In retirement, the order you tap your accounts matters as much as the rate you withdraw. As a general rule, spend from taxable accounts first, tax-deferred accounts (traditional 401(k)s and IRAs) next, and Roth accounts last. Required minimum distributions at age 73 or 75 set a floor on what you have to withdraw from the tax-deferred bucket. A withdrawal plan that accounts for both order and rate is what makes savings last.

Which accounts to withdraw from first

The default sequence, for someone who does not have to worry about RMDs yet, is:

1. Taxable brokerage and savings accounts. You've already paid tax on this money, and selling investments held over a year is taxed at lower long-term capital gains rates. Spending it first lets your tax-advantaged accounts keep compounding.
2. Tax-deferred accounts (traditional 401(k), traditional IRA). Withdrawals are taxed as ordinary income, so drawing these down over time, rather than in large chunks, keeps you in lower brackets.
3. Roth accounts last. They grow tax-free, have no RMDs during your lifetime, and are the most valuable thing to leave to heirs.

Two things bend this order. First, RMDs: once you reach your RMD age, you must take a minimum from tax-deferred accounts whether or not you need it, so many retirees draw those down earlier or do Roth conversions in their 60s to shrink future RMDs. Second, a low-income year (early retirement, before Social Security and RMDs start) is a chance to convert traditional dollars to Roth or realize capital gains cheaply. How this plays out for you is worth mapping with a Certified Financial Planner.

401(k) withdrawals

A 401(k) is an employer-managed, tax-advantaged account you fund with pre-tax money from your paycheck.

At 59 1/2 you can take penalty-free withdrawals; withdraw earlier and you owe a 10% penalty on top of income tax. The exceptions to the 10% penalty for a 401(k) are narrower than for an IRA. They include disability, certain medical expenses above 7.5% of income, a qualified domestic relations order, leaving your job in or after the year you turn 55, and substantially equal periodic payments.

The first-time homebuyer and college-tuition exceptions apply only to IRAs, not to 401(k)s. Your plan may allow a hardship withdrawal for a home purchase or tuition, but that withdrawal is still generally subject to the 10% penalty. Any early withdrawal also means less money compounding for retirement, so treat it as a last resort.

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When you must withdraw from a 401(k)

After 59 1/2 you are not required to take anything at first. Eventually the IRS requires required minimum distributions: starting at age 73 if you were born between 1951 and 1959, and age 75 if you were born in 1960 or later. (The age was 72 before SECURE 2.0 passed in December 2022.) If you're still working for the employer that sponsors the plan and don't own more than 5% of the company, you can delay RMDs from that plan until you retire.

Your first RMD is due by April 1 of the year after you reach your RMD age; each one after that by December 31. You can always withdraw more than the RMD, never less. Missing an RMD triggers a 25% excise tax on the shortfall, reduced to 10% if you correct it within two years.

If you've hit RMD age and don't need the money, you can reinvest it: an annuity, bonds, stocks, funds, or, if you have earned income at least equal to the amount, a Roth IRA contribution. That is not a rollover; the RMD is still taxable income and you're simply making a separate Roth contribution with the after-tax proceeds.

Key ages:

• 59 1/2: penalty-free withdrawals allowed
• 73: RMDs begin if born between 1951 and 1959
• 75: RMDs begin if born in 1960 or later

IRA withdrawals

You can withdraw from a traditional IRA penalty-free after 59 1/2. Before then, the 10% penalty applies unless an exception does. IRA-specific exceptions include:

• Permanent disability
• Qualified higher-education expenses
• First-time home purchase (up to $10,000 lifetime)
• Health insurance premiums while unemployed
• Qualified birth or adoption expenses

When you must withdraw from an IRA

IRA RMDs follow the same schedule as 401(k)s: age 73 if born 1951-1959, age 75 if born in 1960 or later. Withdrawals above the RMD from a traditional IRA are taxable income; withdrawing less than the RMD triggers the 25% excise tax (10% if corrected within two years).

A Roth IRA has no RMDs during the owner's lifetime, and qualified withdrawals are tax-free. If you can afford to leave a traditional IRA alone until your RMD age, every extra year of tax-deferred growth works in your favor.

