Money you pull from a traditional 401(k) or IRA is taxed as ordinary income, so the federal retirement fund withdrawal tax rates for 2026 run from 10% to 37% depending on your total income for the year. Roth withdrawals, if they qualify, come out tax-free. Withdrawals before age 59½ generally add a 10% penalty on top of the income tax. The bracket you land in depends not just on the withdrawal but on everything else you report, because retirement distributions stack on top of wages, pensions, interest, and dividends.
2026 Federal Brackets Applied to Withdrawals
Federal income tax works in layers. Each layer of income fills a bracket at a set rate before the next dollar is taxed at the higher rate above it. A $60,000 withdrawal is not taxed at a single number; part of it fills lower brackets and part may reach higher ones, depending on the other income already sitting underneath it.
For a single filer in 2026:
- 10% on taxable income 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% above $640,600
For married couples filing jointly, each bracket is roughly double the single-filer range. The 10% bracket covers income up to $24,800, the 12% bracket runs to $100,800, the 22% bracket runs to $211,400, and the top 37% bracket begins above $768,700.1Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026
Here’s how the stacking works. If you already have $80,000 in other income and you take a $30,000 traditional IRA distribution, that $30,000 fills brackets starting where your other income left off. None of it lands in the 10% or 12% bracket. All of it is taxed at 22%, because your other income has already filled the lower rungs.
The Standard Deduction Comes Off the Top
Before any bracket applies, subtract the standard deduction. For 2026, that’s $16,100 for single filers and $32,200 for married couples filing jointly.1Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026
Retirees age 65 and older get an additional standard deduction: $2,050 if single, or $1,650 per qualifying spouse on a joint return. A married couple where both spouses are 65 or older gets a combined standard deduction of $35,500. That’s income that owes zero federal tax. For a single retiree age 65 or older whose only income is a $40,000 traditional IRA withdrawal, only $21,850 of it is actually taxable, and nearly all of that falls in the 10% and 12% brackets.
Roth vs. Traditional Changes the Answer Entirely
Every dollar from a traditional 401(k), traditional IRA, 403(b), or similar pre-tax account counts as ordinary income the year you take it. The account gave you a deduction going in; the IRS collects when the money comes out.2Internal Revenue Service. Definition of Adjusted Gross Income
Roth accounts run the opposite direction. You paid tax on the contributions already, so qualified distributions come out tax-free and do not push you into a higher bracket.3Internal Revenue Service. Roth IRAs
A Roth IRA distribution is “qualified” only when two conditions are both met: the account has been open at least five tax years (measured from January 1 of the year of your first contribution), and you are at least 59½, permanently disabled, or using up to $10,000 for a first-time home purchase. Contributions can always come out tax-free and penalty-free because they were already taxed. Earnings withdrawn before both conditions are met are taxable and may face the 10% early withdrawal penalty.
Roth conversions carry their own five-year clock. Each converted amount must sit in the Roth for five years to avoid the 10% penalty if you’re under 59½. Income tax on the conversion itself is paid in the year of the conversion.
The 10% Early Withdrawal Penalty
Taking money from a retirement account before age 59½ triggers a 10% additional tax on top of the regular income tax. For someone in the 22% bracket, an early withdrawal effectively costs 32% in federal tax alone. The penalty is calculated on the taxable portion of the distribution and reported on Form 5329.4Internal Revenue Service. Retirement Topics – Exceptions to Tax on Early Distributions
Several exceptions waive the 10% penalty, though the regular income tax still applies:
- Substantially equal periodic payments under Section 72(t), continued for at least five years or until age 59½, whichever is later
- Separation from service in or after the year you turn 55, for withdrawals from that employer’s plan (not IRAs)
- Total and permanent disability
- Unreimbursed medical expenses exceeding 7.5% of your adjusted gross income
- Up to $10,000 in IRA distributions for a first-time home purchase
- IRA withdrawals used for qualified higher education expenses
- IRA withdrawals for health insurance while unemployed, after receiving unemployment for at least 12 consecutive weeks
One related trap: a 401(k) loan default. If you leave your job with an outstanding plan loan and don’t repay it in the allowed time, the unpaid balance is treated as a taxable distribution. Under 59½, the 10% penalty applies to that amount too. The plan issues a 1099-R for the unpaid balance, and the tax bill lands the following spring.
