How to Reduce Taxes on IRA Withdrawals (2026)

Learning how to avoid taxes on IRA withdrawal starts with an honest premise: traditional IRA distributions cannot be made fully tax-free, because they are taxed as ordinary income (Source: IRS Publication 590-B, 2025). What the rules do allow is legally reducing, timing, and in narrow cases eliminating the tax and the 10% early-withdrawal penalty through Roth conversions, charitable distributions, bracket management, and the correct sequencing of accounts.

Last reviewed: July 2026 | Written and reviewed by Craig Wear, CFP®, Q3 Advisors

Why traditional IRA withdrawals are taxed at all

Traditional IRA withdrawals are taxed because the money went in pre-tax and grew tax-deferred, so the IRS taxes it as ordinary income when it comes out (Source: IRS Publication 590-B, 2025). This baseline mechanic drives every strategy below: you are managing which year the income lands in, which bracket it fills, and whether a penalty applies.

One exception exists inside the account itself. If you ever made nondeductible (after-tax) contributions, part of each distribution is a tax-free return of basis. Publication 590-A (2025) explains that your cost basis equals the sum of nondeductible contributions minus prior withdrawals of that basis.

That basis is not optional to track. Form 8606 (Nondeductible IRAs) is the required IRS form for reporting basis and computing the taxable versus nontaxable split of any distribution or conversion (Source: IRS Form 8606 Instructions, 2025). Under the pro-rata rule, you cannot cherry-pick only the after-tax dollars; the nontaxable fraction equals total IRA basis divided by the value of all your traditional, SEP, and SIMPLE IRAs (Source: IRC 408(d)(2); IRS Form 8606). In one IRS example, $10,000 of nondeductible basis inside a $40,000 total meant a $10,000 conversion was 75% ($7,500) taxable.

Roth IRA withdrawals: the one genuinely tax-free path

Qualified Roth IRA withdrawals are tax-free when the account owner is at least age 59.5 and has satisfied the five-year rule (Source: IRS Publication 590-B, 2025). Because Roth contributions were already taxed, qualified distributions of both contributions and earnings escape income tax entirely, which is why moving future dollars into Roth form is central to reducing lifetime IRA taxes.

The five-year rule and the age test are separate requirements, and both generally must be met for earnings to come out tax-free. Getting money into Roth form ahead of time is where Roth conversion planning does its work.

Roth conversions in low-income years

A Roth conversion moves money from a traditional IRA to a Roth IRA and is taxable as ordinary income on the previously untaxed amount in the year of conversion (Source: IRS Form 8606 Instructions, 2025). Converting during low-income years, such as the gap between retirement and the start of Social Security or required distributions, lets you fill up the lower tax brackets deliberately instead of being forced into higher ones later.

The trade is paying tax now for tax-free growth and tax-free qualified withdrawals later. Conversions are reported on Form 8606, and the pro-rata rule applies here too, so any nondeductible basis reduces the taxable portion (Source: IRS Publication 590-A, 2025).

Sizing a conversion is a bracket exercise. Converting only enough to reach the top of a target bracket, rather than overshooting into the next one, is a widely used approach. For historical context on how retirees use this tactic, see the Roth conversion statistics for 2026.

Qualified charitable distributions: the closest thing to tax-free

A qualified charitable distribution (QCD) lets an IRA owner age 70.5 or older send money directly from the IRA trustee to a qualified charity, excluded from gross income and counted toward the required minimum distribution (Source: IRC 408(d)(8); IRS Publication 590-B, 2025). For charitably inclined retirees, this is the closest the rules come to a tax-free withdrawal, because the distribution never appears in taxable income at all.

The 2026 annual QCD exclusion limit is $111,000, up from $108,000 in 2025 (Source: IRS Notice 2025-67). A separate one-time QCD to a split-interest entity such as a charitable remainder trust or gift annuity is capped at $55,000 in 2026, up from $54,000 (Source: IRS Notice 2025-67).

Two constraints matter. The transfer must go directly from the trustee to the charity, and distributions from an ongoing SEP or SIMPLE IRA do not qualify (Source: IRS Publication 590-B, 2025). Many competing articles still cite the old $100,000 limit and age 70.5 RMD start; the current figure is $111,000 for 2026.

Keeping withdrawals inside the standard deduction

Withdrawing an amount that stays within your standard deduction can produce a $0 federal income tax bill on that distribution, because the deduction offsets the ordinary income the withdrawal creates. This is a timing tactic most useful in years with little other taxable income.

For 2026, the standard deduction is $16,100 for single filers and $32,200 for married couples filing jointly, with an additional senior amount of roughly $6,000 for those 65 and older (Source: IRS inflation adjustments, 2026). A single retiree over 65 with no other income could therefore draw an amount in that combined range and owe little or no federal tax, though state rules vary.

Managing the downstream cliffs: Social Security and IRMAA

Large IRA withdrawals can trigger two indirect costs that are easy to miss: more of your Social Security benefits becoming taxable, and Medicare premium surcharges. Both behave like thresholds, so a distribution sized just under a limit can save far more than the withdrawal itself.

