If you recieve a windfall, can you avoid the 40% taxation on it if you put all in an IRA?

Answer 1

No, you will need to report it for the tax year that it was received and thus pay tax on it.. You can then put a portion of it up to the yearly max based on your age into a traditional IRA. That contribution may be eligible to be deducted from your taxes, depending on your situation. The money will then grow tax deferred until you access it. The only way to avoid the tax on the windfall is to not report it. So you can't avoid the tax but can possibly receive a small tax break in the form of a deduction by putting it into a traditional IRA. Consider a Roth IRA. You will not get the tax break, but it will still grow tax free because you can access the money and not have to claim it as earned income, because you have already paid taxes on it.

Answer 2

You can put up to $4k per year, per person into a Traditional IRA, unless you are 50 or over, then it's $5k. That will mean that that 4 or 5k will not be taxable income.