Wealth Building · 14 min read
The Drawdown Order
Accumulation had a fill order. Spending has one too — and running it backwards costs six figures.
Reviewed by Jonathan Shafer, DO, July 2026. Disclosure: the reviewer is the founder and owner of Attending Financial LLC. This is education, not individualized financial advice.
Withdrawal order is a six-figure decision most physicians never rehearse
You spent a career learning the fill order for contributions: the first, then the , then , then taxable. Retirement poses the mirror-image problem, and almost nobody rehearses it: which account do you draw from first, and in what order do the others follow. The stakes are not rounding error. Withdraw traditional dollars while your taxable account sits idle and you pay 24 or 32 cents on income you could have realized at 12 or 15. Leave the traditional account untouched too long and required minimum distributions eventually force six-figure income you no longer control, with repriced Medicare premiums attached. Run the arithmetic across a fifteen-year retirement and the gap between a well-sequenced drawdown and a backwards one routinely reaches $100,000 to $300,000 in unnecessary tax on a physician-sized portfolio. The good news: the default order is three words long — taxable, traditional, Roth — and it is learnable in one sitting. The entire remaining skill lies in knowing when to break it, because the retirees who pay the least tax are usually the ones who invert a piece of the order on purpose.
drawdown order
The sequence in which a retiree spends account types — by default taxable first, then traditional pre-tax, then Roth — chosen to minimize lifetime tax rather than any single year's bill.
The default logic runs on tax efficiency per year of shelter. Your taxable account is the least protected — its dividends are taxed as they arrive and its growth is taxed on sale — so spending it first costs the least and lets the keep compounding. The traditional account comes second: every withdrawal is ordinary income, so you meter it out. The Roth goes last because it is the only account that compounds tax-free forever and passes to heirs income-tax-free; it is the asset you burn last or never. The honest caveat: the smartest retirees do not follow this order rigidly. In the gap years between retirement and Social Security or RMDs, living off the taxable account can drive reported income to nearly zero — which wastes the standard deduction and the 10, 12, and 22 percent brackets. Deliberately pulling traditional dollars, or converting them to Roth, to fill those cheap brackets is an inversion of the default order, and it is frequently the highest-value tax move of an entire retirement.
Why it matters: The order determines the tax rate stamped on every retirement dollar. Followed blindly, the default wastes the cheapest tax years you will ever have; ignored entirely, it burns tax-free Roth space while traditional balances compound toward forced, top-bracket RMD income. Sequencing is the difference, not the portfolio.
Filling the 22% bracket in a gap year: $231,600 converted at 15.5 cents on the dollar
You and your spouse retire at 60. Spending is $110,000, funded by selling high-basis taxable holdings, so realized gains are negligible. Your only other income is $12,000 of interest and dividends. Social Security waits until 70, RMDs until 75. You decide to convert traditional dollars to Roth through the top of the 22 percent bracket.
Bottom line: One gap year of bracket-filling moves $231,600 out of the traditional account at 15.5 cents on the dollar instead of the 24 to 32 cents RMDs would eventually charge — a $19,652 to $38,180 saving from a single tax year, repeatable every gap year you have.
The $1 that costs $2,297: IRMAA cliffs, the two-year lookback, and the RMD pileup
Medicare premiums are income-tested, and the test is a cliff, not a slope. Per the CMS announcement of November 14, 2025, the standard 2026 Part B premium is $202.90 per person per month. Cross the first IRMAA threshold — above $218,000 married filing jointly, $109,000 single — and each spouse's Part B premium becomes $284.10, plus a $14.50 monthly Part D surcharge. One dollar of excess income reprices a full twelve months for both of you: about $2,297 for a couple at the first tier, and being $1 over costs exactly what being $50,000 over costs within that tier. The trap is timing: IRMAA uses your tax return from two years earlier, so 2026 premiums are set by 2024 MAGI. A Roth conversion at 63 quietly prices your premiums at 65. The companion mistake is the RMD pileup. Leave a $2,000,000 traditional balance untouched from 60 growing at 6 percent and it reaches roughly $4,793,000 at 75; the first RMD (Uniform Lifetime Table divisor 24.6) is about $194,800 of forced ordinary income — deep into the 24 percent bracket and multiple IRMAA tiers, every year, whether you need the money or not.
How to avoid it: Before any conversion in a year you or your spouse is 63 or older, check projected MAGI against the IRMAA table two years forward and leave a $5,000 to $10,000 margin, because CMS publishes each year's thresholds only in the prior November. Model your traditional balance forward to your RMD age — 73 if born 1951 through 1959, 75 if born 1960 or later — and size gap-year conversions so the projected first RMD stays inside your target bracket.
