Taxes on 401(k) withdrawals in retirement depend almost entirely on which type of account you have. Money taken from a Traditional 401(k) is taxed as ordinary federal income at rates from 10% to 37%, and most states tax it too. Qualified withdrawals from a Roth 401(k) are tax-free. Beyond that basic split, the withdrawal itself can push more of your Social Security benefits into the taxable column and raise your Medicare premiums two years down the road.
Traditional vs. Roth: What Determines Whether You Owe
Contributions to a Traditional 401(k) went in before tax, so every dollar you take out in retirement is taxed as ordinary income, treated the same as wages on your Form 1040. Your plan reports the distribution on Form 1099-R.1Internal Revenue Service. About Form 1099-R, Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc. If you made any after-tax contributions to a Traditional account, those specific dollars come back tax-free; only the earnings on them are taxable.
For tax year 2026, federal brackets run from 10% on the first $12,400 of taxable income for single filers up to 37% above $640,600. Married couples filing jointly hit the top bracket at $768,700.2Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026 Most retirees sit in the 12% or 22% brackets, but pension income, Social Security, and 401(k) withdrawals stack together and can push you higher than expected.
One helpful boundary: 401(k) distributions are not subject to the 3.8% Net Investment Income Tax that hits investment income above certain thresholds. Qualified retirement plan distributions are specifically exempt.3eCFR. 26 CFR 1.1411-8 Exception for Distributions From Qualified Plans
Roth 401(k) contributions were taxed on the way in, so qualified withdrawals — contributions and earnings alike — come out completely tax-free. A distribution is qualified only when two conditions are both met: you have held the Roth 401(k) for at least five tax years, counted from January 1 of the year of your first contribution, and you are at least 59½ (or disabled, or the funds are being paid to a beneficiary after your death).4Internal Revenue Service. Retirement Plans FAQs on Designated Roth Accounts Miss the five-year mark and the earnings portion of a withdrawal is taxable as ordinary income, though your original contributions still come out tax-free.
Required Minimum Distributions From a Traditional 401(k)
The IRS does not let Traditional 401(k) money sit forever. You must start taking Required Minimum Distributions in the year you turn 73.5Internal Revenue Service. Retirement Plan and IRA Required Minimum Distributions FAQs Under SECURE 2.0, that age rises to 75 in 2033. Each year’s RMD is your December 31 balance from the prior year divided by a life expectancy factor from the IRS Uniform Lifetime Table, and the required percentage climbs as you age.
Your first RMD carries a small grace period: you can delay it until April 1 of the year after you turn 73. That flexibility is a trap. Delaying means taking two RMDs in the same calendar year, which can push you into a higher bracket, trigger Medicare surcharges, and make more of your Social Security taxable. Every RMD after the first is due December 31.
Miss an RMD deadline and the IRS charges a 25% excise tax on the amount you should have withdrawn. That drops to 10% if you correct the shortfall within two years. Report the missed amount on Form 5329; you can also request a waiver if the mistake was a reasonable error and you are taking steps to fix it.6Internal Revenue Service. Instructions for Form 5329
Two exceptions matter for retirees. If you are still working past 73 for the employer that sponsors your 401(k), you can delay RMDs from that plan until you actually retire, unless you own 5% or more of the business. Old 401(k) accounts from previous employers still require RMDs on the normal schedule. And Roth 401(k) accounts are now exempt from RMDs during the original owner’s lifetime, matching the long-standing rule for Roth IRAs.5Internal Revenue Service. Retirement Plan and IRA Required Minimum Distributions FAQs
How Withdrawals Can Make Your Social Security Taxable
This is the cost most retirees miss. Traditional 401(k) distributions count as income when the IRS decides how much of your Social Security to tax, and the thresholds have not been adjusted for inflation since 1993.
