Yes, retirement withdrawals generally do count as income. Money you take from a traditional 401(k), traditional IRA, or similar pre-tax account is taxable as ordinary income for the year you receive it, and it also counts toward the income figures that determine your Medicare premiums, your Affordable Care Act subsidy, and how much of your Social Security is taxed. Qualified Roth distributions are the main exception: they’re not taxed and don’t count as income for those other calculations. And in one important place, the Social Security earnings test, no retirement account withdrawal counts at all.
Whether a withdrawal counts as “income” really depends on which agency is asking and why. The rest of this article walks through each of those definitions.
Traditional 401(k) and IRA Withdrawals Count as Ordinary Income
When you contributed to a traditional 401(k) or traditional IRA, the money went in before federal income tax. The trade-off is straightforward: you got the tax break going in, so you pay tax coming out. Under federal law, any amount distributed from a qualified employer plan is taxable to the person who receives it in the year it’s distributed.1Office of the Law Revision Counsel. 26 USC 402 – Taxability of Beneficiary of Employees Trust Traditional IRA distributions follow the same rule.2Office of the Law Revision Counsel. 26 USC 408 – Individual Retirement Accounts
The rate you pay depends on your total taxable income, not the withdrawal alone. For 2026, federal ordinary income tax brackets for single filers are:
- 10% on income up to $12,400
- 12% on $12,401 to $50,400
- 22% on $50,401 to $105,700
- 24% on $105,701 to $201,775
- 32% on $201,776 to $256,225
- 35% on $256,226 to $640,600
- 37% above $640,600
For married couples filing jointly, each threshold roughly doubles. The 22% bracket, for example, starts at $100,801, and the top 37% bracket at $768,701.3Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026
A withdrawal doesn’t get taxed in isolation. It stacks on top of your other income for the year, and each slice falls in the bracket for that dollar range. A retiree collecting Social Security, a pension, or part-time wages plus a large withdrawal can find that the last dollars of the withdrawal are taxed at a rate they didn’t expect.
Your plan administrator will send you a Form 1099-R showing the distribution, and the IRS gets a copy. Failing to report it exposes you to a 20% accuracy-related penalty on the underpaid tax, on top of the tax itself.4Office of the Law Revision Counsel. 26 USC 6662 – Imposition of Accuracy-Related Penalty on Underpayments
Qualified Roth Distributions Don’t Count
Roth IRAs and Roth 401(k)s flip the equation. Contributions go in with after-tax dollars, and qualified distributions come out completely free of federal income tax. A distribution qualifies as tax-free when two conditions are met: the account has been open for at least five tax years, and you’re at least 59½ (or the distribution is due to disability or death).5Office of the Law Revision Counsel. 26 USC 408A – Roth IRAs
Because qualified Roth distributions aren’t included in gross income, they don’t add to your adjusted gross income either. That has a cascade of effects beyond the withdrawal itself: a Roth distribution won’t push you into a higher Medicare premium tier, won’t make more of your Social Security taxable, and won’t reduce an ACA subsidy. For retirees trying to control their reported income, this is one of the most useful features of the Roth structure.
If you take money from a Roth account before meeting the five-year rule or before 59½, the earnings portion of the withdrawal is taxable and may also face the 10% early withdrawal penalty. Your original contributions always come out tax-free and penalty-free because you already paid tax on them.
The Extra 10% Penalty Before Age 59½
If you take money from a traditional 401(k) or IRA before age 59½, you owe an additional 10% tax on top of the regular income tax. Someone in the 22% bracket who pulls $20,000 early would lose roughly $6,400 between income tax and the penalty.6Internal Revenue Service. Retirement Topics – Exceptions to Tax on Early Distributions
Several exceptions waive the 10% penalty, though the distribution is still taxable as ordinary income:
- Substantially equal periodic payments taken over your life expectancy
- Unreimbursed medical expenses exceeding 7.5% of your adjusted gross income
- Total and permanent disability as defined by the IRS
- Up to $10,000 from an IRA (not a 401(k)) for a first-time home purchase
- IRA distributions used to pay health insurance premiums while unemployed
The SECURE 2.0 Act added more exceptions that took effect after December 31, 2023. You can now take up to $1,000 per year penalty-free for emergency personal expenses. Victims of domestic abuse can withdraw the lesser of $10,000 (indexed for inflation) or 50% of the account balance. Distributions due to terminal illness also qualify.7Internal Revenue Service. Notice Regarding Certain Exceptions to the 10 Percent Additional Tax Each of these still counts as taxable income; the exception only removes the extra 10%.
How Withdrawals Make Your Social Security Benefits Taxable
This is the interaction that catches the most retirees off guard. Traditional retirement account withdrawals don’t just create their own tax bill; they can also trigger tax on your Social Security benefits. The IRS uses a figure called “combined income” to decide how much of your Social Security is taxable. Combined income is your adjusted gross income, plus any tax-exempt interest, plus half of your Social Security benefits.8Office of the Law Revision Counsel. 26 USC 86 – Social Security and Tier 1 Railroad Retirement Benefits
Because a traditional 401(k) or IRA distribution increases your adjusted gross income, it pushes your combined income higher. The thresholds:
- Single filers: combined income between $25,000 and $34,000 makes up to 50% of benefits taxable; above $34,000, up to 85%.
