You can reduce or eliminate tax on an IRA withdrawal by pulling from a Roth instead of a Traditional account, moving money by rollover rather than distribution, timing withdrawals for low-income years, sending funds directly to charity, or fitting one of the specific exceptions in the tax code. There is no single trick that erases the bill for every situation, but knowing how to avoid paying taxes on IRA withdrawals means understanding which of these tools fits your account type, your age, and what you plan to do with the money.
Two separate charges can apply when you take money out of a Traditional IRA: ordinary income tax on the distribution, and an additional 10% penalty if you’re under 59½. They operate independently. Avoiding one does not automatically avoid the other, and most of the strategies below target one charge, the other, or both.1Internal Revenue Service. Topic No. 557, Additional Tax on Early Distributions From Traditional and Roth IRAs
Withdraw From a Roth Instead
Roth IRAs are funded with after-tax dollars, so qualified withdrawals of both contributions and earnings come out completely free of federal income tax.2Internal Revenue Service. Roth IRAs Because you already paid tax on Roth contributions, you can pull those contributions back out at any time, at any age, with no tax and no penalty. Only the earnings portion carries restrictions, and even earnings come out tax-free once you’ve held a Roth for at least five years and reached age 59½.
If you have both a Traditional and a Roth IRA and you need cash, taking it from the Roth is often the cheaper option. Just remember that each Roth conversion (as opposed to a direct contribution) has its own five-year clock for penalty purposes on the converted amount.
Move the Money Instead of Taking It
The simplest way to owe zero tax is to keep the money inside a retirement account. Rollovers and transfers between IRAs, or between an IRA and an employer plan, are not treated as taxable distributions when done correctly.
Direct Trustee-to-Trustee Transfers
A direct transfer sends funds straight from one IRA custodian to another. The money never touches your hands, nothing is withheld, and there is no annual limit on how many transfers you can do.3Internal Revenue Service. Rollovers of Retirement Plan and IRA Distributions If you’re switching brokers, ask for a direct transfer rather than a check.
60-Day Indirect Rollovers
With an indirect rollover, you receive the distribution personally and have exactly 60 calendar days to redeposit the full amount into another IRA or qualified plan. Miss the window and the entire amount becomes taxable income, plus the 10% penalty if you’re under 59½.3Internal Revenue Service. Rollovers of Retirement Plan and IRA Distributions
You can only do one indirect rollover across all your IRAs in any 12-month period. The IRS aggregates every Traditional, Roth, SEP, and SIMPLE IRA you own into a single bucket for this rule. Roth conversions, rollovers to or from employer plans, and direct trustee-to-trustee transfers do not count against the limit.
Rolling Into an Employer Plan
You can also roll Traditional IRA funds into a 401(k), 403(b), or other employer plan if the plan accepts incoming rollovers. Tax deferral stays intact, and employer plans covered by ERISA generally have broader federal protections against creditor claims than IRAs do.4U.S. Department of Labor. FAQs About Retirement Plans and ERISA
Skip the 10% Penalty With a Qualifying Exception
Ordinary income tax still applies to a Traditional IRA withdrawal that fits one of these exceptions. What the exception removes is the extra 10% surcharge for taking money out before 59½.
Substantially Equal Periodic Payments
The SEPP rule lets you take a fixed stream of withdrawals from your IRA at any age, penalty-free. You must continue the payments for the longer of five full years or until you reach 59½, and the payment amount is calculated using an IRS-approved method tied to life expectancy. Change the amount or stop early and the IRS treats the exception as if it never applied, retroactively assessing the 10% penalty on every distribution plus interest back to each original due date.5Internal Revenue Service. Substantially Equal Periodic Payments
Medical, Education, and First Home
Unreimbursed medical expenses that exceed 7.5% of your adjusted gross income qualify for the exception in the year of the distribution; only the amount above the threshold counts.6Internal Revenue Service. Retirement Topics – Exceptions to Tax on Early Distributions Qualified higher education expenses for you, your spouse, children, or grandchildren also qualify, up to the total qualified cost minus any tax-free educational assistance received.
For a first-time home purchase, you can withdraw up to $10,000 over your lifetime penalty-free. 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 funds must go toward qualified acquisition costs (including closing costs) within 120 days.7Office 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 for inflation.
