There is no clean way to pull money out of a Traditional IRA and spend it without owing tax, but there are several ways to reduce the bill to nothing or close to it. How to avoid paying taxes on an IRA withdrawal comes down to five levers: taking from Roth money instead of Traditional, rolling funds into another retirement account rather than cashing out, timing withdrawals for low-income years, sending the money straight to charity after age 70½, and using the penalty exceptions that fit your situation. Which lever works depends on your age, your account type, and what you plan to do with the money.
Take From Roth Money First
Roth IRAs are the one place in the tax code where retirement money comes out truly tax-free. Contributions go in with after-tax dollars, so you can withdraw the amount you contributed at any time, at any age, with no tax and no penalty.1Internal Revenue Service. Roth IRAs Earnings are different: they come out tax-free only once you have held a Roth for at least five years and reached age 59½.
If a Traditional IRA ever received non-deductible contributions, part of each withdrawal is also tax-free. Those after-tax dollars create a basis tracked on Form 8606, and the IRS applies a pro-rata formula that splits every distribution into a taxable and non-taxable portion.2Internal Revenue Service. Instructions for Form 8606 You cannot pull only the non-taxable slice; the ratio applies to every dollar you take.
Keep the Money Inside a Retirement Account
The simplest way to owe nothing is to not actually withdraw. Moving IRA funds to another IRA or to an employer plan is not a taxable distribution if you follow the rules.
Direct Trustee-to-Trustee Transfer
A direct transfer sends funds straight from one custodian to another. Nothing is withheld, nothing is reported as taxable, and there is no limit on how many you can do in a year.3Internal Revenue Service. Rollovers of Retirement Plan and IRA Distributions If you are changing brokers, always ask for a direct transfer rather than a check.
60-Day Indirect Rollover
If the money does come to you, you have exactly 60 calendar days to redeposit the full amount in another IRA or qualified plan. Miss the window and the entire distribution becomes taxable, with the 10% early withdrawal penalty added if you are under 59½.3Internal Revenue Service. Rollovers of Retirement Plan and IRA Distributions The IRS can waive the deadline in narrow cases such as a custodian’s error, but it is not a plan.4Internal Revenue Service. Retirement Plans FAQs Relating to Waivers of the 60-Day Rollover Requirement
You get one indirect rollover across all of your IRAs in any 12-month period. The IRS treats every IRA you own, Traditional, Roth, SEP, and SIMPLE, as a single bucket for this limit. Roth conversions, direct trustee-to-trustee transfers, and rollovers to or from employer plans do not count against it.
Rolling Into an Employer Plan
Traditional IRA funds can also move into a 401(k), 403(b), or similar employer plan if the plan accepts incoming rollovers. The tax deferral stays intact, and ERISA plans generally offer stronger federal creditor protection than IRAs.5U.S. Department of Labor. FAQs About Retirement Plans and ERISA
Give the Money to Charity With a QCD
A Qualified Charitable Distribution is one of the few ways to move money out of a Traditional IRA with zero federal income tax. If you are age 70½ or older, you can send up to $111,000 per year (the 2026 inflation-adjusted limit) directly from your IRA to a qualifying charity. The custodian sends the funds straight to the charity; the amount is excluded from your gross income entirely.6Internal Revenue Service. Retirement Topics – Exceptions to Tax on Early Distributions
Once you turn 73 and required minimum distributions begin, a QCD counts toward your RMD for the year.7Internal Revenue Service. Retirement Plan and IRA Required Minimum Distributions FAQs You satisfy a mandatory withdrawal without the income ever hitting your return. The lower adjusted gross income can also reduce the taxation of your Social Security benefits and help you stay under Medicare premium thresholds. A one-time QCD of up to $55,000 can also fund a charitable remainder trust or charitable gift annuity.
Time Withdrawals and Conversions for Low-Income Years
Traditional IRA withdrawals are taxed as ordinary income at whatever bracket you land in. The years between retirement and the start of RMDs are often your lowest-income years, and that bracket space is valuable. For 2026, the 12% bracket covers income up to $50,400 for single filers and $100,800 for married couples filing jointly.8Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026, Including Amendments From the One, Big, Beautiful Bill Pulling enough from your Traditional IRA each year to fill that lower bracket, instead of waiting for larger forced withdrawals later, often means paying 12% now instead of 22% or more down the road.
Roth conversions follow the same logic. Converting Traditional IRA dollars to a Roth is taxable in the year of conversion, but once the money is inside the Roth it grows tax-free, and qualified withdrawals of both the converted amount and later earnings come out with no tax.1Internal Revenue Service. Roth IRAs Each conversion starts its own five-year clock before the converted amount can come out penalty-free.
