How Can I Avoid Paying Taxes on IRA Withdrawals?

Contributing to a Roth IRA can help avoid taxes on IRA withdrawals, as contributions are taxed up front and qualified distributions are not taxed later. You might also lower your tax bill by converting to a Roth in years when your income is relatively low or by taking early withdrawals under specific exemptions. Donating IRA assets to charity and allocating investments strategically between taxable and tax-advantaged accounts are other ways to reduce taxes in retirement. Some retirees also use specialized annuities to delay taxable distributions.

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1. Contribute to a Roth IRA

A Roth IRA allows for tax-free withdrawals in retirement because contributions are made with after-tax dollars. Once you meet certain conditions—typically reaching age 59 ½ and holding the account for at least five years—you can withdraw both contributions and earnings without owing further taxes. This contrasts with traditional IRAs, where distributions are taxed as ordinary income. Additionally, Roth IRAs are not subject to required minimum distributions (RMDs), giving you more flexibility in managing taxable income later in life. Contributing to a Roth IRA while you are in a lower tax bracket can be an effective way to manage future tax liability.

If you contribute to a Roth IRA, it’s important to understand what’s known as the 5-Year Rule.

2. Roth Conversions

A Roth conversion involves transferring funds from a traditional IRA to a Roth IRA. This move triggers a taxable event in the year of conversion, but future qualified withdrawals from the Roth IRA will be tax-free. Converting during years when your taxable income is lower can help reduce the immediate tax cost. Partial conversions spread over several years can also help you manage the tax impact. This strategy is often used by those expecting to be in a higher tax bracket during retirement, providing a hedge against rising tax rates.

3. Donate IRA Withdrawals to Charity

Qualified charitable distributions (QCDs) allow individuals aged 70 ½ or older to donate up to $108,000 directly from an IRA to a qualified charity in 2025. These donations count toward required minimum distributions (RMDs) but are excluded from taxable income, effectively reducing your tax bill. QCDs can be particularly useful for retirees who do not itemize deductions, since the benefit is realized by reducing income rather than relying on a deduction. This strategy allows charitable giving to complement tax management, offering a dual benefit when planned carefully.

4. Limit Withdrawals to Standard Deduction

If you keep taxable income low enough in retirement, you may be able to withdraw up to the standard deduction amount from a traditional IRA without triggering income tax. For 2025, the standard deduction is $15,000 for single filers and $30,000 for married couples filing jointly (age 65+ gets additional amounts). This works best for retirees with little other taxable income.

5. Qualified Longevity Annuity Contract (QLAC)

A qualified longevity annuity contract (QLAC) allows you to defer taxes on a portion of your IRA funds by postponing RMDs for that amount. As of 2025, you can allocate up to $200,000 in IRA funds to a QLAC. Funds placed in the QLAC are excluded from RMD calculations until payments begin, which can be delayed until age 85. While QLAC payments are taxed as ordinary income once received, this strategy can help reduce taxable income during earlier retirement years—potentially lowering taxes during that period and managing your overall retirement tax exposure.

6. Use Strategic Asset Location

Where you hold different types of investments can influence your overall tax liability in retirement. Tax-inefficient assets—such as taxable bonds, REITs and high-dividend stocks—tend to generate income that is taxed as ordinary income and may be better suited for tax-advantaged accounts like traditional or Roth IRAs. In contrast, growth-oriented assets, such as stocks with long-term capital appreciation potential, may be better held in taxable brokerage accounts where gains are taxed at lower capital gains rates. By placing investments in accounts that match their tax characteristics, you can manage how much taxable income is generated from your IRA withdrawals and taxable accounts over time. This approach—known as asset location—can help you control your tax bill in retirement.

Avoiding Early Withdrawal Penalties

What if an emergency happens and you need to make an early withdrawal from your IRA? The IRS generally assesses a 10% penalty on withdrawals made before age 59 ½.

However, there are some exceptions to this rule. You don’t have to pay an early withdrawal penalty in these situations, but you may have to pay taxes, depending on the circumstances:

Your first home: You can early withdraw up to $10,000 from an IRA without penalties if you put the money toward buying your first home.
Health insurance: If you become unemployed and you need to purchase health insurance, you can make a penalty-free early withdrawal.
Military service: If you are called up for military service, or join the military, and serve at least 180 days of active duty, you can make a withdrawal while you are on active duty but not after.
College expenses: You and members of your family can make an early withdrawal for college expenses like tuition, and room and board and books and supplies.
Medical bills: If you have medical bills that are over 7.5% of your adjusted gross income (AGI), you can make early withdrawals to pay them.
Disability: If you become disabled, you are eligible to take early withdrawals.
Tax lien: If the IRS places a tax lien on your property because you owe back taxes, you can withdraw from your IRA to pay your back taxes.

If you take one of these exemptions, be sure and use the money from the IRA for exactly what the exemption provides for, otherwise you may be in trouble with the IRS.

Bottom Line

There are several strategies that can help you avoid taxes on IRA withdrawals or reduce the amount of tax owed over time. Contributing to a Roth IRA, timing Roth conversions carefully, making charitable distributions and using a QLAC to defer income are a few common approaches. In addition, placing investments in accounts that align with their tax characteristics can further limit taxable income from withdrawals.

Retirement Planning Tips

A financial advisor can be a huge help when it comes to retirement planning. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
Check out SmartAsset’s retirement calculator if you’re looking to plan for retirement on your own. You can use it to determine how much money you may need in retirement.