The IRS uses “combined income” — your adjusted gross income plus any nontaxable interest plus half of your Social Security benefits. For a single filer, combined income between $25,000 and $34,000 makes up to 50% of benefits taxable; above $34,000, up to 85% becomes taxable. For joint filers, the thresholds are $32,000 and $44,000.7Office of the Law Revision Counsel. 26 USC 86 – Social Security and Tier 1 Railroad Retirement Benefits
A concrete case: a single retiree collecting $24,000 in Social Security and pulling $30,000 from a Traditional 401(k) has a combined income of $42,000 — the $30,000 withdrawal plus $12,000 (half the Social Security). That is well past the $34,000 line, so up to 85% of the Social Security benefits become taxable. The 401(k) money is taxed and it drags Social Security along with it.
Roth 401(k) distributions do not count toward combined income. That is one of the strongest reasons to hold Roth money for retirement, especially if you plan to draw heavily in any single year.
Medicare Premium Surcharges Two Years Later
Big withdrawals can raise your Medicare bill through Income-Related Monthly Adjustment Amounts, or IRMAA. Medicare looks at your modified adjusted gross income from two years earlier to set your current premiums, so a large 401(k) distribution in 2024 shows up in your 2026 Medicare costs.
For 2026, single filers with modified AGI above $109,000, and joint filers above $218,000, pay a surcharge on top of the standard Part B premium. The surcharges climb through five income tiers:8Centers for Medicare & Medicaid Services. 2026 Medicare Parts A and B Premiums and Deductibles
- $109,001 to $137,000 (single): $81.20 monthly Part B surcharge, plus $14.50 Part D
- $137,001 to $171,000: $202.90 Part B, plus $37.50 Part D
- $171,001 to $205,000: $324.60 Part B, plus $60.40 Part D
- $205,001 to $499,999: $446.30 Part B, plus $83.30 Part D
- $500,000 and above: $487.00 Part B, plus $91.00 Part D
At the top tier, a single retiree pays roughly $6,936 more per year in Part B premiums alone. A one-time large withdrawal to pay off a mortgage or cover a major purchase can quietly inflate premiums two years out, so timing matters.
Withholding Is Not the Same as What You Owe
When your plan pays you a lump sum that is eligible for rollover, it must withhold 20% for federal tax. This is mandatory. You cannot waive it, though you can recover any overpayment when you file.9eCFR. Withholding on Eligible Rollover Distributions – Questions and Answers The 20% does not apply if you do a direct rollover to another retirement account.
For regular monthly retirement payments, withholding works more like a paycheck. Your plan uses your Form W-4P. Nonperiodic distributions that are not eligible rollover distributions default to 10% withholding, adjustable on Form W-4R.10Internal Revenue Service. Publication 15-A, Employer’s Supplemental Tax Guide (2026)
Withholding is a rough deposit against what you actually owe. With multiple income sources — pension, Social Security, part-time work, investment income — many retirees find they need quarterly estimated tax payments on top of withholding to avoid an underpayment penalty.
State Income Tax
Federal is only half the story. Most states tax Traditional 401(k) withdrawals as ordinary income, though rates and rules vary widely. About 13 states do not tax retirement plan distributions, either because they have no income tax or because they exempt retirement income specifically. Several more offer partial exclusions, often ranging from a few thousand dollars up to over $20,000 a year, sometimes tied to age.
Where you retire can move the number meaningfully. A retiree pulling $60,000 a year from a Traditional 401(k) in a state with a 5% flat tax loses an extra $3,000 compared to someone in a tax-free state. That savings has to be weighed against cost of living, but it is real money.
Rolling Over Instead of Withdrawing
If you do not need the money yet, a rollover from a Traditional 401(k) to a Traditional IRA is not a taxable event, provided the funds move directly between accounts. The IRA keeps growing tax-deferred, and you often get broader investment choices and lower fees.11Internal Revenue Service. Topic No. 413, Rollovers From Retirement Plans
If the plan sends you a check instead, you have 60 days to deposit it into the IRA or the whole amount becomes taxable. The plan will also withhold 20%, so to complete the full rollover you have to make up that 20% from other funds and reclaim it at tax time.
Converting a Traditional 401(k) into a Roth IRA is different: the conversion is fully taxable in the year you do it, because pre-tax money is being moved to an after-tax account. Some retirees convert in low-income years to lock in a lower rate now, but the tax hit can trigger IRMAA surcharges and Social Security taxation the same way a withdrawal would, so the timing needs planning.