{"id":4254,"date":"2022-06-03T01:00:00","date_gmt":"2022-06-02T19:00:00","guid":{"rendered":"https:\/\/afinancehub.com\/?p=4254"},"modified":"2022-12-05T17:58:21","modified_gmt":"2022-12-05T11:58:21","slug":"how-can-i-avoid-paying-taxes-on-my-ira-withdrawal","status":"publish","type":"post","link":"https:\/\/afinancehub.com\/how-can-i-avoid-paying-taxes-on-my-ira-withdrawal.html","title":{"rendered":"How Can I Avoid Paying Taxes on My IRA Withdrawal"},"content":{"rendered":"\n
Avoiding taxes on IRA withdrawal requires you to be smart and plan ahead. Being strategic right from when you start planning your retirement is a smart move. This is because some plans are better than others when it comes to how taxes are applied.<\/p>\n\n\n\n
For example, opening a Traditional IRA will cost you pre-tax dollars, meaning, you will pay the tax when you withdraw the funds. Something that you wouldn\u2019t have to worry about when you open a Roth IRA, as this is funded with your after-tax dollars so you wouldn\u2019t have to pay any taxes when you withdraw the money.<\/p>\n\n\n\n
The biggest difference between these two is how taxes are applied. Avoiding taxes on IRA withdrawal means Roth IRA is your best option. This is because your contributions are not deductible and retirement withdrawals are tax-free.<\/p>\n\n\n\n
On the other side, contributions are tax-deductible for traditional IRAs, as well as retirement withdrawals.<\/p>\n\n\n\n
Except for taxes, check out the table below for more comparison of the two options;<\/p>\n\n\n\n As seen in the table above, you don\u2019t have to worry about an early withdrawal penalty if you save with a Roth IRA, while on the other side, you must incur a 10% early withdrawal penalty for withdrawing early on a Traditional IRA account.<\/p>\n\n\n\nRoth IRA<\/th> Traditional IRA<\/th><\/tr><\/thead> You can withdraw anytime without worrying about taxes and penalties<\/td> You can discontinue depending on your income<\/td><\/tr> You can only discontinue your contributions at higher income<\/td> Tax payment on your retirement distribution applies as on ordinary income<\/td><\/tr> Once your withdrawals are qualified, they are tax-free<\/td> You have to make Required Minimum Distributions at age 72<\/td><\/tr> You can withdraw your contributions (not earnings) early, without being charged any penalties<\/td> Early withdrawal will cost you a 10% early withdrawal penalty, as well as taxes<\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n How Can You Avoid Paying Taxes on My IRA Withdrawal<\/h2>\n\n\n\n