Key points:

• Penalty-free withdrawals after 59 1/2
• RMDs begin by April 1 of the year after you reach age 73 (or 75 for those born in 1960 or later)

Common withdrawal-rate strategies

Beyond the order of accounts, you need a rule for how much to take each year. These four are the most common; most people blend them.

The 4% rule

Withdraw 4% of your savings in year one, then adjust that dollar amount for inflation each year after. It's simple and gives predictable income designed to last about 30 years. See how the 4% rule works for the detail.

Its limits: it was built on a 50% stock, 50% bond portfolio and a 30-year horizon, and it doesn't handle stretches of high inflation well or a desire to spend more early and less later. Some planners now start clients closer to 3% to 3.5%.

Pros: simple, predictable, built to avoid running out. Cons: rigid; may be too conservative or too aggressive depending on your timeline.

Fixed-dollar withdrawals

Take a set amount each year, whatever covers your needs, and reassess every two to five years, raising it after good markets and cutting it after bad ones. A retiree might draw $40,000 a year and revisit it every three.

Pros: easy to budget around. Cons: doesn't adjust for inflation between reviews; in a down market you may have to sell assets at a loss to hit the number.

Fixed-percentage withdrawals

Take a set percentage of the current portfolio value each year, so the dollar amount moves with the market. On a $1,500,000 portfolio, a 3% withdrawal is $45,000 for the year. Pick a percentage below your expected return and the portfolio can still grow; pick too high and you risk running out early.

Pros: self-correcting; a conservative rate can grow the balance. Cons: income varies year to year, which is hard to budget. Better applied to discretionary spending than fixed costs.

The bucket strategy

Split assets into three buckets:

• Bucket 1: cash and cash equivalents, roughly three to five years of living expenses
• Bucket 2: fixed-income securities
• Bucket 3: equities, your growth holdings

You spend from Bucket 1 and refill it from Buckets 2 and 3 over time, which lets the growth bucket ride out downturns. The main risk it guards against is sequence-of-returns risk: a large loss in the first few years of retirement, while you're withdrawing, forces you to sell more shares to raise the same cash and can permanently shrink the portfolio. If markets fall early, cut spending, skip an inflation adjustment, or draw from cash rather than selling equities at a loss.

Pros: flexible timelines and holdings; useful with a larger nest egg. Cons: requires budgeting three to five years out; no built-in guidance on what goes in each bucket; can be too conservative if the cash bucket is oversized.

Mix and match these to fit your budget, goals, and risk tolerance. A Certified Financial Planner can help you land on the combination that fits.

Frequently asked questions

Should I use more than one withdrawal strategy?

Most financial planners recommend blending strategies, for example a bucket structure for the accounts plus a fixed-percentage rule for discretionary spending, so the plan fits your actual investments, cash needs, and risk tolerance rather than forcing one formula onto everything.

What is the most popular retirement withdrawal strategy?

The 4% rule is the most widely used, mostly because it's simple: withdraw 4% in year one and adjust for inflation after. Many planners now consider it rigid and start clients at a slightly lower rate given today's longer retirements and market conditions.

Should I take money out of my 401(k) to pay off debt?

Usually not. An early 401(k) withdrawal to pay debt can mean taxes, a 10% penalty, and years of lost compounding. In some situations it may still be the right call, but talk to a financial advisor first; a debt consolidation loan or a balance-transfer plan is often a better route.

How can I avoid the penalty on my 401(k)?

The 10% early-withdrawal penalty is waived only for specific reasons: disability, certain medical expenses, a qualified domestic relations order, leaving your job at 55 or older, and substantially equal periodic payments. A hardship withdrawal lets you access the money for needs like medical bills, tuition, or a home purchase, but it does not waive the 10% penalty unless one of those 72(t) exceptions also applies.

When do I have to start withdrawing from my IRA?

You must begin RMDs at age 73 if you were born between 1951 and 1959, or age 75 if you were born in 1960 or later. A Roth IRA has no required withdrawals during the owner's lifetime.

When can I start withdrawing from my 401(k)?

At age 59 1/2 you can take penalty-free withdrawals (still taxed as income for a traditional 401(k)). Earlier withdrawals owe a 10% penalty unless an exception applies.

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