Calculate Tax on a 401(k) Withdrawal: Brackets, Penalty, and Withholding

To calculate the tax on a 401(k) withdrawal, add the gross distribution to your other income for the year, subtract your standard or itemized deduction, apply the federal tax brackets to the result, add a 10% early withdrawal penalty if you’re under 59½, and add any state income tax. Between federal tax, the possible penalty, and state tax, a single distribution from a traditional 401(k) commonly loses 20% to 40% of its value before it reaches your account.

Why the Withdrawal Is Taxed as Ordinary Income

Traditional 401(k) contributions were made with pre-tax dollars, so they reduced your taxable income in the year you earned them.¹ The IRS collects the tax on the back end: every distribution from a traditional 401(k) counts as taxable income in the year you receive it.² It sits on top of your wages and any other income and runs through the same progressive brackets that apply to a paycheck. Because the distribution stacks on top of what you already earned, most of it is taxed at your highest marginal rates rather than your average rate.

2026 Federal Tax Brackets

These are the rates you’ll apply to your taxable income for 2026:³

10%: up to $12,400 single, $24,800 married filing jointly
12%: $12,401–$50,400 single, $24,801–$100,800 joint
22%: $50,401–$105,700 single, $100,801–$211,400 joint
24%: $105,701–$201,775 single, $211,401–$403,550 joint
32%: $201,776–$256,225 single, $403,551–$512,450 joint
35%: $256,226–$640,600 single, $512,451–$768,700 joint
37%: over $640,600 single, over $768,700 joint

The 2026 standard deduction is $16,100 for single filers, $32,200 for married couples filing jointly, and $24,150 for heads of household.³ Use your itemized total instead if it’s larger.

Step-by-Step Calculation With an Example

Take a single filer, age 45, with a $60,000 salary who withdraws $30,000 from a traditional 401(k). The math runs like this.

Step 1. Total gross income. Add the distribution to everything else: $60,000 + $30,000 = $90,000.

Step 2. Subtract the deduction. $90,000 − $16,100 standard deduction = $73,900 taxable income.

Step 3. Apply the brackets.

10% on the first $12,400 = $1,240
12% on the next $38,000 ($12,401 to $50,400) = $4,560
22% on the remaining $23,500 ($50,401 to $73,900) = $5,170

Federal income tax: $10,970.

Step 4. Isolate the tax on the withdrawal. Without the $30,000, taxable income would be $43,900 and the federal tax roughly $5,020. The difference, about $5,950, is the federal income tax attributable to the withdrawal. Most of it landed in the 12% and 22% brackets, because the withdrawal sat on top of the salary.

Step 5. Add the early withdrawal penalty. At age 45, add 10% of the gross distribution: $3,000.⁴

Step 6. Add state tax. If your state taxes retirement income at, say, 5%, that’s another $1,500 on the $30,000.

The $30,000 withdrawal produces roughly $10,450 in combined federal tax, state tax, and penalty. You net about $19,550, losing around 35%. A filer over 59½ skips the $3,000 penalty and keeps closer to $25,550.

The 10% Early Withdrawal Penalty

Distributions taken before age 59½ carry a flat 10% additional tax on the taxable portion, calculated separately from your income tax and reported on Form 5329.⁴⁵ It isn’t withheld automatically, which is why so many early withdrawers owe more than they expected at filing time. Hardship distributions are not exempt. The IRS permits them for immediate needs such as medical bills or preventing eviction, but the distribution is still taxable and the 10% penalty typically still applies.⁶

Several situations do waive the penalty (the distribution is still taxed as ordinary income):⁷

Rule of 55. If you leave your job in the year you turn 55 or later (50 for certain public safety employees), you can withdraw penalty-free from that employer’s 401(k). It applies only to the plan of the employer you just left, not to IRAs or plans from earlier jobs. Roll the 401(k) into an IRA first and you lose it.
Substantially equal periodic payments based on your life expectancy, continued for at least five years or until you turn 59½, whichever is later.
Total and permanent disability.
Death: beneficiaries who inherit the account skip the penalty, though distributions remain taxable.
Qualified birth or adoption, up to $5,000 per child.
Unreimbursed medical expenses exceeding 7.5% of adjusted gross income.
Distributions taken to satisfy an IRS levy.

The Mandatory 20% Withholding

When the plan cuts you a check rather than transferring the money directly to another retirement account, it’s required to withhold 20% for federal income tax.⁸ A $50,000 distribution comes to you as $40,000, with $10,000 sent to the IRS.

That 20% isn’t a separate tax. It’s a prepayment against the actual bill you calculate at filing time. If your real tax rate on the withdrawal is lower, you get the difference back as a refund; if it’s higher (common once the 10% penalty is added), you owe the balance. A direct rollover to another 401(k) or a traditional IRA avoids the withholding entirely because you never take possession of the money.⁹ For an indirect rollover, you have 60 days to deposit the full pre-withholding amount into an eligible account, replacing the withheld portion from other funds; miss the window and the whole distribution becomes taxable.¹⁰

If you expect to owe more than the default 20%, ask the plan to withhold extra on the distribution form. It won’t change your total tax, but it prevents a surprise in April.

State Income Tax

Most states treat 401(k) withdrawals as taxable income, but the picture varies widely. Some states have no income tax at all. Others exempt part of retirement income, with excluded amounts ranging from around $20,000 up to unlimited depending on the state and the plan type. States with income tax apply either a flat rate or their own progressive brackets. Your obligation follows where you live when the distribution is paid, not where you worked while contributing, so a move before withdrawing can change the result. Check your state’s department of revenue for the current rate and any retirement exclusion.

Roth 401(k) Distributions Follow Different Rules

The calculation above is for a traditional 401(k). Roth 401(k) contributions were made with after-tax dollars, so qualified withdrawals of both contributions and earnings come out completely tax-free. Qualified means you’re at least 59½ and the account has been open at least five tax years, counted from January 1 of the year of your first Roth 401(k) contribution.¹¹ If you fail either condition, the earnings portion is taxed as ordinary income and may also trigger the 10% early withdrawal penalty; your original contributions still come out tax-free because you already paid tax on them.

1
Internal Revenue Service. Retirement Topics – Contributions
2
Office of the Law Revision Counsel. 26 U.S. Code 402 – Taxability of Beneficiary of Employees Trust
3
Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026
4
Office of the Law Revision Counsel. 26 U.S.C. 72 – Annuities; Certain Proceeds of Endowment and Life Insurance Contracts
5
Internal Revenue Service. About Form 5329, Additional Taxes on Qualified Plans (Including IRAs) and Other Tax-Favored Accounts
6
Internal Revenue Service. 401(k) Plan Hardship Distributions – Consider the Consequences
7
Internal Revenue Service. Topic No. 558, Additional Tax on Early Distributions From Retirement Plans
8
Office of the Law Revision Counsel. 26 U.S.C. 3405 – Special Rules for Pensions, Annuities, and Certain Other Deferred Income
9
Internal Revenue Service. 401(k) Resource Guide – Plan Participants – General Distribution Rules
10
Internal Revenue Service. Topic No. 413, Rollovers From Retirement Plans
11
Internal Revenue Service. Retirement Plans FAQs on Designated Roth Accounts