I have a boy (5.5) girl (3.5) boy (21 months) and pregnant again with a boy.

We get hand-me-downs for DD from friends, pretty much they are whatever size she is though. I *really try* not to have too much that's bigger than she is....though I admit a couple of times I have come across a yard sale with cute stuff I can't quite resist that is ULTRA CHEAP--like the day my neighbor had "everything 50 cents" and I bought her out of all the cute girly jeans...yeah.
I saved a few of my favorite outfits from when she was a baby. Can't *quite* hand them down, I think I already harbor a secret desire for more....
The boys--since there is a 4 year gap between DS1 and DS2, I have a "way too big" plastic tub full of clothes. This is also where the baby girl clothes are.
I just did a MAJOR clothes sort and some to Goodwill. What I did was anything I figure will fit before next summer is in the house. The rest of the clothes (like some 4T dress clothes, stuff like that from DS1 and DD's baby clothes) are in the "too big" tub in storage.
I sent to Goodwill anything friends didn't need of DD's and anything of the boys' that I didn't particularly care for and don't want to use again. (like I really hate stuff that snaps in the bottom when they hit the wiggly stage, and I want to start using more wool so I need shirts that don't do that)
The remainder:
The drawers contain clothes that they can wear when we are staying at home and I don't care really. Also their pajamas. These are clothes that still fit fine of course, but are stained, cutoff jean shorts, obviously look old/worn, etc. They are the clothes they wear to go get all dusty at the playground and dig in the mud. Right now, they are all shorts and T-shirts. And a drawer for each child for pajamas, socks, and underwear.
Hanging in the closet are the clothes I dress them in to go somewhere--school, dress clothes, just stuff that isn't old/has a stain/etc. I do have a few fall things hanging up just because why go through it again? and they can't reach it anyway. (well the 5 yo can probably but he knows the system)
I have the fall/winter stuff we are not using MOST of the time yet in a laundry basket on the top shelf of the closet so that I can easily get to them and add them to the drawers when they're needed--at that time, I will switch out the shorts to the basket for a bit. They're also there for the occasional time like the other day when it was chilly, rainy, and they needed pants. Then the shorts will live up there until the time we're done having oddball 70-plus degree days.
This seems to be working pretty well so far as I only need the big bucket a couple times a year...and it's way easier for me to tell DH to go get one big bucket out of storage.