How to Avoid Taxes on Your IRA Withdrawal

Can you spot the $207,744 difference between these identical homes?

Financing is the difference!

Get the details in The 62+ Loan Homebuyers Guide.

55places Mortgage is a joint venture between Mutual of Omaha Mortgage and 55places.com.
Details here.

Subscribe to Our Newsletter

Get Weekly Updates

I agree that 55places and its affiliates, partner providers or agents may call, text, or email me about my inquiry, which may be made with automated means. I understand that my consent is not a prerequisite for buying a property. I may revoke my consent at any time by contacting optout@55places.com. Message/data rates may apply. I also agree to 55places.com’s Privacy Policy and Terms of Use.

A large concern for Baby Boomers is being able to live on their retirement savings. Here\'s how to avoid taxes on your IRA withdrawal.
A large concern for Baby Boomers, is being able to live off your retirement savings. Here's how to avoid taxes on your IRA withdrawal.
A large concern for Baby Boomers is being able to live on their retirement savings. Here’s how to avoid taxes on your IRA withdrawal.

There are few bigger concerns in retirement than funding it. Between 401(k)s, IRAs, pensions, and Social Security, the sources are many but equally important in molding the retirement lifestyle of your dreams.

But what happens when you’re hit with an unexpected tax bill on your IRA, restricting your ability to fulfill the lifestyle you’ve wanted? Luckily there are a few ways to reduce or avoid getting taxed on your IRA withdrawal.

A quick note on terminology: Unless it meets a few specific criteria, you are not taxed on Roth IRA withdrawals since you paid your taxes before depositing the money into the account, so we’re talking only about traditional IRAs here.

Take Advantage of Standard Deductions

If your taxable income for the year is $0, then you’re eligible for about $20,300 in withdrawals without being taxed if you’re married with no dependents ($12,400 comes from the standard deduction and $3,950 for each spouse). But this is only if your taxable income for the year is nothing: no part-time work, or money earned from businesses, etc.

Dip a Little in Several Pots

But does that mean you have to live off of $20,300 a year? Not if you have other retirement accounts. You could also take withdrawals from tax-free investments (Roth IRAs and municipal bonds) to supplement your standard deduction amount. If you planned far enough out, then you can still live off of a decent amount of money without having to pay taxes on your traditional IRA.

Donate to Charity

There are other ways to reduce the tax bill on your traditional IRA withdrawals if you don’t need the money. IRA distributions are required by the time you reach 70 1/2 years of age and if you miss one, you’re hit with a 50% tax penalty. So you’ll need to take the distributions whether you need them or not.

But what if it’s just extra money sitting around collecting figurative dust? If you have a favorite charity, you can donate up to $100,000 without having to owe income tax. The distribution will have to come directly from your IRA account – if you personally accept the distribution then donate it, that will count as income and you’ll owe taxes on it. The charity will have to be eligible in order to count as a tax break.

Covering Specific Expenses

If you have to take money out before you reach the age of 59 1/2 then the IRS will cut you a small break for early withdrawals. Although you’ll still owe income tax on these, the 10% additional penalty is waived. These expenses include large medical bills, college for yourself, spouse, or dependents, a first home, and other specific situations.

The IRS is typically stringent when it comes to taxing traditional IRAs (remember it was in a tax-deferred account). If you really want to avoid taxes in retirement and would rather pony up to the government now rather than later, then a Roth IRA might be more appropriate.

Can you spot the $207,744 difference between these identical homes?

Financing is the difference!

Get the details in The 62+ Loan Homebuyers Guide.

55places Mortgage is a joint venture between Mutual of Omaha Mortgage and 55places.com.
Details here.

We're here to help! (800) 928-2055

Call us to speak with a customer service representative.

Subscribe to Our Newsletter

Get Weekly Updates

I agree that 55places and its affiliates, partner providers or agents may call, text, or email me about my inquiry, which may be made with automated means. I understand that my consent is not a prerequisite for buying a property. I may revoke my consent at any time by contacting optout@55places.com. Message/data rates may apply. I also agree to 55places.com’s Privacy Policy and Terms of Use.

Exterior view of an attached home at Windsor Lakes in The Woodlands, Texas.

Houston 55+ Communities With Attached Homes for Sale

Imagine having more time for hobbies, travel, and friends—and less time spent on yard work and home repairs! In Houston, there are plenty of vibrant communities to choose from, each offering unique character and amenities. Let’s take a look!

The grounds of Gatherings at Potomac Station in Leesburg, Virginia.

New Active Adult Communities Added to 55places.com

In this comprehensive roundup, we bring you the latest additions to 55places.com—a trusted resource for exploring active adult communities. Over the past 30 days, several new communities have joined the ranks, each offering different amenities and locations.

A golf cart outside the golf club at CountryPlace in Pearland, Texas.

Retire on the Links in Houston, TX: Golf Course Homes for Sale

Active adults who are lifelong golfers or newfound golf enthusiasts can easily enjoy the sport when their neighborhood contains a golf course. Homebuyers who desire a golf course lifestyle and want to remain near the heart of a big city can find a great fit at one of these exceptional Houston area communities.

Moving to South Carolina? Here’s Everything You Need to Know

South Carolina is a state known for its incredible coastal beauty, charm, hospitality, acclaimed golf courses, and vibrant culinary scene that’s full of rich Southern dishes. It’s also home to some of the most desirable retirement destinations in the country–and for good reason.

About 55places

We’re changing the way people 55 and older are searching for their perfect next place. With a national network of hand-selected real estate experts, plus comprehensive information, unbiased content, and on-the-go insight about thousands of communities across the country, we’re a trusted resource paving the way from here to home. Whether you’re interested in a low-maintenance single-level residence, an active lifestyle or age-qualified community, an intimate enclave, or anything in between, we can help you make your next move the best one yet.

Scroll to Top