A retirement distribution is any withdrawal of money from a tax-advantaged retirement account, including early withdrawals before age 59½, ordinary withdrawals after that age, and the required minimum distributions the IRS forces you to take starting at 73. What you owe in tax and penalty depends on three things: how old you are, what kind of account holds the money, and whether your contributions went in pre-tax or after-tax.
The Three Age-Based Categories
Federal tax law sorts every withdrawal from a retirement account into one of three buckets based on your age at the time you take the money.
Early distributions are anything you pull out before age 59½. The IRS treats these as premature and adds a 10% additional tax on top of the regular income tax you already owe.1Internal Revenue Service. Retirement Topics – Exceptions to Tax on Early Distributions Exceptions exist, but the default is that early access costs you an extra 10%.
Normal distributions begin the day you turn 59½. From that point on, the 10% penalty disappears from most account types. You’ll still owe ordinary income tax on withdrawals from pre-tax accounts, but the penalty layer is gone.2Internal Revenue Service. Retirement Plans FAQs Regarding IRAs Distributions (Withdrawals)
Required minimum distributions kick in at age 73. Once you reach that age, the IRS forces you to withdraw at least a minimum amount from most retirement accounts each year, whether you need the money or not.3Internal Revenue Service. Retirement Plan and IRA Required Minimum Distributions FAQs Under the SECURE 2.0 Act, that starting age rises to 75 beginning in 2033.
One boundary worth flagging up front: Roth IRAs are not subject to RMDs during the original owner’s lifetime, and designated Roth accounts inside employer plans now follow the same rule under SECURE 2.0. If you inherit a Roth, though, you will face distribution requirements as a beneficiary.
How Distributions Are Taxed
Almost every question about the tax bill on a withdrawal comes back to whether the money went into the account pre-tax or after-tax.
Traditional Pre-Tax Accounts
Traditional 401(k) and traditional IRA contributions are made with pre-tax dollars; you got a deduction going in. Every dollar coming out is taxed as ordinary income at your marginal rate for the year you receive it.4Internal Revenue Service. Topic No. 451, Individual Retirement Arrangements (IRAs) That covers both your original contributions and all the investment growth. If you also made nondeductible contributions to a traditional IRA at some point, a portion of each withdrawal comes out tax-free, and you use Form 8606 to work out the split.
Roth Accounts
Roth contributions were already taxed once, so you can always withdraw the amount you contributed tax-free and penalty-free. Earnings are different. To pull earnings out without tax or penalty, you must meet both of these conditions: you’re at least 59½, and at least five tax years have passed since your first Roth contribution.5Office of the Law Revision Counsel. 26 U.S. Code 408A – Roth IRAs A withdrawal meeting both is a “qualified distribution.” Miss either one and the earnings portion is taxable, and may face the 10% early withdrawal penalty on top.
State Taxes
Federal is only part of it. Most states with an income tax also tax retirement distributions as ordinary income, but roughly a dozen states either have no income tax at all or fully exempt retirement income. Two retirees with identical federal bills can end up with meaningfully different net income depending on where they live.
Qualified Charitable Distributions
If you’re 70½ or older, you can send up to $111,000 per year (the 2026 limit) directly from a traditional IRA to a qualifying charity.6Internal Revenue Service. 2026 Amounts Relating to Retirement Plans and IRAs, as Adjusted This qualified charitable distribution counts toward your RMD if you’re 73 or older, but the amount is excluded from your taxable income. The money must move directly from the IRA custodian to the charity. If it passes through your hands first, it doesn’t qualify.
Exceptions to the 10% Early Withdrawal Penalty
The early withdrawal penalty has more exceptions than most people realize. Regular income tax still applies to the withdrawal, but the extra 10% disappears if you qualify:1Internal Revenue Service. Retirement Topics – Exceptions to Tax on Early Distributions
- Total and permanent disability of the account owner.
- Unreimbursed medical expenses exceeding 7.5% of your adjusted gross income.
- First-time home purchase, IRA only, up to $10,000 over your lifetime.
- Qualified higher education expenses, IRA only.
- Health insurance premiums while unemployed, IRA only, after at least 12 weeks of unemployment compensation.
- Birth or adoption expenses, up to $5,000 per child.
- Federally declared disaster, up to $22,000 for individuals who suffered economic loss.
- Domestic abuse victim, up to the lesser of $10,000 or 50% of the account balance.
- Substantially equal periodic payments (the “72(t)” method).
- Distributions taken because the IRS levied the account.
- Qualified reservists called to active duty.
Not every exception applies to every account. First-time home purchase and higher education work for IRAs but not for 401(k)s and other employer plans. Also worth knowing: an early distribution from a SIMPLE IRA within the first two years of participating carries a 25% penalty rather than 10%, with the clock starting on the first employer contribution deposit.7Internal Revenue Service. Retirement Plans FAQs Regarding SIMPLE IRA Plans If your Form 1099-R doesn’t reflect the exception you’re claiming, file Form 5329 with your tax return to document it.
