You’re probably already aware some of the countless ways the IRS tries to get your money. Here in the land of the free and the IRS, we all are. Let’s talk about how you can give them less and pocket more using your IRA.How Uncle Sam Gets Your IRA Money: Taxes and DistributionsConsider the main ways the IRS gets its hands on your IRA’s dollars.Distributions from a 401k to you, the owner, are subject to a 20% withholding tax.Meanwhile, distributions from an IRA are not subject to a withholding tax.As a result, any money distributed from your 401k to you will be reduced by 20%. That 20% will be sent to the IRS in expectation of the taxes that will be due from you come time for distribution.However, any money distributed from an IRA is not subject to the 20% withholding as you can opt out of withholding. This legit loop hole is just one of the advantages of using an IRA in retirement instead of a 401k. What this means is the money distributed from an IRA can be received by you in full.Remember, the tax owed on a distribution from an IRA or 401k is identical. The difference between the two is when you are required to pay the IRS. Regardless of which you use, you will receive a 1099-R from your custodian/administrator. But in the 401k distribution you are required to set aside and effectively pre pay the taxes owed.Be sure and check out our article: Everything You Need To Know About IRA & 401k Distributions.Example of Bypassing Withholding Tax on your IRA/401kOkay so, what is the use of information if you never learn how to apply it. (College anyone?) Let’s walk though a common situation to illustrate the above information you just learned.John is 65 years old and has successfully grown his 401k to a nice amount. He’s decided to retire (finally) and enjoy his life the way it was meant to be, on a beach somewhere. He wants to take $500,000 from his 401k. He contacts his 401k administrator and is told that on a $500,000 distribution they will send him $400,000 and that $100,000 will have to be sent to the IRS for him to cover the 20% withholding requirement.But wait. John just read this article, he knows that the 20% withholding requirement does not apply to IRAs. John decides to roll over/transfer the $500,000 from his 401k directly to an IRA. Once the funds arrive at his IRA, John takes the $500,000 distribution from the IRA. There is no 20% withholding tax so he actually receives $500,000 in total. John will still owe taxes on the $500,000 distribution from the IRA and he will receive a 1099-R to include on his tax return.All in all, John has given himself the ability to access all of the money distributed for his retirement account without the need for sending money to the IRS at the time of distribution. There you have it folks. Don’t take distributions from a 401k and then voluntarily donate money to the IRS when you can roll over/transfer those 401k funds to an IRA and receive all of your money without a 20% withholding.For more information on making your retirement dollars work harder for you, contact us with any questions. Feel free to look around at our many other articles on 401ks, IRAs, the self-directed IRA LLC, and of course, the mighty Roth IRA. Which choices will be best for you depends on many factors, but you can save of lot of time and money by getting advice from our legal and tax experts.