How Much Tax You'll Pay When You Withdraw From a 401(k)

The tax you owe on a 401(k) withdrawal depends on whether the account is traditional or Roth, your age, and how much you take out

A traditional 401(k) withdrawal is taxed as ordinary income in the year you withdraw it. If you withdraw $50,000, that $50,000 gets added to your other income for the year, and you pay federal income tax at your regular rate—plus state income tax in most states. There is no separate "401(k) tax rate"; the IRS treats it like wages.

A Roth 401(k) withdrawal works differently. Money you contributed goes out tax-free. Earnings (the growth on your contributions) are tax-free too, but only if you are 59½ or older and the account has been open for at least five years. If you do not meet both conditions, the earnings portion is taxed as ordinary income, and you may owe a 10% early withdrawal penalty on top.

If you withdraw before age 59½ from a traditional 401(k), you owe income tax plus a 10% early withdrawal penalty on the full amount—unless an exception applies. Common exceptions include disability, medical expenses over 7.5% of your adjusted gross income, and substantially equal periodic payments (a specific calculation that lets you avoid the penalty if you follow the rules exactly).

Key Takeaways

• Traditional 401(k) withdrawals are taxed as ordinary income at your regular tax rate, with no special 401(k) tax bracket.
• Withdrawals before age 59½ from a traditional 401(k) trigger a 10% early withdrawal penalty on top of income tax, unless you meet a narrow exception.
• Roth 401(k) contributions come out tax-free anytime; earnings are tax-free only if you are 59½ or older and the account is at least five years old.
• Your employer withholds federal income tax automatically from traditional 401(k) withdrawals, but the amount withheld may not cover your full tax bill.
• State income tax applies to 401(k) withdrawals in most states and is not withheld by your plan unless you request it.

How withholding works and why it matters

When you request a withdrawal from a traditional 401(k), your plan administrator is required to withhold federal income tax. The default withholding rate is 20% of the withdrawal amount. So a $50,000 withdrawal results in $10,000 withheld, and you receive $40,000.

That 20% withholding is not your final tax bill—it is an estimate. If your total income for the year is high, you may owe more than 20%. If your income is low, you may have overpaid and receive a refund when you file your tax return. The withholding is simply money the IRS collects upfront.

You can request a different withholding rate on IRS Form W-4P, which your plan should provide when you initiate a withdrawal. Some people request zero withholding if they expect to owe little or no tax, but this means you must set aside money yourself to pay the IRS later. If you do not pay enough through withholding or quarterly estimated tax payments, you may owe a penalty for underpayment.

State income tax on 401(k) withdrawals

Most states tax 401(k) withdrawals as income. The rate depends on your state's tax brackets and your total income for the year. Nine states have no income tax at all: Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, Wyoming, and New Hampshire (which taxes only dividends and interest, not wages or retirement withdrawals).

Your 401(k) plan does not automatically withhold state income tax. You must request it separately, usually on a state-specific form. If you do not request withholding and your state taxes retirement income, you will owe the tax when you file your state return. Some people who move to a no-income-tax state after retiring withdraw their 401(k) to avoid state tax, but you must be a resident of that state when the withdrawal occurs—not just when you file your return.

The difference between a withdrawal and a rollover

A direct rollover to an IRA or another 401(k) is not a taxable withdrawal. The money moves directly from your plan to the new account, no tax is withheld, and you owe nothing. This is the cleanest way to move money if you change jobs or want to consolidate accounts.

An indirect rollover (also called a 60-day rollover) means the plan sends you a check. Your plan must withhold 20% for federal tax, even though you intend to roll the money over. You then have 60 days to deposit the full amount—including the withheld 20%—into an IRA or new 401(k) to avoid tax and penalties. If you deposit only the net amount you received, the 20% withheld is treated as a taxable withdrawal and you owe tax on it.

Example: Your plan sends you a $50,000 check with $10,000 withheld. To complete a tax-free rollover, you must deposit $50,000 into an IRA within 60 days. The $10,000 comes from your own pocket. If you deposit only $40,000, the $10,000 is taxed as a withdrawal, and you owe the 10% early withdrawal penalty if you are under 59½.

