Withdrawing from multiple retirement accounts in the right order can save you thousands in taxes and keep you below income thresholds that trigger higher Medicare premiums or loss of other benefits

Most people with multiple retirement accounts — a 401(k) from an old job, an IRA, a Roth IRA, maybe a pension — withdraw from them randomly or in whatever order feels easiest. That costs money. The order you withdraw from matters because different account types are taxed differently, and your total income in a given year determines whether you pay ordinary income tax, capital gains tax, or lose access to programs that depend on staying below a certain income level.

For lower-income households, the stakes are higher. Withdrawing an extra $5,000 from a traditional IRA instead than from a Roth can push you over the threshold for Medicare premium subsidies, cost you a tax credit you may have access to for, or bump you into a higher tax bracket where each additional dollar is taxed at a steeper rate. The solution is a withdrawal strategy that treats your accounts as a toolkit, not a pile.

Key Takeaways

  • Roth accounts (Roth IRA, Roth 401(k)) should be your first choice because withdrawals do not count as income and do not affect Medicare premiums or tax credits.
  • Traditional IRAs and 401(k)s are taxed as ordinary income, so withdrawing from them raises your total income and can disqualify you from benefits — use them only after Roth money is gone.
  • Taxable brokerage accounts come next because you only pay tax on gains, not the full withdrawal amount, and you can choose which shares to sell to minimize tax.
  • Social Security, pensions, and annuities have their own tax rules and should be coordinated with IRA withdrawals to keep your total income as low as possible.
  • Your Medicare premium, tax credits, and tax bracket all depend on a number called Modified Adjusted Gross Income (MAGI), so every withdrawal strategy should start by calculating what your MAGI will be.

Why the order of withdrawals matters for your income level

The federal government uses a number called Modified Adjusted Gross Income (MAGI) to decide whether you may have access to for tax credits, Medicare subsidies, and other programs. MAGI is not the same as your total income — it includes some things and excludes others — but for most people with retirement accounts, MAGI is roughly equal to the sum of all taxable withdrawals you take in a year.

When you withdraw from a traditional IRA or 401(k), that withdrawal counts toward your MAGI. When you withdraw from a Roth IRA, it does not. This means a $10,000 Roth withdrawal and a $10,000 traditional IRA withdrawal have very different consequences. The Roth withdrawal keeps your MAGI low; the traditional withdrawal raises it. If you are close to an income threshold — say, $18,000 for a single person to keep a tax credit — that difference determines whether you keep the credit or lose it entirely.

The same applies to Medicare premiums. If your MAGI stays below certain thresholds, you pay the standard premium. Above those thresholds, you pay a surcharge that can add hundreds of dollars per month to your Part B and Part D costs. A single poorly timed $5,000 withdrawal can trigger surcharges that last for years.

Start with Roth accounts and taxable brokerage accounts

Roth IRAs and Roth 401(k)s are your most valuable tool for staying below income thresholds. Withdrawals from these accounts do not count as income on your tax return and do not raise your MAGI. This means you can withdraw $20,000 from a Roth IRA and your MAGI stays exactly where it was.

The catch: you can only withdraw contributions (the money you put in) penalty-free before age 59½. Earnings (the growth on that money) are locked until you reach 59½, unless you meet a narrow exception like disability or a first-time home purchase. If you have a Roth 401(k), the same rule applies, though you can roll it to a Roth IRA to access contributions more flexibly.

After Roth money is exhausted, move to taxable brokerage accounts — money you saved outside any retirement account. Withdrawals from these accounts are only partially taxable. You pay tax only on the gain (the difference between what you paid and what it is worth now), not on the full amount. If you bought a stock for $5,000 and it is now worth $7,000, you only pay tax on the $2,000 gain. This makes taxable accounts much more efficient than traditional retirement accounts for keeping your MAGI low.

Traditional IRAs and 401(k)s: use them last

Traditional IRAs and 401(k)s are fully taxable when you withdraw. A $10,000 withdrawal counts as $10,000 of income. This raises your MAGI by the full amount and is the most expensive way to fund your spending in terms of tax consequences and benefit thresholds.

However, you may have no choice but to use them if you have already exhausted Roth and taxable accounts. When you do, timing matters. If you are in a year where your income is unusually low — perhaps you had a job loss or took unpaid leave — that is the year to take a larger traditional IRA withdrawal. Your tax bracket will be lower, and you are less likely to cross a benefit threshold.

If you have multiple traditional IRAs, the IRS treats them as a single pool for tax purposes. This means you cannot pick and choose which one to withdraw from to minimize taxes. If one IRA has mostly gains and another has mostly losses, you cannot withdraw only from the loss account. You must calculate the tax as if you withdrew proportionally from all of them.

