Ask an Advisor: Is There a Way to Shield My IRA From High Taxes When Taking Withdrawals?

Ask an Advisor: Is There a Way to Shield My IRA From High Taxes When Taking Withdrawals?

For many retirees, taxes can be one of the biggest irritants to their retirement income. Withdrawals from traditional IRAs, along with income from Social Security, pensions, or investments, can quickly add up—sometimes pushing you into a higher tax bracket than expected. However, with the right strategies in place, you can reduce the tax burden on your IRA withdrawals and keep more of what you’ve saved. Whether you’re already in retirement or planning ahead, there are several effective strategies you can use to create a more tax-efficient withdrawal plan.

 

1. Convert a Portion of Your Traditional IRA to a Roth IRA

One of the most effective ways to manage taxes in retirement is by strategically converting some of your traditional IRA assets into a Roth IRA. While this move requires paying taxes on the converted amount in the year of the transfer, the long-term benefits can outweigh the short-term cost.

Once the funds are in a Roth IRA, future qualified withdrawals are tax-free. This not only provides tax diversification but can also help reduce taxable income in retirement, lower future RMDs, and potentially reduce how much of your Social Security benefits are subject to taxation.

 When does a Roth conversion make sense?

• If you expect to be in the same or a higher tax bracket in retirement
• If you have a window between retirement and when RMDs begin (age 73 as of 2025)
• If you can pay the conversion taxes with funds outside your IRA

Tip: A series of small, annual Roth conversions—often called “filling up your tax bracket”—can be more efficient than converting large amounts at once. 

 

2. Spread Out Withdrawals to Avoid Spiking Your Tax Bracket

Another powerful tax strategy is to take a more gradual approach to IRA distributions. Instead of waiting until you’re required to take distributions, consider starting smaller, planned withdrawals in your early retirement years.

This approach can help smooth out your income over time, prevent you from jumping into a higher marginal tax bracket, and potentially reduce the overall taxes paid during retirement.

 Benefits of gradual withdrawals

• Smoother tax liability over time
• May reduce Medicare IRMAA surcharges caused by spikes in income
• Helps avoid large RMDs later in life, which could be taxed at a higher rate

 Tip: If you retire before age 73, consider taking withdrawals before RMDs are mandatory. This is especially useful in low-income years between retirement and claiming Social Security or pension benefits. 

 

3. Use Qualified Charitable Distributions (QCDs) for Tax-Free Giving

If you’re charitably inclined and aged 70½ or older, a Qualified Charitable Distribution (QCD) offers a unique opportunity to satisfy your RMD while also reducing your taxable income. A QCD allows you to donate up to $100,000 per year directly from your IRA to a qualified 501(c)(3) charity—without counting the distribution as taxable income.

This strategy not only benefits the charity of your choice but can also:

• Lower your adjusted gross income (AGI)
• Potentially reduce taxation of Social Security benefits
• Help avoid Medicare premium increases tied to AGI

 Important note: QCDs must be made directly from your IRA to the charity. The amount donated will count toward your RMD but won’t be included in your taxable income.

 

Final Thoughts: Plan Ahead to Keep More of Your Retirement Income

Managing IRA withdrawals with taxes in mind can have a significant impact on your long-term financial health. The earlier you begin planning, the more flexibility you’ll have to implement strategies like Roth conversions, income smoothing, or QCDs.

These techniques can work individually or in combination, depending on your goals, current income, and broader retirement plan. Partnering with a financial advisor or tax professional can help you evaluate the best course of action based on your unique situation.

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This article was originally published on Wealthtender and is intended for informational purposes only and should not be considered financial advice. You should consult a financial professional before making any major financial decisions. Wealthtender earns money from financial professionals, which creates a conflict of interest when these professionals are featured in articles over others. Read the Wealthtender editorial policy and terms of service to learn more. Wealthtender is not a client of these financial services providers.

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