Retire at 58, Medicare at 65: seven years of ACA pricing change the order
Retiring before 65 adds a variable the textbook order ignores: health insurance priced by your reported income. As of 2026, the enhanced ACA subsidies that ran from 2021 through 2025 have expired, and the original 400-percent-of-poverty cliff is back — cross it and the entire premium tax credit disappears, not gradually. For a two-person household, that cliff sits at roughly $84,600 of for 2026 coverage. Every dollar of Roth conversion is a dollar of MAGI. The bridge years force a choice.
You retire at 58 with $2,400,000: $800,000 taxable, $1,400,000 traditional, $200,000 Roth. Spending is $105,000. You will buy marketplace coverage until Medicare at 65, and your RMD age is 75. How do you run the drawdown order across the seven-year bridge?
Convert aggressively anyway — fill the 22% bracket every year from 58, and pay full price for coverage
The conversions save real tax, but each one is bought with the forfeited premium tax credit. Unsubsidized marketplace coverage for a couple in their late fifties commonly costs five figures per year, and that cost recurs for seven years. Unless your traditional balance is so large that RMDs would land in the 32 percent bracket or higher, the subsidy you surrender frequently exceeds the bracket arbitrage you capture. Run both numbers before choosing this.
Live on taxable, keep MAGI under the cliff during the ACA years, then convert hard from 65 to 74 — the better choice
This respects both cliffs in sequence. From 58 to 64 you spend high-basis taxable dollars, converting only what fits under roughly $84,600 of MAGI — modest, but subsidized. From 65 to 74 you have ten Medicare years before RMDs to fill the 22 or 24 percent bracket with large conversions, now watching only IRMAA thresholds — which your age-63 and age-64 income already began setting through the two-year lookback. Most of the conversion opportunity survives; the subsidy does too.
Convert nothing — follow taxable, then traditional, then Roth literally until RMDs force the issue
The $1,400,000 traditional balance compounds untouched for seventeen years. At 6 percent it approaches $3,800,000 by 75, and the first forced RMD alone is roughly $154,000 of ordinary income stacked on top of Social Security — recurring, growing, and pricing both spouses into IRMAA tiers for the rest of retirement. You preserved the subsidy and then donated the savings, several times over, to the RMD pileup.
Check yourself: the gap-year giveaway
The default order fails quietly, not loudly. See if you can spot the failure mode in the most common version of it.
A physician couple retires at 60 and follows the default order strictly: they live entirely on high-basis taxable sales, report near-zero taxable income for five straight years, and touch nothing else. What is the flaw?
Near-zero income in a gap year is not a victory; it is $32,200 of standard deduction and roughly $186,000 of 10-to-22-percent bracket space evaporating annually while the traditional account grows toward RMDs taxed at 24 percent or worse. Roth-first burns the best shelter first, and claiming Social Security at 62 permanently reduces the benefit to fill space a Roth conversion fills better. The fix is inversion: convert traditional dollars into the empty brackets each gap year.
The order, the inversions, and the two cliffs
- The default drawdown order is taxable first, then traditional, then Roth, because it spends the least-sheltered dollars first and preserves tax-free compounding longest.
- Gap years between retirement and Social Security or RMDs are the cheapest tax years of your life; in 2026 a retired couple with minimal other income can convert $231,600 to Roth at an effective 15.5 percent.
- IRMAA is a cliff with a two-year lookback: one dollar of MAGI above $218,000 (MFJ, 2024 income) adds about $2,297 to a couple's 2026 Medicare premiums.
- Your RMD age is 73 if you were born 1951 through 1959 and 75 if born in 1960 or later, and an untouched traditional balance compounds into six-figure forced income by then.
- As of 2026 the enhanced ACA subsidies have expired and the 400-percent-of-poverty cliff is back, so pre-65 retirees must weigh every conversion dollar against a lost premium tax credit.
Do this next: List your balances by tax type, then compute one number for your first planned gap year: expected taxable income subtracted from the top of your target bracket plus the standard deduction. That is your first-year conversion budget — bring it to your CPA.
Keep reading
Your Retirement Account Map
Four account types, two limits, one fill order
Your Freedom Number
Work-optional is a dollar figure, not a birthday
Starting at 45: The Late-Starter Protocol
The 15-year recovery plan for physicians who saved little before mid-career
The HSA: A Stealth Retirement Account
The only account in the tax code where money is never taxed — going in, growing, or coming out. Used as a debit card it does one job; invested, it does three.