The right withdrawal order often uses more than one account type—and changes as spending, markets, Social Security, Medicare, and required distributions change.

John and Jane face their first retirement withdrawal

Consider John and Jane Sample, an illustrative Naples couple in their mid-60s. They have a mortgage-free home worth $2.5 million and $3 million in financial assets. Their accounts

include $200,000 in checking, $300,000 in a taxable stock portfolio, $2 million in traditional IRAs, and $500,000 in Roth IRAs. They want to maintain their home, enjoy golf and dinners with friends, and take the extended trips they postponed while working. They are also weighing when each should begin Social Security. John’s instinct is to spend checking first and leave the IRAs alone. Jane wants to know what happens when checking runs low. Both questions belong in the same plan.

Begin with the amount that needs to reach checking

Suppose John and Jane estimate $12,000 a month for their regular lifestyle. That is $144,000 a year, before any additional amount needed for income taxes. They set aside separate estimates for a major trip and possible home repairs. Next, they identify income available to meet those expenses. Social Security will eventually cover part of the need. Until benefits begin, their financial assets must cover more. Interest and dividends from those assets are part of the portfolio’s contribution; counting them again as outside income would overstate their resources. Their plan must test whether that spending is sustainable over a long retirement, including difficult markets. Their home contributes to net worth, but they are not planning to sell it to pay ordinary bills. The $3 million in financial assets is the starting point for that income analysis. Choosing an account comes after understanding this spending need. A tax-efficient withdrawal cannot make an unaffordable spending plan affordable.

Understand what each account contributes

John and Jane find it easier to make decisions once they understand how money reaches them from each account.

Those tax differences help explain why two identical transfers into checking can leave a family with different tax bills. They also show why the investments inside an account matter alongside its tax label.

Examine the years before required withdrawals begin

The familiar approach is to use taxable assets first, then tax-deferred accounts, and finally Roth accounts. It can work well, but comparing alternatives matters. Some households benefit from drawing on more than one account type in the same year. [4] For John and Jane, leaving the IRAs untouched deserves a closer look. Once salaries stop, they may have several years with less taxable income before Social Security and required minimum distributions add to it. Their advisor and tax professional can compare using cash alone with taking a measured IRA distribution during those years. A modest tax bill today may be worthwhile if the broader projection suggests heavier taxes later. That is a question to calculate using their circumstances, rather than assume. A partial Roth conversion is another possibility to evaluate. It moves money into a Roth for future use; it does not fund this month’s bills. The taxable portion adds to income in the conversion year, so John and Jane need to consider how they would pay the tax. [3] They also need to look beyond income tax. Higher income can raise Medicare Part B and Part D premiums, generally using tax information from two years earlier. A conversion or large taxable withdrawal can therefore carry an additional cost. [5]

Give the Roth a purpose

John and Jane like the idea of preserving their Roth accounts for later retirement or their children. That can be a reasonable goal. They also want flexibility if a larger expense arrives. Suppose a future year brings both a planned trip and an unexpected home repair. Before taking one large IRA distribution, they can compare available cash, selected investment sales, and a qualified Roth withdrawal. A Roth withdrawal could limit additional taxable income that year, but it would also leave less money available for future tax-free growth.

The useful question is what role the Roth should play in their overall plan. A decision to preserve it should be intentional, and so should a decision to spend it.

Build a paycheck that can adjust

John and Jane can arrange regular transfers into checking while their team manages how that cash is replenished. Planned investment sales, interest, dividends, and bond maturities may each contribute. Any tax withholding or estimated payments need to fit the schedule. This is where investment management and retirement planning meet. Selling a particular holding should reflect its role in the portfolio, its tax consequences, and their upcoming spending. When markets decline, available cash and near-term maturities may provide flexibility. Keeping too much in cash, however, can limit growth and purchasing power over a lengthy retirement. Their withdrawal plan should change as Social Security begins, required distributions apply, or their spending shifts. It should also explain how income would continue for either spouse alone. Both John and Jane need to know where the paycheck comes from and whom to call. For more than three decades, I have helped families navigate retirement and changing markets. The decisions become more manageable when each one is connected to a clear plan and revisited as life changes.

Put your accounts to work for the life you want

John and Jane’s next step is a written income plan: how much should reach checking, which sources will fund it, what should remain available for surprises, and when to review the assumptions. That gives them a practical way to evaluate a trip or a larger purchase before committing to it. At Edwards Asset Management, your financial advisor, CFP® planning professional, investment management team, and experienced client service associate work together to develop and carry out that plan. We coordinate with your tax and legal professionals as appropriate. For managed-account clients, CFP® wealth planning is included in the relationship without a separate planning fee.

If you are approaching retirement or already drawing from your accounts, we invite you to a complimentary introductory conversation. Bring your account statements, a recent tax return, and a sense of the retirement you want. We can help you examine how your money could support it.