How Social Security and pensions affect your withdrawal strategy

Social Security and pensions complicate the picture because they are partially taxable. Depending on your total income, between 0% and 85% of your Social Security benefits count as taxable income. Pensions are usually fully taxable. This means your withdrawal strategy has to account for these income sources before you decide how much to withdraw from retirement accounts.

If you are claiming Social Security, calculate your combined income first: half your Social Security benefits plus all other income sources. If that number exceeds certain thresholds ($25,000 for single filers, $32,000 for married filing jointly), a portion of your Social Security becomes taxable. The higher your combined income, the larger that portion grows.

This creates a perverse incentive: taking a large traditional IRA withdrawal can push more of your Social Security into the taxable portion, meaning you pay tax on both the withdrawal and the Social Security. Roth withdrawals do not trigger this effect because they do not count as income. This is another reason to prioritize Roth and taxable accounts before touching traditional retirement money.

Coordinate withdrawals with tax credits and Medicare premiums

Before you take any withdrawal, identify the income thresholds that matter to you. If you are under 65 and not yet on Medicare, check whether you may have access to for the Earned Income Tax Credit (EITC), the Child Tax Credit, or the American Opportunity Credit. Each has an income limit. If you are on Medicare, find your current premium and check the income thresholds where surcharges kick in — these change yearly and vary by state.

Once you know your thresholds, calculate your MAGI for the year. Start with Social Security (if applicable), add any pension income, add any wages from work, then add withdrawals from traditional retirement accounts. Subtract any deductions you are may have access to to. The result is roughly your MAGI. Now work backward: if your threshold is $18,000 and your Social Security and wages total $15,000, you can withdraw only $3,000 from traditional accounts without crossing the line. The rest should come from Roth or taxable accounts.

This calculation changes year to year. A year when you have no wages is a good year to take a larger traditional IRA withdrawal because your other income is low. A year when you have a pension payment and Social Security is a year to minimize traditional withdrawals and rely on Roth and taxable money instead.

Special rules for Required Minimum Distributions

At age 73, the IRS requires you to withdraw a minimum amount from traditional IRAs and 401(k)s each year. This is called a Required Minimum Distribution (RMD). You cannot avoid it by using Roth or taxable accounts instead — the RMD is mandatory and counts as income whether you need the money or not.

If you do not need the RMD for living expenses, you can withdraw it and immediately donate it to a charity as a may have access to Charitable Distribution (QCD). This removes the money from your income calculation entirely, which is far better than taking the RMD and paying tax on it. You must be 70½ or older and donate directly from the IRA to the charity — the donation cannot pass through your hands first.

If you are still working and have a 401(k) with your current employer, you may be able to delay RMDs from that account until you retire. This does not apply to IRAs or to 401(k)s from previous employers. Check with your plan administrator about the "still-working exception."

Frequently Asked Questions

Can I withdraw from a Roth IRA without penalty before 59½?

Yes, but only contributions, not earnings. If you put in $50,000 over the years and it grew to $70,000, you can withdraw the $50,000 anytime penalty-free. The $20,000 in earnings is locked until 59½ unless you meet an exception like disability, a first-time home purchase, or a Roth conversion. Check your IRA statement to see how much is contributions versus earnings.

What if I have both a traditional and Roth 401(k)?

Withdraw from the Roth 401(k) first to keep your MAGI low. When you leave the job, you can roll the Roth 401(k) into a Roth IRA, which gives you more flexibility to access contributions. Traditional 401(k) rollovers go to traditional IRAs and are subject to the same pro-rata rule as multiple IRAs.

Does a Roth conversion count as income?

Yes. When you convert money from a traditional IRA to a Roth IRA, the amount converted counts as taxable income in that year. This raises your MAGI and can trigger Medicare surcharges or reduce tax credits. Plan conversions for years when your income is already low, or spread them across multiple years to minimize the impact.

What if I need more money than my Roth and taxable accounts hold?

You will have to withdraw from traditional accounts, which will raise your MAGI. Consider whether you can defer the withdrawal to a year when your other income is lower, or whether you can reduce your spending instead. If you must withdraw, take only what you need and plan the next year's withdrawal to stay below thresholds if possible.

How do I know my Modified Adjusted Gross Income?

Your tax preparer or tax software can calculate it, or you can estimate it yourself by adding up all taxable income sources (wages, interest, dividends, traditional IRA withdrawals, taxable Social Security, pensions) and subtracting deductions like the standard deduction. The IRS instructions for Form 1040 show the formula for your specific situation.