Substantially Equal Periodic Payments
The SEPP exception is one of the few ways to pull retirement money out systematically before 59½ without penalty. You pick one of three IRS-approved calculation methods and commit to a fixed stream of payments.8Internal Revenue Service. Substantially Equal Periodic Payments The commitment is unforgiving. You can’t modify the schedule until the later of five years from the first payment or the date you reach 59½. Change the amount, add money to the account, or stop payments early, and the IRS retroactively applies the 10% penalty to every distribution you’ve taken. Life circumstances often catch people out.
Required Minimum Distributions After 73
Your first RMD must be taken by April 1 of the year after you turn 73. Every RMD after that is due by December 31.3Internal Revenue Service. Retirement Plan and IRA Required Minimum Distributions FAQs The rules apply to traditional IRAs, SEP and SIMPLE IRAs, 401(k)s, 403(b)s, and 457(b)s.9Internal Revenue Service. Retirement Topics – Required Minimum Distributions (RMDs)
Miss an RMD and the excise tax is 25% of the amount you failed to withdraw. Catch the mistake and take the distribution within the correction window (roughly two years) and the penalty drops to 10%.10Office of the Law Revision Counsel. 26 U.S. Code 4974 – Excise Tax on Certain Accumulations in Qualified Retirement Plans
Rollovers: Moving Money Without Triggering Tax
Changing jobs or consolidating accounts doesn’t have to create a taxable event. A rollover moves funds from one retirement account to another, and there are two ways to do it. The difference matters.
Direct Rollover
In a direct rollover (trustee-to-trustee transfer), the money moves between accounts without ever passing through your hands. No taxes are withheld, and no taxable income is reported.11Internal Revenue Service. Rollovers of Retirement Plan and IRA Distributions This is the clean approach.
60-Day Indirect Rollover
With an indirect rollover, the distribution is paid to you, and you have 60 days to deposit it into another eligible retirement account. If the money comes from an employer plan, the plan administrator is required to withhold 20% for federal tax before sending you the check.12Internal Revenue Service. 401(k) Resource Guide – Plan Participants – General Distribution Rules To roll the full original amount, you have to make up that 20% out of pocket and claim the withheld portion as a refund at tax time. For IRA distributions, the default withholding is 10%, and you can elect out.13Internal Revenue Service. 2026 Form W-4R
One more restriction: IRA-to-IRA indirect rollovers are limited to one within any 12-month period, no matter how many IRAs you own. Direct trustee-to-trustee transfers and rollovers from employer plans to IRAs don’t count against that limit.11Internal Revenue Service. Rollovers of Retirement Plan and IRA Distributions
Distributions from Inherited Accounts
Inheriting a retirement account puts you under a different set of rules that depend on your relationship to the deceased and when they died.
A surviving spouse has the most flexibility. They can roll the inherited account into their own IRA and follow normal age-based rules, or keep it as an inherited account and take distributions based on their own life expectancy.14Internal Revenue Service. Retirement Topics – Beneficiary
Most non-spouse beneficiaries who inherited on or after 2020 face a hard 10-year rule: the entire account must be emptied by December 31 of the 10th year after the account holder’s death. The old “stretch” option, spreading distributions over the beneficiary’s life expectancy, is gone for most people. A narrow group of eligible designated beneficiaries can still use the life-expectancy method: surviving spouses, minor children of the deceased until they reach the age of majority, disabled or chronically ill individuals, and beneficiaries no more than 10 years younger than the account owner. A minor child switches to the 10-year rule for the remaining balance once they reach adulthood.
Withholding and Reporting
The tax paperwork on a distribution has two moving parts: what gets withheld at the time of the withdrawal, and what gets reported to the IRS afterward.
Withholding depends on the account:
- Employer plans (401(k), 403(b), 457(b)) paid directly to you rather than rolled over: 20% mandatory federal withholding, no waiver.15Internal Revenue Service. Topic No. 412, Lump-Sum Distributions
- IRA distributions: 10% default federal withholding, but you can opt out or choose a higher rate on Form W-4R.13Internal Revenue Service. 2026 Form W-4R
- Direct rollovers: no withholding.
Withholding is only an estimate. If your marginal rate is higher than what was withheld, you’ll owe more at filing time; if it’s lower, you’ll see a refund.
Every distribution of $10 or more generates a Form 1099-R that your custodian sends to you and to the IRS.16Internal Revenue Service. About Form 1099-R, Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, Etc. Box 1 shows the gross distribution and Box 2a the taxable portion. On Roth IRA distributions, Box 2a is often blank because the custodian may not know whether your withdrawal qualifies as tax-free.17Internal Revenue Service. 2025 Instructions for Forms 1099-R and 5498 Report the distribution on your Form 1040 for the year you received it, and if you’re claiming a penalty exception that Box 7 of the 1099-R doesn’t reflect, attach Form 5329. If you completed a rollover, keep proof that the funds landed in another eligible account inside the 60-day window; the IRS may ask.