Withdrawals from a traditional 401k after age 60 are taxed as ordinary income at your marginal federal rate, but the 10% early-withdrawal penalty no longer applies because you are past 59½. Roth 401k withdrawals follow a different path and can come out entirely tax-free if you meet the account’s holding rules. The full picture of taxes on a 401k withdrawal after age 60 also includes state income tax, possible taxation of your Social Security benefits, and Medicare premium surcharges tied to your income two years earlier.
How a Traditional 401k Withdrawal Is Taxed
Traditional 401k contributions went in before tax, so the IRS collects when the money comes out. The entire distribution, your contributions plus every dollar of investment growth, counts as ordinary income in the year you receive it.1Internal Revenue Service. 401(k) Plan Overview
Because you are over 59½, the 10% additional tax under Internal Revenue Code Section 72(t) does not apply.2Internal Revenue Service. Retirement Topics – Exceptions to Tax on Early Distributions What you owe is regular income tax at your marginal rate. For 2026, the federal brackets for a single filer are:
- 10% up to $12,400
- 12% from $12,401 to $50,400
- 22% from $50,401 to $105,700
- 24% from $105,701 to $201,775
- 32% from $201,776 to $256,225
- 35% from $256,226 to $640,600
- 37% over $640,600
Thresholds for married couples filing jointly are roughly double.3Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026 Only the dollars that land inside a given bracket are taxed at that bracket’s rate. A large withdrawal can push part of the income into a higher band without changing the rate on the dollars below it.
Withholding and Reporting
When your plan pays you directly, the administrator withholds 20% for federal income tax automatically. That is a prepayment against your final bill, not a separate charge. If your actual tax comes out lower, you get the difference back at filing; if higher, you pay the balance.4Internal Revenue Service. 401(k) Resource Guide – Plan Participants – General Distribution Rules A direct rollover from plan to plan or plan to IRA avoids the 20% withholding entirely because the money never passes through your hands.5Internal Revenue Service. Rollovers of Retirement Plan and IRA Distributions
Your plan will send you a Form 1099-R. For a normal post-59½ withdrawal, box 7 shows distribution code 7, which signals to the IRS that no early-withdrawal penalty applies.6Internal Revenue Service. Instructions for Forms 1099-R and 5498 The taxable amount flows onto your Form 1040 for the year of the distribution.
Roth 401k Withdrawals After 60
Roth 401k contributions were made with after-tax dollars, so the tax outcome on the way out flips. If your withdrawal is a qualified distribution, the whole amount, contributions and earnings alike, comes out free of federal income tax.7Internal Revenue Service. Roth Comparison Chart
A Roth 401k distribution is qualified when both conditions are met: you are at least 59½, and the account has been open for at least five tax years. The five-year clock starts on January 1 of the first year you made a designated Roth contribution to that plan.8Office of the Law Revision Counsel. 26 U.S. Code 402A – Optional Treatment of Elective Deferrals as Roth Contributions A first contribution in 2021, for instance, satisfies the five-year rule starting in 2026.
If you take money out before the five-year mark, your original contributions still come out tax-free because you already paid tax on them. Only the earnings portion is taxable. Once you clear both the age and time requirements, all of the growth stays with you.
State Income Tax
Federal is only part of the bill. Most states with a personal income tax treat 401k withdrawals as taxable income, with rates that range from a few percentage points to above 10%. A handful of states levy no personal income tax at all. Others offer retirement-income exemptions, from roughly $20,000 up to a complete exclusion, that kick in at a qualifying age. Because these rules vary so widely, check your state tax agency or a local tax professional for what applies where you live.
