The order you spend matters

Most households approaching retirement think carefully about how much to withdraw. Far fewer think about where each withdrawal comes from. Yet the sequence in which the three buckets are drawn down can determine whether the same dollar of spending is taxed at 12% or 24% — and over a 20- to 30-year retirement, that difference compounds into a material gap. Sequencing is a planning decision made years in advance, not a detail for the accountant in April.

The default order — and the better frame

The conventional prescription is: spend taxable first, then tax-deferred, then tax-free. The logic is to preserve the accounts sheltering the most growth for as long as possible, and as defaults go, it is a reasonable one.

But it is a starting point, not a rule. The stronger frame is marginal-rate management: fill the lowest tax brackets deliberately, every year, regardless of which bucket the dollars come from. The goal is not to avoid taxes — it is to pay them at the lowest available rate, in the most deliberately chosen years.

Bracket-filling: using the low years on purpose

Retirement often opens with a stretch of unusually low income — wages have stopped, Social Security may not have started, and required minimum distributions are years away. In 2026, the 12% bracket for a married couple filing jointly runs to $100,800 of taxable income ($50,400 single), and the standard deduction is $32,200 — meaning a couple can have roughly $133,000 of gross income before any of it touches the 22% bracket.

Those low years are an opportunity that expires. Deliberately drawing from the tax-deferred bucket — or converting some of it to Roth — while the 10% and 12% brackets have room fills cheap brackets with dollars that would otherwise come out later, mandatorily, at whatever rate applies in the RMD years. Left untouched, a large IRA compounds toward forced taxable income with far less flexibility. This is bracket-filling: withdraw or convert just enough each year to reach, but not exceed, the top of a target bracket.

The tax torpedo: the trap in the middle

The most underappreciated hazard in sequencing is the interaction between withdrawals and Social Security taxation. Whether benefits are taxed depends on combined income — adjusted gross income, plus tax-exempt interest, plus half of the annual Social Security benefit. The thresholds were fixed in 1984 and have never been adjusted for inflation:

• Single: up to 50% of benefits become taxable above $25,000 of combined income; up to 85% above $34,000.
• Married filing jointly: up to 50% above $32,000; up to 85% above $44,000.

Inside that zone, each additional dollar of IRA withdrawal does double damage: it is taxed itself, and it can drag up to 85 cents of previously untaxed Social Security into taxable income alongside it. The result is what planners call the tax torpedo — a stealth marginal rate. A retiree nominally in the 12% bracket can see incremental income effectively taxed near 22% in the torpedo zone; one nominally in the 22% bracket can see it effectively taxed near 41%.

The defense is anticipation: households near the thresholds benefit from sourcing spending from the Roth or taxable buckets — where withdrawals add little or nothing to combined income — rather than from IRA distributions that set the torpedo off. This is also part of the quiet case for Roth conversions completed before Social Security begins: dollars already moved to the tax-free bucket never enter the combined-income formula at all.

The sequencing mistakes that show up most

• Spending Roth dollars early to avoid IRA income — in years when the IRA could have filled low brackets cheaply instead.
• Waiting until the RMD year to think about RMDs, forfeiting a decade of bracket-filling room.
• Ignoring combined income when timing one-time events — a property sale or large conversion that pushes 85% of a year's benefits into taxable income.
• Bunching large IRA withdrawals into already-high-income years, compressing dollars into the 24% bracket that patient sequencing would have taxed at 12%.

One more ripple, previewed

Withdrawal decisions echo beyond the tax return. Medicare premiums are means-tested against your income from two years earlier — so a large withdrawal or conversion today can raise what you pay for health coverage two years from now. That mechanism, and the rest of Medicare, is Chapter 5.

The views and opinions expressed here are those of The Financial Sciences Company as of the publish date and are provided for informational and educational purposes only. They are not personalized investment, tax, or legal advice. The Financial Sciences Company, LLC is an investment adviser registered with the State of Texas. Registration does not imply a certain level of skill or training. Additional information is available in our Form ADV at adviserinfo.sec.gov.

General educational information, current as of 2026. Not personalized investment, tax, or legal advice — figures and rules change. For guidance specific to your situation, talk to a qualified professional.