The Order In Which Income and Investments Are Used for Expenses
When I have an expense, which sources of income are used to cover it first? What about investment assets?
The order is as follows:
Additional Cash Inflows
Social Security
Pensions
Required Minimum Distributions (RMDs)
Deferred Compensation
Taxable/Tax-Advantaged Growth
Taxable/Tax-Advantaged Principal
Non-Qualified Tax-Deferred Growth
Non-Qualified Tax-Deferred Principal
Qualified Tax-Deferred Growth
Qualified Tax-Deferred Principal
This is usually the most tax-efficient way to withdraw money. You can also lock out investments from being used, and you can change the order of withdrawal in each section by dragging and dropping investment rows (if "in order" is selected instead of "pro-rata" as the way the program should withdraw funds from investment assets; this setting can be found under Plan Settings in the Advanced Settings section). The investments higher up are used first. The default for Qualified-Tax Deferred Retirement accounts is to not allow such accounts to be used until age 59.5, when there are no penalties for withdrawal. This, too, can be changed as seen in the screenshot below.
