In the default liquidation order, which accounts would be liquidated first?

• A. Cash or non-qualified money first
• B. Qualified money first
• C. Tax-advantaged accounts first
• D. Growth investments first

Answer: (A)

The main idea is to cover expenses with assets that have the lowest immediate tax or penalty impact. Liquidating cash or money held in non-qualified, taxable accounts is prioritised because it’s readily available and doesn’t trigger the steep tax penalties that can come with tapping into tax-advantaged or retirement accounts. Withdrawals from qualified accounts (like IRAs or 401(k)s) are taxed as ordinary income and may incur penalties if taken early, so those funds are kept for later. Growth investments, if sold, can generate capital gains taxes and reduce future growth potential, so they’re not the first source. By using cash or non-qualified money first, you preserve tax-advantaged accounts for later, aligning withdrawals with tax efficiency and long-term growth.