Roth IRAs also have no RMDs during the original owner’s lifetime. Every dollar you convert in a low-bracket year is a dollar that will not be forced out at a higher rate later. Under current law, people born in 1960 or later are not subject to RMDs until age 75.9Internal Revenue Service. Retirement Topics – Required Minimum Distributions (RMDs) The best time to convert is often the year you retire but before Social Security starts, or any gap year when your marginal rate is unusually low.
Avoid the 10% Early Penalty if You Are Under 59½
If you are under 59½, a Traditional IRA withdrawal normally carries a 10% penalty on top of ordinary income tax.10Internal Revenue Service. Topic No. 557, Additional Tax on Early Distributions From Traditional and Roth IRAs The exceptions below remove the penalty only. They do not eliminate the income tax on a Traditional IRA withdrawal, but 10% on a large distribution is still real money.
Several exceptions have narrow dollar caps. For a first-time home purchase, you can withdraw up to $10,000 over your lifetime without the penalty. You qualify as a first-time buyer if neither you nor your spouse owned a principal residence during the two years before the purchase, and the money must go toward qualified acquisition costs within 120 days.11Office of the Law Revision Counsel. 26 U.S. Code 72 – Annuities; Certain Proceeds of Endowment and Life Insurance Contracts The $10,000 cap is not indexed to inflation.
Unreimbursed medical expenses above 7.5% of your adjusted gross income qualify, but only the amount above that threshold. Qualified higher education expenses for you, your spouse, children, or grandchildren also qualify, up to actual costs minus any tax-free educational assistance.6Internal Revenue Service. Retirement Topics – Exceptions to Tax on Early Distributions
Several SECURE 2.0 exceptions took effect in 2024. An emergency personal expense distribution allows one withdrawal per calendar year of up to $1,000, repayable within three years. Victims of domestic abuse by a spouse or domestic partner can withdraw up to the lesser of $10,000 (indexed) or 50% of the account balance. Residents of federally declared disaster areas can withdraw up to $22,000, spread the income over three tax years, and repay within three years.12Internal Revenue Service. Access Retirement Funds in a Disaster
Disability and death remove the penalty with no dollar cap. If a physician certifies you are totally and permanently disabled, or certifies you are terminally ill, distributions are penalty-free from that date forward. Distributions to beneficiaries after the account owner’s death are automatically penalty-free regardless of the beneficiary’s age.
The Substantially Equal Periodic Payments rule lets anyone, at any age, take a fixed stream of IRA withdrawals penalty-free, but it demands commitment. You must keep taking the IRS-calculated payment for the longer of five full years or until age 59½. Change the amount or stop early and the IRS claws back the 10% penalty on every payment you took under the plan, plus interest.13Internal Revenue Service. Substantially Equal Periodic Payments A mistake in year four can unwind years of penalty-free withdrawals.
Watch the Medicare IRMAA Ripple
A large IRA withdrawal or Roth conversion can cost more than the income tax on the money itself. Medicare Part B and Part D premiums are tied to your modified adjusted gross income from two years earlier. Cross certain thresholds and you pay a monthly surcharge called IRMAA. For 2026, an individual filer with MAGI above $109,000 starts paying $81.20 per month extra for Part B; joint filers trigger the first surcharge above $218,000. At the top tier, an individual with MAGI of $500,000 or more pays an extra $487.00 per month for Part B and $91.00 for Part D.14Centers for Medicare & Medicaid Services. 2026 Medicare Parts A and B Premiums and Deductibles
A conversion in 2026 affects premiums in 2028. Spreading conversions across several years can keep you under the thresholds entirely. QCDs help for the same reason: the money never enters your gross income, so it never raises your MAGI.
Withholding You Can Control
Custodians withhold 10% for federal income tax by default on Traditional IRA distributions. You can elect out or choose a different rate on Form W-4R. Roth IRA distributions carry no withholding unless you ask for it. One exception you cannot opt out of: if you take a rollover-eligible distribution and do not use a direct transfer, the custodian must withhold 20%.15Internal Revenue Service. Pensions and Annuity Withholding That alone is a strong argument for always using a direct trustee-to-trustee transfer when moving money between accounts.
Two Boundaries Worth Knowing
Federal rules are only part of the picture. Most states with an income tax also tax Traditional IRA withdrawals, though several exempt retirement income entirely or offer age-based exclusions. Your state of residence when you take the withdrawal is what controls, not the state where you made the contributions. Factor state treatment into the timing of large distributions or conversions.
If you have inherited an IRA, the strategies above work differently. Distributions to a beneficiary are always exempt from the 10% early withdrawal penalty, but a Traditional inherited IRA is still taxed as ordinary income. Most non-spouse beneficiaries of someone who died in 2020 or later must empty the account by the end of the 10th year following the year of death, with no required annual amount in between.16Internal Revenue Service. Retirement Topics – Beneficiary That window is where the tax planning happens: spread the withdrawals across those ten years to keep each year’s bracket as low as possible.