Which of the Smiths' accounts would be liquidated first if using the default liquidation order?

• A. Cash or non-qualified money first
• B. Tax-deferred accounts first
• C. Qualified accounts first
• D. Real estate

Answer: (A)

When deciding how to raise cash, assets are used in a sequence that minimizes taxes and penalties while preserving valuable tax-advantaged accounts. Cash or non-qualified money is ideal to tap first because these funds are already after-tax and can be withdrawn with immediate liquidity and no early-withdrawal penalties. This approach avoids triggering taxes or penalties that come with pulling from tax-deferred or qualified accounts, or from illiquid holdings like real estate. By using cash or non-qualified assets first, you meet cash needs efficiently and keep retirement- or tax-advantaged accounts intact for later, when withdrawals will be taxed or managed under favorable rules.