How to Reduce Taxes If Most of Your Savings Are in a Traditional IRA

IRA withdrawals are taxable—but planning can soften the hit.

Smart planning can cut taxes on traditional IRA withdrawals. William Potter/Shutterstock

A traditional individual retirement account (IRA) can serve as a powerful savings vehicle. It allows you to make tax-deductible contributions. And as you contribute to the account, your money benefits from compound interest.

But once you start cracking open that nest egg, Uncle Sam comes to collect.

What many people fail to anticipate is the tax implications of a traditional IRA that take effect once they begin making withdrawals.

Qualified withdrawals from traditional IRAs are taxed as ordinary income and rates can be as high as 37 percent.

But luckily, there are ways to minimize the impact of taxes associated with traditional IRAs. So let’s take a closer look.

Consider Roth Conversions

Roth IRAs allow you to make qualified tax-free withdrawals. But don’t worry if you don’t have one. Most people are eligible to convert part or all of a traditional IRA’s funds into a Roth IRA.

However, you’d owe income taxes on the amount converted. If the withdrawal is large enough, the conversion could push you into a higher tax bracket and trigger a hefty tax bill. For retirees, the bump in income may even increase taxes on Social Security benefits and Medicare premiums.

But you can make partial conversions and even multiple conversions over time. A qualified financial adviser can work with you to determine a conversion strategy that suits your needs.

Some advisers also recommend you make your Roth conversion within the “sweet spot.” This is the time between early retirement and before you begin collecting Social Security benefits and before required minimum distributions kick in at age 73.

At this point, you’d likely be in a low tax bracket and you can thus pay little taxes on the Roth conversion.

But keep in mind, there are rules. In order to make tax and penalty-free withdrawals from a Roth IRA, you must be at least 59 1/2 years old. And at least five years must have passed since the conversion.

Keep in mind that the five-year rule kicks in January of the year you made the conversion.

But because conversions can be complex and not always the right move for all, it’s recommended you seek the guidance of a financial adviser when taking this route.

Strategically Withdraw From Accounts

You’ve heard that diversification is key to any investing strategy. But diversifying your retirement accounts can also help.

Let’s say that in addition to your traditional IRA, you have a tax-free Roth IRA and a taxable brokerage account. In this case, some advisers may recommend that you begin withdrawing retirement funds from your taxable brokerage account. This is because withdrawals from this bucket of savings would likely be taxed at the lower long-term capital gains tax rates of zero percent, 15 percent, or 20 percent (assuming you’ve held onto these assets for longer than one year.)

Next, you can begin drawing down from your tax-deferred traditional IRA. These withdrawals are taxed as ordinary income.

And, finally, you can make tax-free withdrawals from your Roth IRA. In this scenario, tax-free funds are given time to grow as much as they can.

Of course, this strategy may not be suitable for everyone. So it’s important to run it by a professional financial adviser.

Maximize Your Traditional IRA

While you’re saving in a traditional IRA, you can reduce your taxable income based on your contributions. In 2026, you can contribute up to $7,500 to a traditional IRA. And those who are at least 50 years old can make additional “catch-up” contributions of up to $1,000.

Make Qualified Charitable Distributions (QCDs)

Giving to charity not only allows you to help those in need, but it can also provide you with some tax benefits.

If you’re at least 70 1/2 years old, you can make what’s called qualified charitable distributions (QCDs). This allows you to contribute up to $111,000 in 2026 directly from your traditional IRA to one or more qualifying charities. The contribution won’t count toward your taxable income. Plus, it counts toward your required minimum distribution, which is a specific amount of money you must withdraw from a traditional IRA beginning when you turn age 73, regardless if you need it. The amount depends on your account balance at the end of the preceding calendar year and a life expectancy factor determined by the Internal Revenue Service. And if it’s large enough, it could potentially shift you into a higher tax bracket.

The Bottom Line

A traditional IRA can offer you immediate tax benefits as you’re saving. But when you start withdrawing funds in retirement, you may face a huge tax burden. Luckily, there are ways to minimize the hit. You could consider moves like Roth conversions, strategically withdrawing from multiple accounts with different tax treatments in retirement, and making QCDs if you’re eligible.

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