Social Security taxation depends on provisional income (AGI plus tax-exempt interest plus half of benefits). For single filers, provisional income of $25,000 to $34,000 makes up to 50% of benefits taxable and above $34,000 up to 85%; for joint filers the bands are $32,000 to $44,000 and above $44,000 (Source: IRC 86; IRS Publication 915, 2025). These thresholds are set by statute and are not inflation-indexed. This interaction is often called the Social Security tax torpedo.

Medicare’s income-related monthly adjustment amount (IRMAA) is a true cliff based on modified AGI from two years prior. The table below shows the 2026 Part B tiers; a single dollar over a threshold raises the surcharge for the whole year (Source: SSA POMS HI 01101.020, updated 12/02/2025).

The 2026 standard Part B premium is $202.90 per month with a $283 annual deductible (Source: CMS 2026 Medicare Parts A & B fact sheet, released Nov 14, 2025). Sizing conversions and withdrawals to stay under a target tier is the core “avoid the IRMAA cliff” tactic; see the 2026 Medicare IRMAA brackets for the full detail.

Required minimum distributions and how to soften them

Required minimum distributions (RMDs) from a traditional IRA currently begin at age 73, and they are taxed as ordinary income (Source: IRS Publication 590-B, 2025). You cannot skip them, but you can reduce their size in advance and control what they trigger, which is where the strategies above connect.

The penalty for missing an RMD is a 25% excise tax on the shortfall, reduced to 10% if you correct the mistake within the two-year window (Source: SECURE 2.0 Act; IRS guidance). Older articles still cite the pre-SECURE 50% penalty and age 70.5 start; both are outdated.

Three levers reduce RMD pressure. QCDs satisfy the RMD without adding taxable income. Roth conversions before 73 shrink the traditional balance that RMDs are calculated on, because Roth IRAs have no lifetime RMDs for the original owner. And a qualified longevity annuity contract (QLAC) lets you move a portion of the IRA into an annuity that can defer income as late as age 85, with a 2026 QLAC premium limit of $210,000 (Source: IRS inflation adjustments, 2026). Q3 Advisors maintains a dedicated required minimum distributions guide for 2026.

The 10% early-withdrawal penalty and its exceptions

Distributions before age 59.5 generally carry a 10% additional tax on the includible portion under IRC 72(t) (Source: IRS Topic 558). The penalty applies on top of ordinary income tax, but a defined list of exceptions removes it, which is how people access IRA money early without the surcharge.

IRA-eligible exceptions to the 10% penalty include:

• Substantially equal periodic payments (72(t) SEPP)
• Total and permanent disability
• Terminal illness
• Death of the account owner (distributions to a beneficiary)
• Unreimbursed medical expenses above 7.5% of AGI
• Health insurance premiums while unemployed
• Qualified higher-education expenses
• First-time home purchase (up to a lifetime limit)
• Qualified birth or adoption expenses (up to $5,000)
• IRS levy on the account
• Qualified reservist distributions
• Domestic-abuse-victim distributions (post-2023)
• Emergency personal expense distributions (post-2023)

Two commonly cited exceptions apply only to employer plans, not IRAs: separation from service at age 55, and the age-50 public-safety rule (Source: IRS Topic 558). Rolling a 401(k) into an IRA can forfeit the age-55 exception, so timing that rollover matters.

How Rule 72(t) / SEPP actually works

Rule 72(t) substantially equal periodic payments (SEPP) let you take penalty-free IRA withdrawals before 59.5 by committing to a fixed schedule of annual payments (Source: IRS Topic 558). The distributions remain taxable as ordinary income, but the 10% penalty is waived as long as the schedule is followed.

1. Calculate the annual payment using one of the three IRS-approved methods (required minimum distribution, fixed amortization, or fixed annuitization).
2. Take that same calculated amount each year without interruption.
3. Continue for the longer of five years or until you reach age 59.5.
4. Avoid modifying the payments during that period, because a break generally reverses the penalty relief retroactively, with interest.

Because the schedule is rigid, many people set up SEPP on only a portion of their IRA by splitting it into a separate account sized to the payment they need.

Sequencing withdrawals and tax diversification

Withdrawal sequencing is the order in which you tap accounts to control lifetime tax, and a frequently cited default is taxable accounts first, then tax-deferred IRAs, then Roth accounts last. Drawing taxable brokerage assets early lets tax-deferred money keep compounding and preserves tax-free Roth dollars for later or for heirs.

This works best when you hold more than one account type, a setup often called tax diversification or asset location. Having taxable, tax-deferred, and Roth buckets gives you the flexibility to pull income from whichever source keeps you under a bracket, an IRMAA tier, or a Social Security threshold in a given year.

Sequencing is not one-size-fits-all. In some years, deliberately taking more from a tax-deferred IRA to fill a low bracket beats strict ordering, especially when paired with conversions. Related planning traps include the net investment income tax and, for company stock, net unrealized appreciation.

A multi-year worked example

The strategies compound when combined across several years. The illustration below is hypothetical and simplified for education; it is not advice or a projection of any specific outcome.

