Getting money from retirement accounts can come with strings attached: Income tax, early withdrawal penalties, and tax withholding may leave you with less than you hoped.

So, how do you avoid taxes on 401(k) withdrawals and other accounts? In some cases, you just have to pay. But sometimes, there are several opportunities to get 401(k) money without paying taxes—or at least manage the taxes so you have the resources you need.

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With a low enough income, you may pay at surprisingly low rates. But that’s not always feasible, especially if you withdraw a substantial amount. You can also try taking loans or Roth distributions, when available, if you need to avoid raising your taxable income. But there are always pros and cons—you might not want to wipe out your Roth assets, and loans can be problematic in several different ways. And with Roth, you start with after-tax money, so it’s not like you’re completely dodging taxation.

There’s also the question of mandatory tax withholding. What if you need all of that money, and you expect to pay taxes at a lower rate? You may be able to avoid tax withholding in some cases.

Of course, whether or not you pay tax today may ignore the big picture. Getting money out of a pre-tax retirement account without paying taxes could cost more later. For example, it’s possible that you’ll owe underpayment penalties.

What’s more, you’ve got the rest of your life to think of. Whenever possible, think of how these withdrawals might fit with a well-designed retirement income strategy. Is it better to pull from traditional or Roth, or is it just best to leave retirement funds untouched. You won’t always have the luxury of picking and choosing (especially when life happens), but it’s always best to consider your long-term plan.

More on this topic:
Exceptions to 10% early withdrawal penalty:
How much tax do you pay on distributions?
How 401(k) loans work:

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CHAPTERS
0:00 How to Get 401k Money Without Paying Tax
0:31 Low Income Tax Brackets
1:57 Roth Distributions and Earnings
3:28 401(k) Loans and Taxation
4:23 Mandatory Tax Withholding
6:17 Avoiding Early Withdrawal Penalties
8:45 Qualified Charitable Distributions (QCDs)

Remember that it’s critical to review your situation with your own tax, legal, and financial experts before making any decisions, taking withdrawals, or filing a return. Your reality might be significantly different from what this video describes, so you need to triple-check everything.

IMPORTANT:
It’s impossible to cover everything you need to know in a video like this. The only thing that’s certain is that you need more information than this. Always consult with a CPA before making decisions or filing a tax return. This is general information and entertainment, and is not created with any knowledge of your circumstances. As a result, you need to speak with your own tax, legal, and financial professional who is familiar with your details. This video is not a substitute for individualized, personal advice. Please verify with your plan administrator when employer plans are involved. This information may have errors or omissions, may be outdated, or may not be applicable to your situation. Investments are not bank guaranteed and may lose money. Opinions expressed are as of the date of the recording and are subject to change. “Likes” should not be considered a positive reflection of the investment advisory services offered by Approach Financial, Inc. The Comments section contains opinions that are not the opinions of Approach Financial, Inc., and you should view all comments with skepticism. Approach Financial, Inc. is registered as an investment adviser in the state of Colorado and is licensed to do business in any state where registered or otherwise exempt from registration….(read more)

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Retirement should be a time of relaxation and enjoyment, free from the burdens of work and financial stress. However, one thing that can put a damper on your retirement years is the looming specter of taxes on your retirement withdrawals. Fortunately, there are several strategies you can employ to minimize or even eliminate taxes on your retirement income. By taking advantage of these tax-saving opportunities, you can enjoy a more financially secure and worry-free retirement.

One of the most effective ways to avoid taxes on your retirement withdrawals is to diversify your retirement savings across different types of retirement accounts. For example, you may have funds in a traditional IRA, a Roth IRA, a 401(k), and other retirement vehicles. Each of these accounts has different tax implications, so by withdrawing from a mix of accounts, you can optimize your tax situation. For example, if you withdraw funds from a Roth IRA, you won’t pay any taxes on the withdrawals as long as you meet certain conditions. On the other hand, withdrawals from a traditional IRA or 401(k) will be subject to income tax.

Another strategy to minimize taxes on your retirement withdrawals is to carefully plan the timing of your withdrawals. By strategically timing your withdrawals, you can spread out your tax liability over several years, which can help you stay in a lower tax bracket and pay less in taxes overall. For example, if you have a year with lower income, you may want to withdraw funds from your retirement accounts during that year to take advantage of the lower tax rates.

Additionally, you may want to consider taking advantage of the IRS’s rules regarding Required Minimum Distributions (RMDs). Once you reach a certain age, typically 72, the IRS requires you to start taking withdrawals from your traditional IRAs and 401(k) accounts. By carefully planning your RMDs and coordinating them with your other sources of income, you can minimize the tax impact of these required withdrawals.

Finally, you may want to consider investing in tax-efficient investment vehicles such as municipal bonds or tax-managed mutual funds. These types of investments generate income that is exempt from federal income tax, allowing you to keep more of your retirement income in your pocket.

In conclusion, by diversifying your retirement savings, carefully timing your withdrawals, planning your RMDs, and investing in tax-efficient vehicles, you can minimize or even eliminate taxes on your retirement withdrawals. By being proactive and strategic in your retirement planning, you can enjoy a more financially secure and tax-efficient retirement.