How Are 401(k) Withdrawals Taxed?

Withdrawals from a traditional 401(k) are generally taxed as ordinary income in the year you take them, at rates that depend on your taxable income and filing status. Qualified Roth 401(k) withdrawals are generally tax-free. Taking money out before age 59½ may add a 10% additional tax. Required withdrawals begin at age 73 or 75, depending on birth year.

Figures below are federal and current as of October 19, 2026, from the IRS pages linked in each section. This is general education, not personal tax, legal, or investment advice.

Why are traditional 401(k) withdrawals taxed at all?

A traditional 401(k) is a tax-deferred account. Contributions generally go in before income tax, and the money grows without yearly tax on its earnings. The tax is not skipped. It is postponed until the money comes out. The IRS states (opens a separate site in a new tab) that distributions from a 401(k) plan are taxable unless they are rolled over.

The 401(k) itself dates to a provision of the Revenue Act of 1978 (opens a separate site in a new tab) and became a common workplace plan in the decades that followed, as many employers moved away from traditional pensions. Unlike a pension, a 401(k) does not promise a set income. Its value depends on what you contribute, how the investments perform, and what you withdraw, and investments can lose value.

How are traditional 401(k) withdrawals taxed?

Money taken from a traditional 401(k) is added to your taxable income for the year. It is taxed at ordinary income rates, not at the lower capital gains rates, and the IRS notes (opens a separate site in a new tab) that withdrawals are included in taxable income except for any part that was taxed before (your basis) or that can be received tax-free, such as qualified distributions from designated Roth accounts.

A few related rules are worth knowing:

• Withholding. A taxable distribution paid to you from an employer plan is generally subject to mandatory withholding of 20%, even if you plan to roll it over later. Withholding is a prepayment, not the final tax. Your actual tax depends on your whole return, and the withholding may be too high or too low. A direct rollover to another eligible plan avoids the mandatory withholding. IRS Topic 413 (opens a separate site in a new tab), read October 19, 2026.
• Early withdrawals. If you are under age 59½, the taxable part of a distribution may be subject to a 10% additional tax, unless an exception applies. IRS Topic 413 (opens a separate site in a new tab), read October 19, 2026.
• State tax. Many states also tax retirement withdrawals, and the rules differ by state. Check your own state's treatment with a tax professional.

What is the federal tax rate on a 401(k) withdrawal?

There is no single 401(k) tax rate. Federal income tax is charged in layers called brackets, and each rate applies only to the slice of taxable income that falls in that bracket. A withdrawal sits on top of your other income, so the same withdrawal can be taxed differently from one household to the next.

For tax year 2026, the IRS lists these rates and income thresholds. Thresholds apply to taxable income, which is income after the standard deduction or itemized deductions. The 2026 standard deduction is $16,100 for single filers and $32,200 for married couples filing jointly.

Source: IRS, tax year 2026 inflation adjustments (opens a separate site in a new tab) and Revenue Procedure 2025-32 (opens a separate site in a new tab), read October 19, 2026. Tax law and thresholds change.

A hypothetical example

Consider "James Carter," a hypothetical single retiree. Assume 2026 federal brackets, the standard deduction, no Social Security, and no other deductions or credits. He withdraws $50,000 from a traditional 401(k).

• No other income: taxable income is $33,900 ($50,000 minus $16,100). Federal tax is about $3,820, roughly 7.6% of the withdrawal.
• With $30,000 of other taxable income, such as a pension: taxable income is $63,900. Federal tax is about $8,770 in total. Of that, about $7,350 is tied to the $50,000 withdrawal, roughly 14.7%.

The withdrawal is the same in both cases. The tax differs because of what else is on the return.

Hypothetical example for illustration only, using round numbers. It is not a projection, does not describe an actual client, and does not account for state tax, Medicare premiums, or other income sources. Your results will differ.

When do required minimum distributions start?

Required minimum distributions (RMDs) are the amounts the IRS requires you to withdraw each year from most tax-deferred accounts, including 401(k) plans. Under the SECURE 2.0 Act, the starting age is 73 for people who reach 73 before 2033 and 75 for people who reach age 74 after December 31, 2032. In general terms, that is age 73 if you were born from 1951 through 1959, and age 75 if you were born in 1960 or later. The IRS has noted an ambiguity for people born in 1959, so confirm your own date with a tax professional. IRS Notice 2023-54 (opens a separate site in a new tab), published July 2023.

Some details that affect planning:

• Still working. Many 401(k) plans let you delay the first RMD until you retire, unless you own 5% or more of the sponsoring business. IRS RMD FAQs (opens a separate site in a new tab), page updated January 29, 2026.
• Roth 401(k). Designated Roth accounts in a 401(k) plan are not subject to RMDs while the owner is alive. IRS RMD page (opens a separate site in a new tab), read October 19, 2026.
• Missed RMDs. If you do not withdraw the full amount, an excise tax of 25% may apply to the amount not withdrawn, or 10% if the shortfall is corrected within two years. IRS RMD FAQs (opens a separate site in a new tab).