The point is coordination. A conversion sized without checking the IRMAA and Social Security thresholds can cost more than it saves, which is why these figures are planned together rather than in isolation. See the 2026 retirement contribution limits for the current savings figures that feed this planning.

Inherited IRAs and the 10-year rule

Inherited traditional IRA distributions are generally taxable as ordinary income to the beneficiary, and under the SECURE Act many non-spouse beneficiaries must empty the account within 10 years of the original owner’s death (Source: IRS Publication 590-B, 2025). This 10-year rule is a common real-world tax trap because a large inherited balance can be forced out during a beneficiary’s peak earning years.

Spouses have more options, including treating the IRA as their own. Non-spouse beneficiaries subject to the 10-year rule sometimes spread withdrawals across the window to avoid bunching income into one high-tax year, rather than waiting until year 10 to withdraw everything at once.

Frequently asked questions

Do state taxes apply to IRA withdrawals?

State treatment varies. Some states fully tax IRA withdrawals as income, some exempt part or all of retirement income, and a handful levy no state income tax at all. Federal rules taxing traditional IRA distributions as ordinary income apply everywhere (Source: IRS Publication 590-B, 2025), but your state bill depends on your state of residence, so relocation can change the total tax on a withdrawal.

Are all IRA withdrawals taxed the same way?

No. Traditional IRA withdrawals are generally taxed as ordinary income, while qualified Roth IRA withdrawals are tax-free after age 59.5 and the five-year rule (Source: IRS Publication 590-B, 2025). Any nondeductible basis in a traditional IRA comes out partly tax-free under the pro-rata rule, tracked on Form 8606 (Source: IRS Form 8606 Instructions, 2025).

At what age is IRA withdrawal tax free?

There is no age at which traditional IRA withdrawals become tax-free; they remain ordinary income at any age (Source: IRS Publication 590-B, 2025). Age 59.5 removes the 10% early-withdrawal penalty, not the income tax. Only qualified Roth IRA withdrawals are tax-free, and that requires both age 59.5 and satisfying the five-year rule.

How do I avoid the 20% tax withholding on my IRA withdrawal?

The mandatory 20% withholding applies to eligible rollover distributions from employer plans, not to normal IRA distributions, where withholding generally defaults to 10% and can be adjusted (Source: IRS Publication 590-B, 2025). Doing a direct trustee-to-trustee transfer rather than taking a check avoids withholding on rollovers, and you can elect out of or change IRA withholding, subject to estimated-tax rules.

Can I convert my RMD to a Roth IRA?

No. A required minimum distribution cannot be converted or rolled over to a Roth IRA; the RMD must be taken first and is taxable, and only amounts above the RMD can be converted (Source: IRS Publication 590-B, 2025). One alternative is directing the RMD to charity as a QCD, which excludes it from income entirely (Source: IRC 408(d)(8)).

How much can I withdraw from my IRA without paying taxes?

In a year with little other income, withdrawing within your standard deduction ($16,100 single or $32,200 married filing jointly for 2026, plus about $6,000 extra at 65+) can result in $0 federal income tax on that amount (Source: IRS inflation adjustments, 2026). Any nondeductible basis also comes out tax-free. State taxes may still apply depending on residence.

Do Roth IRAs have required minimum distributions?

Roth IRAs have no lifetime required minimum distributions for the original owner, which is why moving money into Roth form can reduce future taxable RMDs from traditional accounts (Source: IRS Publication 590-B, 2025). Beneficiaries who inherit a Roth IRA, however, are generally subject to distribution rules, including the SECURE Act 10-year rule for many non-spouse heirs.

What are the exceptions to the 10% early withdrawal penalty?

IRA exceptions to the 10% penalty include 72(t) substantially equal periodic payments, disability, terminal illness, death, unreimbursed medical expenses above 7.5% of AGI, health insurance while unemployed, higher education, first-time home purchase, birth or adoption (up to $5,000), IRS levy, qualified reservist, and post-2023 domestic-abuse and emergency-expense distributions (Source: IRS Topic 558).

Sources

IRS Publication 590-B (2025), https://www.irs.gov/publications/p590b | IRS Publication 590-A (2025), https://www.irs.gov/publications/p590a | IRS Tax Topic 558, https://www.irs.gov/taxtopics/tc558 | IRS Notice 2025-67, https://www.irs.gov/pub/irs-drop/n-25-67.pdf | IRS Form 8606 Instructions (2025), https://www.irs.gov/instructions/i8606 | IRS Publication 915 (2025), https://www.irs.gov/publications/p915 | SSA IRMAA POMS HI 01101.020 (updated 12/02/2025), https://secure.ssa.gov/poms.nsf/lnx/0601101020 | SSA Social Security taxation planner, https://www.ssa.gov/benefits/retirement/planner/taxes.html | CMS 2026 Medicare Parts A & B Premiums and Deductibles fact sheet, https://www.cms.gov/newsroom/fact-sheets/2026-medicare-parts-b-premiums-deductibles

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