How to Reduce Taxes on IRA Withdrawals in Retirement

You can lower the tax bill on money leaving a traditional IRA by spreading withdrawals across years when your other income is low, converting selected amounts to a Roth while you’re in a lower bracket, sending required distributions straight to charity once you qualify, and watching how each dollar you pull ripples into Social Security taxation and Medicare premiums. Learning how to reduce taxes on IRA withdrawals in retirement is really a question of timing and sequencing, because for 2026 federal rates still run from 10% to 37%, and the bracket your withdrawal lands in depends entirely on what else is on your return that year.¹

Fill the Lower Brackets Before They Close

Federal income tax is layered. A single filer in 2026 pays 10% on taxable income up to $12,400, 12% from $12,401 to $50,400, and 22% from $50,401 to $105,700. Married couples filing jointly get roughly doubled ranges: 10% up to $24,800, 12% up to $100,800, and 22% up to $211,400.¹ Every traditional IRA dollar you withdraw is ordinary income, so the question each year is how much room sits between your current taxable income and the top of the bracket you’re already in.

Add up what you already expect from Social Security, pensions, part-time work, and investment income. Subtract the standard deduction, which for 2026 is $16,100 for single filers and $32,200 for joint filers.¹ If you’re 65 or older, there’s also an enhanced senior deduction of $6,000 per qualifying individual available through 2028, though it phases out once modified adjusted gross income passes $75,000 for single filers or $150,000 for joint filers.² The space between that number and the next bracket line is what you can fill with an IRA withdrawal without jumping to a higher rate.

The best window for this is often the gap between retiring and claiming Social Security. Someone who stops working at 62 and delays Social Security to 67 may have very little taxable income for several years. Pulling from a traditional IRA during those years captures those dollars at 10% or 12% instead of the 22% or 24% they might hit later when Social Security and required minimum distributions both start.

Watch the Social Security Multiplier

An IRA withdrawal doesn’t only add itself to your income. It can also make more of your Social Security benefits taxable, which raises the real cost of the withdrawal beyond your stated bracket. The IRS uses a “provisional income” formula: your adjusted gross income, plus tax-exempt interest, plus half of your Social Security benefits. Cross $25,000 (single) or $32,000 (joint) and up to 50% of benefits become taxable. Cross $34,000 (single) or $44,000 (joint) and up to 85% are taxable.³

So a $10,000 traditional IRA withdrawal doesn’t just add $10,000 to taxable income. It also lifts provisional income, which can drag more Social Security dollars into the taxable column. Sitting near one of those thresholds, the effective marginal rate on that withdrawal can run well above your headline bracket. Roth IRA distributions don’t count in the provisional income formula, which is one reason converting some traditional balances to Roth during low-income years pays off later.

Big Withdrawals Can Raise Your Medicare Premiums

Large IRA distributions can lift Medicare premiums for years afterward through the Income-Related Monthly Adjustment Amount. The Social Security Administration sets your IRMAA using modified adjusted gross income from two years back, so a spike in 2024 shows up on your 2026 premiums.⁴

For 2026, single filers at or below $109,000 (or $218,000 joint) pay the standard Part B premium of $202.90 per month. Above those thresholds the surcharges climb in tiers, reaching a total Part B premium of $689.90 per month at incomes of $500,000 single or $750,000 joint. Part D has its own IRMAA surcharges at the same income cliffs, adding roughly $14.50 to $91.00 per month on top of your plan premium.⁵

These are cliffs, not slopes. One extra dollar of income across a threshold triggers the full higher surcharge for the year. A couple that crosses from $218,000 to $275,000 pays roughly $1,146 more per person in annual Part B surcharges alone. If a large Roth conversion or lump-sum withdrawal is on the calendar, plan for the IRMAA hit that will arrive two calendar years later.

Use Roth Conversions to Move Tax to Cheaper Years

A Roth conversion moves money from a traditional IRA to a Roth IRA. You pay income tax on the converted amount now, and future qualified withdrawals come out tax-free.⁶ The trade makes sense when your current rate is lower than the one you’d face pulling those dollars out later, or when you expect rates to rise.

You don’t convert all at once. Partial conversions each year let you fill a specific bracket without spilling into the next. Many retirees convert just enough to stay under the 22% line and repeat that over several years. Each conversion is reported on Form 8606.⁷ The transfer itself can be done trustee-to-trustee between institutions, as a same-trustee transfer if both accounts sit at one firm, or through a 60-day rollover.

The Five-Year Clock on Each Conversion

Every conversion carries its own five-year clock. Withdraw converted amounts before age 59½ and within five years of that conversion and you owe a 10% penalty on the taxable portion. After 59½, converted dollars come out without penalty regardless of when the conversion happened. Earnings on Roth funds have a separate five-year rule: the Roth account must have been open at least five tax years before earnings come out tax-free, even after 59½.⁸

Cover the Tax on Time

A large conversion can leave you underwithheld. To avoid an underpayment penalty, you generally need to pay in 90% of the current year’s tax liability or 100% of last year’s through withholding and estimated payments. If your prior-year adjusted gross income was over $150,000 ($75,000 married filing separately), the safe harbor rises to 110% of last year’s tax.⁹ Either send a quarterly estimated payment or ask your custodian to withhold at the time of conversion.

