If I do not have a job (thus no W-2) during the tax year that I withdraw from my traditional IRA, then do I not need to pay income taxes on my withdrawals?

[Opus 17]

Money that comes from a tax-advantaged retirement account, that was not taxed when it was contributed, is always taxed when you take the money out (because it was not taxed going in).  This applies to pensions, annuities, traditional IRA accounts, 401k, 403b accounts, and any other tax-advantaged retirement scheme.

There may be some exceptions—for example, a pension from a state government may be tax-free in that state, although it is still subject to federal income tax.  And social security is tax-free if your outside income is under the various limits that may apply to you.   A traditional IRA does not qualify for any tax-free treatments that I am aware of.

The current standard deductions are $12,000 for single and $24,000 for married filing jointly, so withdrawals under that amount aren't taxed either.  But once you withdraw more than that, you are subject to the 10% or 12% federal income tax rates, plus state income tax.

Roth IRAs are also an exception, in a Roth, the money was taxed going in, so once you reach retirement age, your withdrawals are tax-free, both the original contributions AND any gains.  But that only applies to Roth accounts.  And if you want to convert a traditional IRA to a Roth IRA, you'll have to pay the income tax when you do the conversion.

[fanfare]

The chance that Congress will come to your rescue and change the IRA laws to your advantage is pretty slim. US is already $21T in debt.

[tk01kj]

Yes income other than W2 are taxable but not at the same rate (i.e. long term capital gains). Trad IRA withdrawal are taxed at income tax. if I make $150k now and by age 50 most of my net worth are in non liquidized assets, investment and business holdings, and I reinvest my dividends without realized gains, then i can control my realized gains at retirement, i.e. 50k a year withdrawal from trad IRA plus 100k from long term capital gains but the tax will be lower than the 150k im paying full income tax on now

[Opus 17]

You need a professional financial planner.

If you invest solely in after-tax stocks, mutual funds etc., you will have less money to invest ($1000 pre tax vs $700 after tax, for example).  And, as your investment grows, you will pay tax each year on dividends, and realized capital gains in the funds.  Then when you retire, most of the money you withdraw will be a mixture of original cost basis (no tax) and gains (15%).

Money in a tax-deferred retirement account is taxed as ordinary income, which might be 12% or 22% under current laws depending on how much you take out.  22% is certainly higher than 15%.  But, you invest more each year (because it's pre-tax, you can afford to put more in) and the growth is also tax-deferred.

Which is better for you depends on too many factors for us to tell you what to do.

(And this ignores the Roth IRA, and investing in tax-free muni funds, which adds another layer of complexity.)

[Carl]

Yes. The plan administrator will send you a 1099-R reporting all withdrawals you make in a tax year. Additionally, if you are not of retirement age that 1099-R will show at a minimum, a 10% withholding for the early withdrawal penalty.

[tk01kj]

Please see comment above.