive than withdrawing the same money later at a lower rate.
5. Ignoring the tax impact on a surviving spouse. After one spouse dies, the survivor may eventually move from joint to single tax brackets. That can change the tax cost of future IRA withdrawals.
The fifth mistake deserves special attention.
A married couple may enjoy fairly comfortable tax brackets while filing jointly. After one spouse dies, the surviving spouse may have less household income but also face much narrower individual tax brackets.
That can make large traditional IRA balances difficult to manage.
Planning withdrawals with both spouses’ potential future tax situations in mind may help reduce this risk.
