Why Withdrawal Order Changes Your Lifetime Tax Bill
Most retirees hold savings across three buckets — taxable brokerage accounts, tax-deferred accounts like a Traditional 401(k) or IRA, and tax-free Roth accounts — and each is taxed differently when you draw it down. A common rule of thumb is to spend taxable accounts first, since long-term capital gains are usually taxed favorably, then move to tax-deferred accounts, and save Roth withdrawals for last since they're tax-free and benefit most from continued growth. Following this order instead of withdrawing evenly across accounts can meaningfully reduce the total tax you pay over retirement.
Suggested Withdrawal Order
| Order | Source | Why |
|---|---|---|
| 1 | Taxable brokerage | Favorable capital gains rates |
| 2 | Tax-deferred (401k/IRA) | Taxed as ordinary income |
| 3 | Roth | Tax-free — preserve for last |
This calculator applies that order and estimates the tax on each portion using the flat rates you enter. Real-world planning is more nuanced — you may want to withdraw some tax-deferred funds early to "fill up" a lower tax bracket before required minimum distributions force larger withdrawals later, and Roth conversions can also play a role. Treat this as a starting framework rather than a complete strategy, and check the numbers with a tax advisor before making withdrawal decisions.
Frequently Asked Questions
Capital gains rates are often more favorable, and it lets tax-deferred and Roth accounts keep compounding longer.
Roth withdrawals are tax-free, so preserving them lets the account grow tax-free the longest.
No — it uses flat rates you enter. A full strategy should also weigh bracket-filling and required minimum distributions.
※ This is a simplified reference estimate, not personalized tax advice.