Which of the following is true about the default liquidation order?

• A. Cash or non-qualified money is liquidated first
• B. Real estate is liquidated first
• C. Qualified accounts are liquidated first
• D. Tax-advantaged accounts are liquidated first

Answer: (A)

The thing being tested is how withdrawals are ordered to minimize tax costs and penalties. The default approach is to first liquidate cash or non-qualified money because these funds can be accessed with the least immediate tax impact and without triggering penalties tied to tax-advantaged accounts. Using these assets first preserves the tax-advantaged space (like traditional IRAs or 401(k)s) for later, when withdrawals are more likely to be taxed as ordinary income and potentially penalized if taken early. Real estate tends to be less liquid and can lead to sizable capital gains when sold, making it a less favorable first source. So, choosing cash or non-qualified money first aligns with preserving tax benefits and minimizing upfront tax consequences, which is why that option is correct.