# Tax on a 401(k) withdrawal: what you owe, what is withheld and why

Source: https://taxbracketsdesk.com/taxable-income/tax-on-401k-withdrawal
Publisher: Tax Brackets Desk (taxbracketsdesk.com), independent editorial site
Topic: Taxable Income by Source
Last updated: 2026-09-19

> The tax on a 401(k) withdrawal is ordinary federal income tax at your normal bracket rates, because pre-tax money was never taxed going in. Most lump-sum payouts have 20% withheld up front, and if you are under age 59 1/2 a 10% additional tax usually applies unless an exception fits. The withholding is only a deposit; the real bill is settled on your return.

## Key facts

- How the payout is taxed: Ordinary income, 10% to 37% brackets
- Mandatory withholding on eligible rollover distributions: 20%
- Early distribution additional tax: 10% before age 59 1/2
- Age 55 rule: No 10% tax if you leave the employer in or after the year you turn 55
- Required minimum distributions start: Age 73
- Forms: Form 1099-R from the plan; Form 5329 for the 10% tax

## How much tax do I pay on a 401(k) withdrawal?

You pay federal income tax on a traditional 401(k) withdrawal at the same rates as wages: the payout is added to your other income and taxed through the brackets, so its top dollars are taxed at your marginal rate. There is no special 401(k) withdrawal tax rate. If you are under 59 1/2 and no exception applies, add 10% of the taxable amount.

Because the withdrawal stacks on top of other income, a large one can push part of it into a higher bracket, as our [marginal tax rate explainer](https://taxbracketsdesk.com/federal-tax-brackets/marginal-tax-rate-explained) shows. It also raises AGI, which can make more Social Security taxable and reduce deductions that phase out with income.

### What about Roth 401(k) money?

A qualified distribution from a designated Roth account, generally one made after age 59 1/2 and at least five years after your first Roth contribution to that plan, is tax free. If those conditions are not met, the part of the payout that is earnings is taxable and can face the 10% additional tax, while your own contributions come back without tax.

## 401(k) withdrawal tax rate by bracket, 2026

The 401(k) withdrawal tax rate on the last dollar you take out equals your 2026 marginal bracket. The table shows the single-filer bands from Revenue Procedure 2025-32; married couples filing jointly have bands roughly twice as wide.

| Taxable income | Rate on that slice |
| --- | --- |
| Up to $12,400 | 10% |
| $12,400 to $50,400 | 12% |
| $50,400 to $105,700 | 22% |
| $105,700 to $201,775 | 24% |
| $201,775 to $256,225 | 32% |
| $256,225 to $640,600 | 35% |
| Over $640,600 | 37% |

2026 federal rates on taxable income, single filers

Spreading withdrawals over two or more tax years can keep more of the money in the 10% and 12% bands. Our page on [how taxable income is calculated](https://taxbracketsdesk.com/taxable-income) shows where the withdrawal enters the return.

## Why was 20% withheld from my 401(k) withdrawal?

The plan withheld 20% because the law requires it on any taxable eligible rollover distribution paid to you instead of moved directly to another plan or IRA (IRS Topic 413). Cashing out a 401(k) after leaving a job is the most common case. You cannot choose a lower rate, though you can ask for more on Form W-4R.

The 20 percent withholding on a 401(k) payout is a prepayment, not the final tax. If your real rate is lower you get the difference back as part of your refund; if the 10% additional tax applies or your bracket is 22% or higher, 20% may not be enough. The amount withheld is in box 4 of Form 1099-R.

- Required minimum distributions and hardship distributions are not eligible rollover distributions, so the mandatory 20% does not apply to them; you set withholding on Form W-4R instead.
- A direct rollover to an IRA or new employer plan avoids withholding entirely.
- If you received a check and want to roll it over, you have 60 days to deposit the full pre-withholding amount, making up the 20% from other money, or the withheld part is treated as a taxable distribution.

> **Undoing a cash-out:** Example: you cash out $50,000 and receive $40,000 after $10,000 of withholding. Deposit $50,000 in an IRA within 60 days, using $10,000 from savings, and nothing is taxable. The $10,000 withheld comes back when you file.

## Is there a 10% penalty, and what are the exceptions?

Yes. A 10% additional tax applies to the taxable part of a distribution taken before age 59 1/2, reported on Schedule 2 and, when needed, Form 5329 (IRS Topic 558). It is added on top of the regular income tax. Common exceptions for 401(k) plans are listed below.

- You leave the employer in or after the year you reach age 55 (age 50 for qualified public safety employees of government plans).
- Total and permanent disability, a terminal illness, or death (payments to beneficiaries).
- Substantially equal periodic payments over your life expectancy, started after separation from service.
- Unreimbursed medical expenses above 7.5% of AGI.
- Payments to an alternate payee under a qualified domestic relations order.
- A qualified birth or adoption distribution of up to $5,000.
- An IRS levy on the plan, qualified reservist distributions and federally declared disaster distributions.
- Personal or family emergency distributions and distributions to domestic abuse victims, both allowed after December 31, 2023 within their dollar limits.

