Tax treatment differences between IRA and brokerage withdrawals create a $6,000 gap on a $40,000 distribution for retirees.
Retirees withdrawing $40,000 from an IRA face up to 22% ordinary income tax, while brokerage account gains are taxed at 15%, creating a $6,000 tax difference. This gap persists even after the 10% early withdrawal penalty disappears at age 59½.
Average IRA balances for Baby Boomers reached $257,002 in Q3 2025, with 401(k) balances at $267,900, according to retirement data. Gen X retirees hold an average $103,952 in IRAs. Tax-deferred compounding in IRAs can save five figures over a 15-year retirement if withdrawals are sequenced correctly.
Prioritizing taxable account withdrawals first eliminates annual dividend and interest tax drag on brokerage holdings, preserving IRA growth potential.