Which retirement account should you withdraw from first? The answer depends on your current and future tax brackets, Social Security timing, projected required minimum distributions, state taxes, healthcare costs, and long-term financial goals.
There is no one-size-fits-all withdrawal order. The traditional strategy of spending taxable brokerage assets first, followed by tax-deferred accounts and then Roth accounts, may work for some retirees. For others, it can allow traditional IRA or 401(k) balances to keep growing and potentially create a future tax bomb when RMDs begin.
The decision should start by comparing your current marginal tax bracket with the bracket you may face later. During lower-income years, strategically withdrawing from tax-deferred accounts or completing partial Roth conversions may help manage future taxable income. However, these decisions could also affect Medicare premiums, Social Security taxation, capital gains, and state income taxes.
Traditional retirement-account withdrawals are generally included in taxable income, while qualified Roth distributions may be tax-free. RMD rules also differ by account type, so review the current IRS required minimum distribution guidance.
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