Disability, Terminal Illness, and Death
If a physician certifies that you are totally and permanently disabled and unable to perform substantial gainful activity, IRA distributions are penalty-free. A separate exception covers a physician-certified terminal illness. When an IRA owner dies, distributions to any beneficiary are automatically exempt from the 10% penalty regardless of the beneficiary’s age.1Internal Revenue Service. Topic No. 557, Additional Tax on Early Distributions From Traditional and Roth IRAs
Newer Exceptions Under SECURE 2.0
Starting in 2024, an emergency personal expense distribution allows one withdrawal per calendar year of up to the lesser of $1,000 or the vested balance above $1,000. You can repay within three years; without repayment, no further emergency distribution is available until the next calendar year.6Internal Revenue Service. Retirement Topics – Exceptions to Tax on Early Distributions
Victims of domestic abuse by a spouse or domestic partner can withdraw up to the lesser of $10,000 (indexed for inflation) or 50% of their account balance without the penalty. If you live in a federally declared disaster area, you may withdraw up to $22,000 penalty-free, spread the income over three tax years, and repay within three years.8Internal Revenue Service. Access Retirement Funds in a Disaster
Send It Directly to Charity
A Qualified Charitable Distribution is one of the few ways to get money out of a Traditional IRA with zero federal income tax. If you’re 70½ or older, you can transfer up to $111,000 per year (the 2026 inflation-adjusted limit) directly from your IRA to a qualifying charity. The money moves straight from the custodian to the charity and is excluded entirely from your gross income.6Internal Revenue Service. Retirement Topics – Exceptions to Tax on Early Distributions
The QCD becomes especially useful once you turn 73 and required minimum distributions begin. A QCD counts toward your RMD for the year, so instead of withdrawing, paying tax, and then donating, you skip the tax step.9Internal Revenue Service. Retirement Plan and IRA Required Minimum Distributions FAQs Lower adjusted gross income can also reduce the taxation of Social Security benefits and help you avoid Medicare premium surcharges. A one-time QCD of up to $55,000 to a charitable remainder trust or charitable gift annuity is also permitted.
Time Withdrawals for Low-Bracket Years
Once you turn 73, you must start taking RMDs from your Traditional IRA each year.10Internal Revenue Service. Retirement Topics – Required Minimum Distributions (RMDs) Under current law, people born in 1960 or later won’t face RMDs until 75. Those forced withdrawals are taxable and can push you into a higher bracket, especially once Social Security stacks on top.
The window between retirement and the start of RMDs is prime territory. Taxable income is often unusually low in those years. Rather than leaving that low bracket space unused, you can take voluntary withdrawals to fill it. For 2026, the 12% bracket covers income up to $50,400 for single filers and $100,800 for married couples filing jointly.11Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026, Including Amendments From the One, Big, Beautiful Bill Withdrawing enough to stay within that bracket now means paying 12% instead of 22% or more later.
Roth Conversions in the Same Window
Converting Traditional IRA funds to a Roth doesn’t avoid tax today, but it can eliminate tax on those dollars permanently. You pay ordinary income tax on the converted amount in the year of conversion. Afterward, the money grows tax-free inside the Roth, and once you’ve held it for at least five years and reached 59½, both the converted amount and all subsequent earnings come out with no tax.2Internal Revenue Service. Roth IRAs
Each conversion starts its own five-year clock for penalty purposes on the converted amount. Direct Roth contributions remain accessible at any time regardless of conversion clocks.
The strategic payoff is smaller future RMDs. Roth IRAs have no RMDs during the original owner’s lifetime, so every dollar converted is a dollar that won’t be forced out at an inconvenient tax rate later.9Internal Revenue Service. Retirement Plan and IRA Required Minimum Distributions FAQs The best years to convert are years when your marginal rate is unusually low: the year you retire but before Social Security begins, a year with large deductions, or any gap year.
Watch the Medicare Premium Trap
A large IRA withdrawal can cost you more than income tax. Medicare Part B and Part D premiums are based on your modified adjusted gross income from two years earlier. Cross a threshold and you pay a monthly surcharge, the Income-Related Monthly Adjustment Amount (IRMAA). For 2026, an individual filer with MAGI above $109,000 starts paying an extra $81.20 per month for Part B alone. 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.12Centers for Medicare & Medicaid Services. 2026 Medicare Parts A and B Premiums and Deductibles
A one-time large Traditional IRA withdrawal, or a big Roth conversion, needs to be planned with these thresholds in mind. Income from a 2026 conversion will drive your 2028 premiums. Spreading conversions across several years can keep you below IRMAA cutoffs, and QCDs help because they never enter gross income at all.
State Income Taxes
Federal taxes are only part of the picture. Most states with an income tax also tax Traditional IRA withdrawals, though the specifics vary widely. Several states exempt all retirement income or have no state income tax, while others offer partial exclusions often tied to your age or the size of the distribution. Where you live when you take the withdrawal, not where you lived when you made the contributions, determines which state’s rules apply. Factor your state’s treatment into the timing decision, especially for large distributions or Roth conversions.
A Note on Inherited IRAs
If you’re asking about money you inherited rather than money you contributed, different rules apply. Distributions to a beneficiary are always exempt from the 10% early withdrawal penalty, but a Traditional inherited IRA is still subject to ordinary income tax. Most non-spouse beneficiaries who inherited from 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 distribution during those years.13Internal Revenue Service. Retirement Topics – Beneficiary That flexibility lets you time withdrawals for lower-income years within the 10-year window, which is the main lever for reducing tax on an inherited account.