RMDs are taxed as ordinary income like other traditional withdrawals. They can also add to income that determines how much of Social Security is taxed and what you pay for Medicare.

What about the years between retirement and RMDs?

For many households, the years after work ends and before RMDs begin are lower-income years. Taxable income in that window depends on what is being withdrawn, when Social Security starts, and what other income is coming in. That can give some flexibility over which tax brackets are used.

That flexibility has costs. Drawing from a traditional account in these years creates taxable income now. Waiting to claim Social Security may mean spending down other assets first. And leaving a large balance untouched can mean larger RMDs later. Whether using the window helps depends on your accounts, your other income, and tax law that can change. Our article on the retirement tax planning window before RMDs walks through how Social Security timing interacts with these years.

What can Roth conversions do, and what can they not do?

A Roth conversion moves money from a traditional account into a Roth account. The converted amount is added to your taxable income for the year of the conversion. In exchange, qualified withdrawals from the Roth account may be tax-free later. Under the IRS Roth comparison chart (opens a separate site in a new tab), qualified distributions require that the account has been held at least five years and that the withdrawal is made on or after age 59½, on account of disability, or after death.

A conversion can:

• Move income into a year when your bracket may be lower than it could be later
• Reduce the pre-tax balance that future RMDs are based on
• Give you a source of withdrawals that does not add to taxable income, if the withdrawals are qualified

A conversion cannot:

• Remove the tax. It collects the tax earlier, using money you may need to have available outside the account.
• Guarantee a lower lifetime tax bill. Future tax rates and your future income cannot be known in advance.
• Avoid side effects. The added income in the conversion year may be taxed at a higher bracket, may raise the taxable share of Social Security, and may increase Medicare premiums.
• Be easily reversed. A completed conversion generally cannot be undone.
• Convert an RMD. A required minimum distribution cannot be rolled over or converted. IRS Topic 413 (opens a separate site in a new tab).

Because the answer depends on numbers specific to your household, a conversion is a decision to review with your tax professional before acting.

How can tax planning fit around 401(k) withdrawals?

Taxes on a 401(k) are not a single event. They show up in the year you retire, the years before RMDs, the years after, and for the people who inherit what is left. Our tax planning work looks at those years together, including:

• How much of your tax-deferred balance may be owed in tax, and roughly when
• Which accounts to draw from, and in what order
• Whether and how much to convert to Roth, and in which years
• How withdrawals interact with Social Security and Medicare premiums

No approach removes tax or risk. The aim is to understand the trade-offs before the decisions are made.

What is a good next step?

A Clarity Map Session is a 30-minute, no-cost, no-obligation consultation where we look at how your accounts, income sources, and taxes fit together. You keep the resulting map. You can also reach our office at 614-408-0004.

Frequently asked questions

Are 401(k) withdrawals taxed as capital gains?

No. Withdrawals from a traditional 401(k) are generally taxed as ordinary income, not at capital gains rates. This is true even for the portion that came from investment growth inside the account. Qualified Roth 401(k) withdrawals are generally not taxed.

Do I pay tax on a 401(k) withdrawal after age 65?

Generally yes, for a traditional 401(k). Reaching age 59½ removes the 10% additional tax on early distributions, but it does not remove ordinary income tax on pre-tax money. Your age can also affect other rules, such as when RMDs begin.

Why was 20% withheld from my 401(k) withdrawal, and is that my final tax?

Federal rules generally require 20% withholding on a taxable distribution paid to you from an employer plan. It is a prepayment toward your tax bill, not the final amount. You may owe more or receive a refund when you file, depending on your total income and deductions.

Are Roth 401(k) withdrawals taxed?

Qualified distributions are not taxed. In general, that means the account has been held at least five years and the withdrawal is made on or after age 59½, because of disability, or after death. Withdrawals that are not qualified may be partly taxable.

Do states tax 401(k) withdrawals?

Many do, and the rules vary. Some states exclude part of retirement income and some have no income tax. Ask a tax professional how your state treats 401(k) withdrawals.

Sources and as-of dates

• IRS: 2026 tax inflation adjustments (opens a separate site in a new tab) and Revenue Procedure 2025-32 (opens a separate site in a new tab), read October 19, 2026
• IRS: Retirement topics, required minimum distributions (opens a separate site in a new tab), read October 19, 2026
• IRS: Retirement plan and IRA required minimum distributions FAQs (opens a separate site in a new tab), updated January 29, 2026
• IRS Notice 2023-54 (opens a separate site in a new tab), July 2023
• IRS: 401(k) resource guide, general distribution rules (opens a separate site in a new tab), read October 19, 2026
• IRS Topic 413: Rollovers from retirement plans (opens a separate site in a new tab), read October 19, 2026
• IRS: Roth comparison chart (opens a separate site in a new tab), read October 19, 2026

This article is for educational purposes only and is not personal tax, legal, or investment advice. Tax laws change. Consult your own tax professional before making decisions about withdrawals, conversions, or distributions.