The Long-Term Payoff

Once inside a Roth, money grows tax-free and is not subject to required minimum distributions during your lifetime. That kills off forced taxable withdrawals later, keeps future modified adjusted gross income lower, and by extension helps with both Social Security taxation and Medicare surcharges. Roth distributions also stay out of the provisional income formula.

Qualified Charitable Distributions After Age 70½

If you’re at least 70½ and you’d give to charity anyway, a qualified charitable distribution is one of the cleanest tax reducers available. Your IRA custodian sends money directly to an eligible charity, and that amount is excluded from your adjusted gross income entirely. It still counts toward your RMD for the year, so you satisfy the required distribution without adding any taxable income.¹⁰

The 2026 cap is $111,000 per taxpayer, inflation-adjusted from the original $100,000 statutory limit. A couple where both spouses hold IRAs can each contribute up to $111,000. The charity must qualify under the IRS rules for tax-deductible contributions, and you can verify any organization through the IRS Tax Exempt Organization Search tool before initiating the transfer.¹¹

The money has to move directly from IRA to charity. Withdraw first and donate second and the tax-free treatment is gone: you report the full withdrawal as income and take a charitable deduction instead, which is usually the worse outcome. Have your custodian issue the check directly to the charity or arrange an electronic transfer, and keep both the acknowledgment letter and your IRA statement.

Because a QCD keeps adjusted gross income down, it also helps you dodge IRMAA cliffs and reduces how much Social Security benefit ends up taxable. For a charitably inclined retiree, this is a stronger outcome than taking the RMD as income and writing a separate check.

Take Required Minimum Distributions on Time

You must begin taking required minimum distributions from a traditional IRA in the year you turn 73. The first one can be delayed until April 1 of the following year, but doing so means two RMDs in that second year, which can push you into a higher bracket or trigger an IRMAA surcharge two years down the line.¹² Every RMD after that is due by December 31.

Miss one and the penalty is a 25% excise tax on the shortfall. Catch and correct it within two years and the penalty drops to 10%.¹² Your custodian can calculate the amount and automate the payout if you ask.

To soften RMDs over time, combine strategies. Route part of each RMD to charity as a QCD. Convert some traditional balances to Roth earlier in retirement to shrink the base subject to future RMDs. Time other withdrawals for years when other income is low. Roth IRAs have no lifetime RMDs, so every dollar converted before 73 is a dollar that will not force a taxable withdrawal later.

Net Unrealized Appreciation for Employer Stock

If you hold employer stock inside a 401(k), the Net Unrealized Appreciation strategy can substantially cut the tax when you leave the company. Instead of rolling those shares into a traditional IRA, where all future withdrawals are taxed as ordinary income, you move the stock into a taxable brokerage account. You pay ordinary income tax only on the cost basis, and the appreciation that built up inside the plan is taxed at long-term capital gains rates when you eventually sell.¹³

To qualify you need a triggering event (separation from service, reaching 59½, death, or disability), and the entire vested account balance has to be distributed in a single tax year. Non-stock assets like mutual funds and bonds can go into an IRA in the same transaction, but the whole balance must leave the plan in that year.¹³ The strategy pays off most when the stock has appreciated well above its cost basis, because the gap between ordinary rates up to 37% and long-term capital gains rates of 15% or 20% can be large. If the stock hasn’t grown much, rolling everything to an IRA and continuing to defer may be the better path. Ask your plan administrator for the cost basis records before initiating the transfer.

Don’t Forget State Taxes

Federal rules dominate the planning, but state income tax on IRA distributions can still move the needle. A few states levy no personal income tax at all. Others exempt some or all retirement income depending on your age or the amount withdrawn. Some tax every dollar at the full state rate. If you have flexibility about where you live in retirement, checking your state’s treatment of IRA income before you make big withdrawal decisions is worth the time, because a move across state lines can shift your effective rate on retirement income by several percentage points.

1
Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026
2
Internal Revenue Service. Check Your Eligibility for the New Enhanced Deduction for Seniors
3
Office of the Law Revision Counsel. 26 USC 86 – Social Security and Tier 1 Railroad Retirement Benefits
4
Medicare.gov. Medicare Costs Fact Sheet
5
Centers for Medicare & Medicaid Services. 2026 Medicare Parts A and B Premiums and Deductibles
6
Internal Revenue Service. Retirement Plans FAQs Regarding IRAs
7
Internal Revenue Service. About Form 8606 – Nondeductible IRAs
8
Office of the Law Revision Counsel. 26 USC 72 – Annuities, Certain Proceeds of Endowment and Life Insurance Contracts
9
Internal Revenue Service. Estimated Tax
10
Office of the Law Revision Counsel. 26 USC 408 – Individual Retirement Accounts
11
Internal Revenue Service. Tax Exempt Organization Search
12
Internal Revenue Service. Retirement Plan and IRA Required Minimum Distributions FAQs
13
Office of the Law Revision Counsel. 26 USC 402 – Taxability of Beneficiary of Employees Trust