Deep Dive5 min readUpdated June 9, 2026

Tax-Efficient Withdrawal Order

By Horizons Editorial Team

Educational information, not individual financial advice.

Key Takeaways

Pre-tax withdrawals are taxed as income, so to net $X from a traditional account you must withdraw more than $X
The textbook order is taxable → tax-deferred → Roth last, but a strict version often isn't optimal
Blended withdrawals and "bracket-filling" in the low-income gap years smooth your tax rate and defuse the future RMD tax bomb

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The gross-up: pre-tax dollars cost more
The classic order — and why it's only a starting point
The better approach: blend and fill brackets
How Horizons uses this
Check your understanding

In retirement, which accounts you draw from — and in what order — is one of the biggest levers on your lifetime tax bill and how long your money lasts. Two retirees with identical portfolios can pay very different lifetime taxes based on sequencing alone.

The gross-up: pre-tax dollars cost more

A withdrawal from a traditional (tax-deferred) account is taxed as ordinary income. So to net a given amount, you have to withdraw more. To net $80,000 at a 20% effective rate:

Gross withdrawal = $80,000 ÷ (1 − 0.20) = $100,000 — with $20,000 going to taxes.

Roth withdrawals, by contrast, are tax-free, and taxable-account withdrawals are taxed only on the gains. The mix matters.

The classic order — and why it's only a starting point

The textbook sequence is taxable → tax-deferred → Roth last: spend the least tax-advantaged money first, let tax-advantaged accounts keep compounding, and preserve the Roth (no required distributions, best to leave to heirs).

It's a fine default, but a strict version has a flaw: leaving the pre-tax balance untouched lets it grow into a large RMD "tax bomb." Once required minimum distributions begin (age 73/75), that balance can force out big taxable withdrawals — possibly pushing you into a higher bracket and triggering IRMAA Medicare surcharges.

The better approach: blend and fill brackets

The sophisticated move is to smooth your tax rate across retirement instead of front-loading low-tax years and back-loading high-tax ones:

Blended withdrawals — pull proportionally from account types rather than fully draining one first.
Bracket-filling — in low-income years, deliberately realize some tax-deferred income (or do Roth conversions) up to the top of a low bracket, locking in a low rate and shrinking future RMDs.

The gap years between retirement and the start of Social Security and RMDs are the prime window: your income is low, so filling the 12% and 22% brackets cheaply can keep you out of the 32% bracket later. Fidelity's modeling has found proportional strategies cutting lifetime taxes substantially versus naive sequencing.

How Horizons uses this

Horizons grosses up withdrawals for taxes and lets you model withdrawal order and gap-year Roth conversions, so you can see the lifetime-tax and longevity impact of your sequencing.

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Checkpoint

Why is the strict 'spend taxable first, Roth last' order often not the most tax-efficient?

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Required Minimum Distributions (RMDs)