withdrawal sequence
The order in which different account types are drawn down in retirement — typically taxable first, then tax-deferred, then Roth.
Example
“The withdrawal sequence from taxable accounts first preserved Roth funds for later tax-free growth.”
Memory Tip
SEQUENCE — taxable first, traditional second, Roth last. Preserves tax-free growth longest.
Why It Matters
Your withdrawal sequence can significantly impact your total tax burden and how long your retirement savings last. By strategically choosing which accounts to tap first, you can minimize taxes owed each year and potentially keep your income below thresholds that trigger higher tax rates or reduce benefits like Social Security taxation.
Common Misconception
Many people assume they should withdraw from their largest account first to get it down to a manageable size. In reality, the optimal strategy focuses on tax efficiency rather than account size, which often means starting with taxable accounts even if they are smaller, to preserve the tax-advantaged growth in retirement accounts.
In Practice
A retiree with a $500,000 taxable brokerage account, $300,000 in a traditional IRA, and $200,000 in a Roth IRA needs $40,000 annually. Following the standard withdrawal sequence, they would withdraw the full $40,000 from their taxable account first, paying capital gains taxes on the gains. Only after the taxable account is depleted would they begin withdrawing from the traditional IRA, which would be taxed as ordinary income.
Etymology
Modern retirement income planning — optimizing the sequence of account withdrawals for tax efficiency.
Common Misspellings
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