How the Withdrawal Ripples Into Social Security and Medicare
Every dollar you pull from a traditional 401k lifts your adjusted gross income, and that can pull other income into tax too. The IRS looks at combined income (adjusted gross income, plus nontaxable interest, plus half of your Social Security benefits) to decide how much of your Social Security is taxable:
- Single filers below $25,000: none of your benefits are taxed
- Single filers between $25,000 and $34,000: up to 50% of benefits are taxable
- Single filers above $34,000: up to 85% of benefits are taxable
- Joint filers below $32,000: none of your benefits are taxed
- Joint filers between $32,000 and $44,000: up to 50% of benefits are taxable
- Joint filers above $44,000: up to 85% of benefits are taxable
These thresholds are set in statute and have not been adjusted for inflation since enactment, so even modest 401k withdrawals can push retirees into the higher tiers.9Office of the Law Revision Counsel. 26 U.S. Code 86 – Social Security and Tier 1 Railroad Retirement Benefits
Medicare Premium Surcharges
Large withdrawals can also raise your Medicare premiums. Medicare uses your modified adjusted gross income from two years earlier to set Part B and Part D premiums. Above certain thresholds, you pay an Income-Related Monthly Adjustment Amount (IRMAA) on top of the standard premium. For 2026, the surcharges begin at $109,000 for individual filers and $218,000 for joint filers. At the first tier, the extra cost is $81.20 per month for Part B and $14.50 per month for Part D. Higher income levels trigger progressively larger surcharges, up to $487.00 per month for Part B and $91.00 per month for Part D.10CMS. 2026 Medicare Parts A and B Premiums and Deductibles One outsized withdrawal can spike your income for a single year and raise your premiums two years later, even if your income drops back down.
Ways to Reduce What You Owe
Because a traditional 401k withdrawal is fully taxable, the timing and size of the distribution change the bill.
Spread Withdrawals Across Years
Smaller withdrawals over several years can keep you inside a lower bracket. If your other income puts you near the top of the 12% band, sizing your distribution to fill that band without spilling into the 22% band caps the rate on those dollars.3Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026 The same discipline helps keep your combined income under the Social Security and IRMAA thresholds.
Roth Conversions Between 60 and 73
The years after retirement but before Social Security or required distributions start are often a low-income window. Converting a portion of a traditional 401k to a Roth IRA during that window means paying tax now at a modest rate; future growth and withdrawals from the Roth IRA are tax-free once the Roth IRA’s own five-year holding period is met.
The Senior Standard Deduction
Taxpayers 65 and older get a larger standard deduction. For 2026, the combined standard deduction (including the additional senior amount) is $23,750 for single filers and $46,700 for married couples filing jointly.3Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026 If your only income is 401k distributions and Social Security, a meaningful portion of what you take out may fall inside that deduction and owe no federal tax at all.
Net Unrealized Appreciation for Employer Stock
If your 401k holds stock from your employer, a special rule may cut your tax. Under IRC Section 402(e)(4), when you take a lump-sum distribution that includes employer stock, ordinary income tax applies only to the stock’s original cost basis, meaning the price when it entered the plan. The growth above that basis, the net unrealized appreciation, is not taxed until you sell the stock, and it is then taxed at the long-term capital gains rate rather than as ordinary income.11Internal Revenue Service. Net Unrealized Appreciation in Employer Securities – Notice 98-24 Execution matters: it must be a complete lump-sum distribution from the plan in a single tax year following a qualifying event such as reaching 59½ or leaving the employer.
Qualified Charitable Distributions (IRA Only)
If you are 70½ or older and give to charity, a qualified charitable distribution lets you send up to $111,000 in 2026 straight from a traditional IRA to a qualifying charity. That amount is excluded from your taxable income and can count toward your required minimum distribution once you reach 73.12Internal Revenue Service. 2026 Amounts Relating to Retirement Plans and IRAs Qualified charitable distributions are not available directly from a 401k. To use this strategy with 401k money, you would first need to roll the balance into a traditional IRA.
Required Distributions Eventually Take Over
You can start penalty-free withdrawals at 59½, but federal law eventually forces the traditional 401k to pay out. The current starting age for required minimum distributions is 73. Under SECURE Act 2.0, it rises to 75 on January 1, 2033, which applies to anyone born in 1960 or later.13Internal Revenue Service. Retirement Plan and IRA Required Minimum Distributions FAQs Missing one is costly. The IRS applies an excise tax of 25% on the amount that should have come out, dropping to 10% if you correct the shortfall within two years.14Internal Revenue Service. Retirement Topics – Required Minimum Distributions (RMDs) Once distributions become mandatory, each one is taxed the same way as any other traditional 401k withdrawal: ordinary income at your marginal rate.