Which account do you spend first?

Saving for FIRE is mostly about one question: how much? Spending in FIRE adds another: from where?

Most people reach financial independence with money in several kinds of accounts. Each is taxed differently when you take money out. The order you use them in won't change how much you saved, but it can change how much of it you keep.

This is general education, not tax or financial advice. Withdrawal planning depends on your accounts, income, state, health coverage and goals. A tax professional or fee-only planner can model your own situation.

The three tax buckets

Taxable accounts (a regular brokerage account, savings). You already paid tax on the money you put in. Each year you may owe tax on interest and dividends, and when you sell, you owe tax only on the gain. Long-term gains and qualified dividends can be taxed at 0%, 15% or 20% (IRS Topic 409).

Tax-deferred accounts (traditional 401(k), 403(b), 457(b), TSP, traditional IRA). You usually got a tax break going in, so withdrawals are generally taxed as ordinary income. Required minimum distributions generally start at 73, or 75 for people born in 1960 or later (IRS, IRS Pub 590-B, IRS final RMD regulations, IRB 2024-33).

Roth accounts (Roth IRA, Roth 401(k)). You paid tax going in. Qualified withdrawals are tax-free, and Roth IRAs, along with designated Roth accounts in 401(k) and 403(b) plans, don't require withdrawals during the owner's lifetime (IRS).

There's a fourth, smaller bucket for many people: an HSA, which can pay qualified medical costs tax-free.

The conventional order

The rule of thumb you'll see most often:

1. Taxable accounts first. Selling shares is taxed only on gains, often at low rates, and it leaves the tax-advantaged accounts growing.
2. Tax-deferred next.
3. Roth last, so tax-free growth runs as long as possible.

It's simple and often sensible. But followed strictly, it can create a lumpy tax picture: very low taxable income in your first years of retirement, then much higher income later when you draw only from tax-deferred accounts, required minimum distributions begin and Social Security starts.

Bending the order: filling low brackets

Early retirement often brings a run of unusually low-income years: no paycheck, Social Security not started yet. Many early retirees use those years on purpose.

Taking some tax-deferred money while income is low

The standard deduction is income you can receive without owing federal income tax. For 2026 it's $16,100 for single filers and $32,200 for married couples filing jointly (IRS Rev. Proc. 2025-32).

A made-up example: a married couple with no other income withdraws $32,200 from a traditional IRA in 2026. After the standard deduction, their federal taxable income from it is $0. (State taxes may differ, and early withdrawals have their own rules, below.)

Some people go further and fill the 10% or 12% bracket, accepting a little tax now to shrink the tax-deferred balance before required withdrawals and Social Security stack up later.

Roth conversions

Instead of spending tax-deferred money, you can convert some to a Roth IRA. You pay income tax on the previously untaxed amount converted, and that money then grows tax-free. Each conversion has its own five-year clock for avoiding the 10% additional tax if you withdraw it before 59½ (IRS Pub 590-B). This "Roth conversion ladder" is a common early-retirement tool, explained in Getting to your money before 59½.

Using the 0% capital gains bracket

Long-term capital gains and qualified dividends are taxed at 0% while your taxable income stays under $49,450 (single) or $98,900 (married filing jointly) in 2026 (IRS Rev. Proc. 2025-32). Ordinary income fills that space first.

Continuing the made-up example: the couple also sells shares with $60,000 of long-term gains. Their income is $92,200; after the $32,200 deduction, taxable income is $60,000, all of it gains, and under $98,900. Their federal income tax would be $0.

The catch: income affects other things

Lower tax isn't the only goal. Your income also drives:

Marketplace health insurance. Premium tax credits are based on household income. For 2026, the enhanced credits have expired, and households above 400% of the federal poverty level generally don't qualify (IRS). For 2026 coverage, that line is based on the 2025 guidelines: $62,600 for one person and $84,600 for a household of two in the 48 contiguous states (HHS ASPE).

In the example above, $92,200 of income would put that couple over the line, which could cost them the entire premium tax credit. Zero income tax can still be an expensive year. Health insurance before Medicare explains more.

Taxes on Social Security. Once benefits start, part of them can become taxable if your other income plus half your benefits exceeds a base amount (IRS Topic 423). Large tax-deferred withdrawals later can push more of your benefits into taxable income.

Medicare premiums. At higher incomes, Medicare Part B and Part D premiums include an income-related adjustment (CMS).

Before 59½: what you can reach

The order you'd like and the order you're allowed don't always match. Withdrawals from IRAs and most workplace plans before 59½ generally carry a 10% additional tax, with exceptions such as the Rule of 55 for the plan of the employer you leave in or after the year you turn 55, governmental 457(b) plans (though money rolled into a 457(b) from an IRA or another type of plan can still owe the 10% tax), and substantially equal periodic payments (IRS). Roth IRA contributions (not earnings) can generally come out at any time (IRS Pub 590-B).

That's why many early retirees keep a healthy taxable account: it's the bridge. See Getting to your money before 59½.

A simple way to think about it

Instead of a fixed order, many planners ask each year:

1. What do I need to spend?
2. What's my income so far this year, and what bracket, health-insurance or other thresholds am I near?
3. Which bucket fills the gap most cheaply this year, without creating a bigger bill later?

That's a yearly decision, not a one-time choice, and it's one where a tax professional can pay for themselves.

Next step

Find the total you'd need first; the order comes after.

Try the FIRE number calculator →

Then read The 4% rule and its limits for how much you might draw each year.