Check box 7 of Form 1099-R. Code 1 means an early distribution with no known exception; if you qualify anyway, claim the exception on Form 5329. Code 2 means the plan already recognized an exception, and code 7 is a normal distribution.

## Before and after age 59 1/2 compared

Age 59 1/2 removes only the 10% additional tax. The payout is still ordinary income for life, which is why retirees often plan withdrawals around their bracket and around the Social Security thresholds described in our [guide to tax on Social Security benefits](https://taxbracketsdesk.com/taxable-income/tax-on-social-security-benefits).

## Examples: 401(k) withdrawal tax at age 50, 62 and 70

All three examples use single filers, 2026 brackets and deductions, and no state tax. They show why the same withdrawal can cost very different amounts.

| Situation | Withdrawal | Extra federal cost | Withheld at payout |
| --- | --- | --- | --- |
| Age 50, left job at 50, $70,000 wages, cash-out | $20,000 | $4,400 income tax + $2,000 additional tax = $6,400 | $4,000 (20%) |
| Age 62, retired, no other income, lump sum | $40,000 | $2,620 income tax, no additional tax | $8,000 (20%) |
| Age 70, retired, no other income, lump sum | $40,000 | $1,654 income tax | $8,000 (20%) |

Federal tax on a 401(k) withdrawal, single filer, tax year 2026

### How the numbers were figured

**Age 50:** wages alone give taxable income of $53,900 and tax of $6,570. Adding $20,000 raises taxable income to $73,900 and tax to $10,970, an increase of $4,400, all at 22%. The 10% additional tax adds $2,000. With only $4,000 withheld, about $2,400 is due at filing, and possibly an underpayment penalty unless the [estimated tax safe harbor](https://taxbracketsdesk.com/estimated-taxes/estimated-tax-safe-harbor) is met through other withholding.

**Age 62:** $40,000 minus the $16,100 standard deduction leaves $23,900 of taxable income. Tax is $1,240 plus 12% of $11,500, or $2,620, an effective rate of about 6.6% on the withdrawal. The $8,000 withheld is $5,380 more than needed and comes back as a refund.

**Age 70:** deductions are $16,100 standard, $2,050 for age 65 and the $6,000 senior deduction, a total of $24,150, so taxable income is $15,850 and tax is $1,654. If this retiree also collected Social Security, part of those benefits would become taxable too, which would raise the bill.

## How is a 401(k) withdrawal taxed after 65?

After 65 a 401(k) withdrawal is taxed as ordinary income exactly as before, but you get the extra standard deduction for age and, for 2025 through 2028, the $6,000 senior deduction if modified AGI is under $75,000 ($150,000 joint). From age 73 you must take required minimum distributions each year, although you can delay them from your current employer's plan until you retire unless you own 5% or more of the business.

Missing an RMD triggers a 25% excise tax on the shortfall, cut to 10% if corrected within two years. Large one-time withdrawals from savings, windfalls such as [gambling or lottery winnings](https://taxbracketsdesk.com/taxable-income/gambling-winnings-tax), and RMDs all stack in the same way, so plan the total for the year rather than each payment on its own.

## Common questions

### Is a 401(k) withdrawal taxed as income or capital gains?

As ordinary income. Even if the growth in the account came from stock gains, withdrawals from a traditional 401(k) are taxed at regular bracket rates, not capital gains rates.

### Will I get the 20% withholding back?

You get back whatever exceeds your actual tax. It is credited on your return along with wage withholding, so if your total tax is lower than everything withheld, the difference is refunded.

### Do I pay state tax on a 401(k) withdrawal?

Usually, if your state has an income tax, though some states exempt part or all of retirement income. This page covers federal tax only.

### How do I avoid tax on a 401(k) withdrawal?

You cannot avoid tax on pre-tax money, but you can defer it with a direct rollover, spread withdrawals across years to stay in lower brackets, or use a Roth account whose qualified distributions are tax free.

### What form do I get for a 401(k) withdrawal?

The plan sends Form 1099-R by January 31 of the following year. Box 1 shows the gross payout, box 2a the taxable amount, box 4 federal tax withheld and box 7 the distribution code.

## Sources

- [Topic 558, Additional tax on early distributions from retirement plans other than IRAs](https://www.irs.gov/taxtopics/tc558)
- [Topic 413, Rollovers from retirement plans](https://www.irs.gov/taxtopics/tc413)
- [Retirement plan and IRA required minimum distributions FAQs](https://www.irs.gov/retirement-plans/retirement-plan-and-ira-required-minimum-distributions-faqs)
- [Publication 505 (2026), Tax Withholding and Estimated Tax](https://www.irs.gov/pub/irs-pdf/p505.pdf)
- [Rev. Proc. 2025-32, 2026 inflation adjustments](https://www.irs.gov/pub/irs-drop/rp-25-32.pdf)