When clients begin using their portfolio for income, they often ask for a simple rule: brokerage first, then traditional IRA, then Roth.
That sequence is easy to remember, but it does not fit every year or every family.
The better question is, “What combination of accounts can fund this year’s needs while preserving future flexibility?”
That answer begins with cash flow, then considers taxes, investment risk, charitable goals, and the years ahead.
Step 1: Define what the money needs to cover
Start by separating the different uses of cash.
Normal monthly spending is different from a one-time home purchase. Estimated taxes are different from a charitable gift. Travel, family support, insurance premiums, and emergency reserves may each have different timing and flexibility.
Once those needs are listed, add the income already expected from wages, a business, pensions, Social Security, real estate, trusts, dividends, interest, and required retirement distributions.
The remaining gap is what the portfolio needs to fund.
This step helps prevent two common problems: withdrawing more cash than the family needs and selling long-term investments to pay for short-term expenses that could have been planned in advance.
Step 2: Use income and required distributions already arriving
Some cash flows will occur whether or not the family chooses them as its preferred source.
Dividends and interest may accumulate in the brokerage account. A pension or Social Security benefit may cover part of spending. An IRA owner may have a required minimum distribution. A business or trust may make a scheduled distribution.
Include those amounts before creating new sales or withdrawals.
Required distributions deserve particular attention. Taking money from another account does not remove the RMD. If the distribution is already required, the family should decide whether the cash will fund spending, taxes, charitable goals, or reinvestment.
Step 3: Review the taxable brokerage account
A brokerage account often provides the most immediate flexibility. It may hold cash, short-term investments, and securities that can be sold by specific tax lot.
But a $100,000 withdrawal is not automatically $100,000 of taxable income. Tax generally depends on the interest, dividends, and gains recognized inside the account. Selling high-basis shares may create a small gain, while selling a concentrated low-basis position may create a much larger one.
That makes the brokerage review both a cash-flow and an investment decision.
The family should ask:
- Is cash already available?
- Which tax lots could be sold?
- Would the sale reduce or increase concentration risk?
- Are any appreciated assets being considered for charitable giving?
- Will the remaining account still provide enough near-term liquidity?
Step 4: Review the traditional IRA
Traditional IRA distributions are generally included in taxable income. That can affect the family’s tax rate and may influence other parts of the tax picture.
Even so, always saving the IRA for later is not necessarily best. A family may have several lower-income years after retirement and before required distributions. Taking some IRA income or completing a Roth conversion during those years may reduce future pressure, depending on the projections.
The key is to model the decision rather than assume that tax deferral should last as long as possible. More deferral today can mean larger required distributions later. Too much IRA income today can create an unnecessary tax spike.
Step 5: Review the Roth account
Qualified Roth withdrawals can provide cash without adding federal taxable income. That flexibility may be useful for a large purchase or in a year when additional taxable income would be especially costly.
Roth assets may also be valuable long-term capital for a spouse or future beneficiaries. Preserving them can make sense, but they should not be treated as untouchable.
Sometimes a modest Roth withdrawal is the cleanest way to complete the year’s income plan after brokerage assets and required distributions have been considered.
Step 6: Coordinate charitable giving before selling or withdrawing
Charitable goals can change the answer.
An eligible IRA owner may be able to make a qualified charitable distribution under detailed rules. A family with appreciated investments may also consider contributing eligible property rather than selling it and giving cash.
The recipient, account type, timing, documentation, and tax rules all matter. These decisions should be reviewed with the family’s tax and charitable advisors before the sale or withdrawal occurs.
The important planning point is that the best asset for a gift may not be the same asset the family should use for spending.
Step 7: Look beyond the current year
Withdrawal planning becomes much more useful when the family maps several years of income and major decisions.
The map may include retirement, Social Security, required distributions, Roth conversions, a home sale, business income, charitable gifts, trust distributions, and large purchases.
The purpose is not to predict tax law perfectly. It is to identify years with different levels of flexibility.
For example, one year may call for brokerage cash, a required IRA distribution, and a small Roth withdrawal for a major purchase. Another year may allow more IRA income because taxable income is temporarily lower. A year with a significant charitable gift may use a different mix altogether.
A repeatable annual decision process
Each year, the family and advisory team can work through the same seven questions:
- What cash must be funded, and when?
- Which income and required distributions will arrive without additional action?
- How much brokerage cash and high-basis liquidity is available?
- What gains, losses, and tax-rate changes should the CPA model?
- Do future RMDs or possible Roth conversions affect today’s choice?
- Could charitable or estate goals change which asset should be used?
- After the withdrawal, does the portfolio still have the intended risk and liquidity?
The answer may be one account, but it is often a blend.
There is no need to force a permanent rule onto a financial life that changes from year to year. Give each account a job, revisit the plan annually, and preserve enough flexibility to adjust when income, markets, taxes, or priorities change.