Required Minimum Distributions
The IRS does not let you defer taxes forever. Once you reach a certain age, you must pull money out of traditional retirement accounts each year whether you need it or not. These required minimum distributions are taxed as ordinary income like any other withdrawal.
The starting age depends on your birth year. If you were born between 1951 and 1959, your first RMD is due the year you turn 73. If you were born in 1960 or later, the starting age is 75.6Internal Revenue Service. Retirement Plan and IRA Required Minimum Distributions FAQs
Your first RMD gets a grace period until April 1 of the following year. Every RMD after that is due December 31. Delaying the first one to April 1 means taking two RMDs in the same calendar year, which can push you into a higher bracket. The amount is set by dividing your December 31 prior-year balance by a life expectancy factor from the IRS Uniform Lifetime Table. The factor shrinks with age, so required withdrawals grow as a percentage of the balance. Roth IRAs are exempt from RMDs during the owner’s lifetime.
Missing an RMD costs a 25% excise tax on the amount you failed to withdraw. Corrected within two years, the penalty drops to 10%.6Internal Revenue Service. Retirement Plan and IRA Required Minimum Distributions FAQs
Withholding on Your Distribution
When you take a distribution, the financial institution usually withholds federal tax before you see the money. Withholding is a prepayment, not the final tax; you settle the actual amount when you file.
For eligible rollover distributions from an employer plan like a 401(k), the mandatory withholding rate is 20%. For IRA distributions and other nonperiodic payments, the default rate is 10%, and you can adjust or waive it using Form W-4R.7Internal Revenue Service. Pensions and Annuity Withholding Opting out doesn’t reduce the tax owed. It shifts responsibility to you through estimated payments or at filing time, and skipping both can trigger underpayment penalties.
Hidden Costs That Push the Effective Rate Higher
Taxable Social Security
Traditional withdrawals increase your “combined income,” the figure the IRS uses to decide how much of your Social Security is taxable. Combined income equals adjusted gross income plus tax-exempt interest plus half of your Social Security benefits.
For single filers, benefits start becoming taxable once combined income exceeds $25,000. Up to 50% is taxable between $25,000 and $34,000, and up to 85% is taxable above $34,000. For joint filers, the thresholds are $32,000 and $44,000.8Social Security Administration. Must I Pay Taxes on Social Security Benefits These thresholds have never been adjusted for inflation. A $20,000 traditional IRA withdrawal can be enough to push combined income past the line, turning previously untaxed benefits into taxable income. The effective tax rate on the withdrawal ends up higher than the bracket suggests. Roth withdrawals do not count toward combined income.
Medicare IRMAA Surcharges
Large withdrawals can also raise your Medicare Part B and Part D premiums through the Income-Related Monthly Adjustment Amount. Medicare uses your tax return from two years back, so 2024 income sets 2026 premiums. For 2026, a single filer with income above $109,000 (or a married couple above $218,000) pays higher premiums, and the surcharges climb through several tiers up to a top bracket that begins at $500,000 for a single filer.9Medicare.gov. 2026 Medicare Costs A one-time large withdrawal, like cashing out a 401(k) after leaving a job, can push you into an IRMAA tier for a full year of premiums based on that single spike.
State Taxes Sit on Top of Federal
Federal rates are only part of the bill. Most states also tax retirement withdrawals, and the rules vary widely. Some tax retirement income exactly like wages. Some exempt pension income or Social Security entirely. A few states have no income tax at all. Some offer partial exclusions for retirees above a certain age or exempt specific types of retirement pay, such as military or public employee pensions, while still taxing private 401(k) distributions. The differences can amount to thousands of dollars a year.
To estimate the true cost of a withdrawal, add the federal bracket rate to your state’s rate, then account for any early withdrawal penalty and downstream effects on Social Security taxation and Medicare premiums. That combined number is what the withdrawal actually costs you.