- Joint filers: combined income between $32,000 and $44,000 makes up to 50% taxable; above $44,000, up to 85%.
Those thresholds have never been adjusted for inflation since they were set in the 1980s and 1990s, so more retirees cross them every year. A retiree collecting $24,000 in Social Security with no other income has combined income of $12,000 and owes nothing. A $30,000 traditional IRA withdrawal pushes combined income to $42,000, making a substantial share of those benefits taxable. Roth distributions, because they don’t hit adjusted gross income, avoid this chain reaction entirely.
The Social Security Earnings Test: Withdrawals Don’t Count
The earnings test is separate from the taxation of benefits, and the news here is good. Retirement account withdrawals do not count toward it. The Social Security Administration looks only at wages from a job or net self-employment income when deciding whether to withhold benefits.9Social Security Administration. Receiving Benefits While Working
For 2026, if you claim Social Security before your full retirement age and earn more than $24,480 from work, SSA withholds $1 in benefits for every $2 you earn above that limit. In the calendar year you reach full retirement age, the limit jumps to $65,160, and the withholding rate drops to $1 for every $3 above the limit. Once you hit full retirement age, the test disappears entirely.
Distributions from a 401(k), IRA, pension, or annuity are not wages or self-employment income. A six-figure IRA distribution won’t reduce your Social Security check by a penny under this test. The confusion usually starts when people hear “income limit” and assume all income counts. It doesn’t. Only earnings from work.
Medicare Premiums Look at Your Withdrawals
Medicare Part B and Part D premiums are income-tested, and this is where traditional retirement withdrawals can cost far more than expected. The standard Part B premium for 2026 is $202.90 per month. If your modified adjusted gross income exceeds certain thresholds, you pay a surcharge called the Income-Related Monthly Adjustment Amount, or IRMAA.10Social Security Administration. Premiums – Rules for Higher-Income Beneficiaries
IRMAA looks at the tax return from two years earlier. For 2026 premiums, Medicare uses your 2024 return. The 2026 Part B tiers for single filers:
- MAGI up to $109,000: $202.90 standard premium
- $109,001 to $137,000: $284.10
- $137,001 to $171,000: $405.80
- $171,001 to $205,000: $527.50
- $205,001 to $499,999: $649.20
- $500,000 and above: $689.90
For joint filers, the thresholds are roughly double, with the first IRMAA tier starting above $218,000. Part D coverage has its own IRMAA surcharge on top of whatever your drug plan charges, starting at $14.50 per month at the first tier.11Centers for Medicare & Medicaid Services. 2026 Medicare Parts A and B Premiums and Deductibles
A single large distribution can push your MAGI over a threshold and cost you hundreds of dollars a month in extra premiums for the full following year. Because of the two-year lookback, the higher bill hits when you may not connect it to the withdrawal that caused it. Roth distributions don’t count toward MAGI for this purpose. If you have a qualifying life-changing event like retirement, marriage, or divorce, you can file Form SSA-44 to ask Medicare to use a more recent year’s income.12Social Security Administration. SSA-44 Medicare Income-Related Monthly Adjustment Amount
ACA Subsidies, Medicaid, and SSI
Retirees who leave work before qualifying for Medicare at 65 often rely on ACA marketplace insurance and the Premium Tax Credit. Eligibility for the credit is based on household modified adjusted gross income compared to the Federal Poverty Level. For 2026, FPL for a single person in the 48 contiguous states is $15,960, and for a household of two it’s $21,640.13U.S. Department of Health and Human Services, Office of the Assistant Secretary for Planning and Evaluation (ASPE). Detailed Poverty Guidelines for 2026
Traditional 401(k) and IRA withdrawals are included in MAGI, so every dollar you pull from those accounts counts toward the income that determines your subsidy. A larger-than-expected distribution can push your income past the level where you qualify for meaningful help. If you received advance credits based on an estimated income that turned out to be too low, you’ll reconcile the difference on Form 8962 when you file and may owe some of the credit back.14Internal Revenue Service. Reconciling Your Advance Payments of the Premium Tax Credit Qualified Roth distributions don’t raise MAGI and don’t cut into your subsidy.
At the lower end of the income scale, the rules are stricter. Supplemental Security Income treats funds in a 401(k) or IRA as a countable resource. The resource limit is $2,000 for an individual and $3,000 for a couple.15Social Security Administration. 2026 Cost-of-Living Adjustment (COLA) Fact Sheet If your retirement account balance exceeds that, you’re ineligible for SSI until you spend it down. Distributions you take count as income in the month received, reducing your SSI payment dollar for dollar after a small general exclusion.16Social Security Administration. Defined Contribution Pension Plans and the Supplemental Security Income Program
Medicaid rules vary by state. States that expanded Medicaid under the ACA generally use MAGI-based counting, so traditional withdrawals raise countable income. Non-expansion states often apply asset tests similar to SSI. Either way, large retirement balances or distributions can disqualify you.
State Income Taxes Vary Widely
Federal tax is only part of the picture. State treatment of retirement withdrawals varies enormously. Several states have no income tax, so distributions pass through untaxed at the state level. Others exempt all or part of retirement income based on age or the source of the distribution. A handful tax withdrawals the same way the federal government does. Age thresholds and exclusion amounts differ from state to state, so the state rulebook where you actually live is worth checking before you plan a large withdrawal.