Required minimum distributions and their tax treatment

Once you reach age 73 (as of 2023; this age increases gradually for people born after 1959), you must begin taking required minimum distributions (RMDs) from your traditional 401(k) each year. The IRS calculates the minimum amount based on your account balance and life expectancy. RMDs are taxed as ordinary income, just like any other withdrawal.

If you do not take your RMD, the IRS imposes a penalty equal to 25% of the shortfall (10% if you correct it within two years). This penalty is separate from income tax. Roth 401(k)s do not require RMDs during your lifetime, but beneficiaries who inherit a Roth 401(k) must take distributions and pay tax on earnings (though not on contributions).

You can satisfy your RMD by rolling money into a traditional IRA, but the IRS treats all your IRAs as one account for RMD purposes. If you have multiple IRAs, you calculate the RMD based on the total balance across all of them, but you can withdraw from just one account to satisfy the requirement.

Taxes on employer and employee contributions

Your own contributions to a traditional 401(k) were deducted from your paycheck before tax, so you already got a tax break when you contributed. When you withdraw, you pay tax on the full amount—your contributions plus all the growth.

Employer contributions and matching funds follow the same rule: they were not taxed when deposited, so they are fully taxable when withdrawn. If your plan includes after-tax contributions (money you contributed after tax), those contributions come out tax-free, but the earnings on them are taxed.

Roth 401(k) contributions are different. You paid tax on the money when you contributed, so your contributions come out tax-free. Earnings are tax-free if you meet the age and holding-period rules; otherwise, earnings are taxed and may be subject to the 10% penalty.

How to estimate your tax bill before withdrawing

Before you request a large withdrawal, add up your expected income for the year: wages, Social Security, investment income, and the 401(k) withdrawal. Use the IRS tax tables or a tax calculator to find your federal tax bracket. Multiply your withdrawal amount by your marginal rate (the tax rate on your last dollar of income) to get a rough estimate of the additional federal tax.

Then add state income tax if your state taxes retirement income. If you are under 59½, add 10% of the withdrawal for the early withdrawal penalty (unless an exception applies). This gives you a ballpark figure of what you will owe.

Keep in mind that the 20% withholding your plan takes out is not the same as your actual tax. If your marginal rate is 24%, you will owe more than 20%. If your rate is 12%, you will overpay and get a refund. Adjust your withholding request on Form W-4P if you want to avoid a large bill or refund at tax time.

Frequently Asked Questions

Do I owe tax on a 401(k) withdrawal if I roll it over to an IRA within 60 days?

No tax is owed if you complete the rollover within 60 days and deposit the full amount, including any portion you received as a check. However, your plan withholds 20% for federal tax, so you must cover that 20% from your own funds to deposit the full amount. If you deposit only the net amount you received, the withheld portion is taxed as a withdrawal.

What happens if I withdraw from my 401(k) at age 55 and I am not yet 59½?

You normally owe the 10% early withdrawal penalty. However, if you separated from service (left your job) in the year you turn 55 or later, you may be able to withdraw without the penalty under the "Rule of 55" exception. This applies only to the current employer's plan, not to IRAs or plans from previous employers. Consult a tax professional to confirm you meet the requirements.

Can I avoid taxes by taking small withdrawals instead of one large withdrawal?

No. The tax is based on the total amount withdrawn in the year, not the number of withdrawals. Taking $50,000 in one withdrawal or $5,000 in ten withdrawals results in the same tax bill. However, multiple smaller withdrawals may keep you in a lower tax bracket if they are spread across multiple years.

Do I owe federal tax on a 401(k) withdrawal if I have no other income?

You owe federal income tax on the withdrawal itself, but the amount depends on the standard deduction for your filing status. If your withdrawal is less than the standard deduction, you may owe no federal tax. However, you still owe the 10% early withdrawal penalty if you are under 59½ (unless an exception applies), and you may owe state income tax.

What if my employer made a large matching contribution—do I pay tax on that too?

Yes. Employer contributions and matching funds are fully taxable when withdrawn from a traditional 401(k), just like your own pre-tax contributions. The only exception is if your plan includes after-tax contributions, which come out tax-free (though earnings on them are taxed).