The tax you owe depends on whether your 401(k) is traditional or Roth, your age, and how much you withdraw

A traditional 401(k) withdrawal is taxed as ordinary income at your current tax rate. If you withdraw $10,000 and you are in the 22% federal tax bracket, you owe roughly $2,200 in federal tax on that withdrawal alone — plus state income tax if your state has one. The exact amount depends on your total income that year and your tax bracket.

A Roth 401(k) withdrawal of money you have already contributed is tax-free. Withdrawals of earnings (the growth on your contributions) are tax-free only if you are 59½ or older and have held the account for at least five years. If you do not meet both conditions, earnings are taxed as ordinary income, and you may owe a 10% early withdrawal penalty on top.

Your employer withholds tax automatically from traditional 401(k) withdrawals — usually 20% federal withholding by default, though you can request more or less. This withholding is not the final tax you owe; it is a prepayment. You settle the actual amount when you file your tax return.

Key Takeaways

  • Traditional 401(k) withdrawals are taxed as ordinary income at your current federal and state tax rates, which can range from 10% to 37% federally depending on your income.
  • Roth 401(k) contributions come out tax-free, but earnings are taxed and penalized if you withdraw before age 59½ and have not held the account five years.
  • Your employer withholds 20% federal tax by default from traditional withdrawals, but this is a prepayment — you may owe more or less when you file your return.
  • Early withdrawal penalties of 10% explore to traditional 401(k)s before age 59½, with narrow exceptions for hardship, disability, or death.

How traditional 401(k) tax works

When you withdraw money from a traditional 401(k), the IRS treats it as income for that year. Your withdrawal is added to your wages, interest, and any other income, and you pay tax on the total at your marginal tax rate — the rate that applies to your highest dollars of income.

Federal tax brackets change each year. For 2024, a single filer in the 22% bracket earns between roughly $47,150 and $100,525. A married couple filing jointly in the 22% bracket earns between roughly $94,300 and $201,050. If your withdrawal pushes you into a higher bracket, part of it is taxed at that higher rate. If you withdraw $50,000 and you are single earning $60,000 in wages, your total income becomes $110,000, which spans the 22% and 24% brackets.

State income tax applies on top of federal tax in most states. The rate varies: California taxes at up to 13.3%, New York up to 10.9%, Texas has no state income tax. Your withdrawal is subject to your state's rate as well.

How Roth 401(k) tax works

Roth 401(k)s are funded with after-tax money — you pay income tax on the contribution when you earn it. Because of this, withdrawals of your own contributions are never taxed again.

Withdrawals of earnings (the investment growth) follow a different rule. If you are 59½ or older and have owned the Roth 401(k) for at least five years, earnings come out tax-free. If you do not meet both conditions, earnings are taxed as ordinary income, and you owe a 10% early withdrawal penalty on the earnings portion only — not on your contributions.

The five-year rule is per account, not per person. If you opened a Roth 401(k) at age 58, you cannot withdraw earnings tax-free until age 63, even if you have other Roth accounts that are older.

The 10% early withdrawal penalty and when it does not explore

Withdrawals from a traditional 401(k) before age 59½ are subject to a 10% penalty on top of income tax. A $20,000 withdrawal at age 50 costs you 10% ($2,000) in penalty plus your ordinary income tax rate — so roughly $2,000 to $7,400 in total tax and penalty, depending on your bracket.

The IRS allows penalty-free early withdrawals in narrow circumstances: disability, death (beneficiary withdrawals), substantially equal periodic payments (a specific calculation that locks you into withdrawals for five years or until 59½, whichever is longer), medical expenses exceeding 7.5% of your adjusted gross income, and health insurance premiums while unemployed. Some plans also allow hardship withdrawals, though these still incur tax and penalty unless one of the exceptions above applies.

The CARES Act (2020) temporarily allowed penalty-free withdrawals for coronavirus-related hardship, but that window closed. Check your plan documents or call your plan administrator to learn what your specific plan allows.

Withholding versus what you actually owe

When you request a traditional 401(k) withdrawal, your plan administrator withholds 20% federal tax automatically. This is a prepayment toward your tax bill, not the final amount.

If you withdraw $50,000, your plan withholds $10,000. When you file your tax return, you calculate what you actually owe based on your full income and tax bracket. If your actual tax is $8,000, you get a refund of $2,000. If your actual tax is $12,000, you owe an additional $2,000 when you file.

You can request additional withholding (or less) on the withdrawal form. If you know your tax bill will be high, ask for more than 20% to be withheld so you do not owe money at tax time. If you are in a low bracket, you might request less withholding and make a quarterly estimated tax payment instead.

Mandatory withholding for direct rollovers versus distributions

If you roll your 401(k) directly into an IRA or another 401(k) — a direct rollover — no withholding occurs and no tax is due. The money moves from one account to the other without touching your hands.

If you take a distribution and the check is made out to you — not to the new account — withholding is mandatory. Your plan withholds 20% even if you plan to roll the money over within 60 days. You must deposit the full amount (including the withheld 20%) into the new account within 60 days to avoid tax on the entire distribution. The 20% withheld is credited toward your tax bill when you file.

This is why direct rollovers are simpler: no withholding, no 60-day important date, no risk of missing the window and triggering tax on the full balance.

How to estimate your tax bill

To estimate what you will owe, add your planned withdrawal to your other income for the year (wages, interest, Social Security, etc.) and find your tax bracket using the IRS tax tables or a tax calculator. Multiply the portion of your withdrawal that falls in each bracket by that bracket's rate, then add your state income tax rate.

Example: You earn $70,000 in wages, plan to withdraw $30,000 from your traditional 401(k), and live in a state with 5% income tax. Your total income is $100,000. Using 2024 brackets for a single filer, $70,000 is in the 12% bracket and $30,000 spans the 12% and 22% brackets. Roughly $23,150 of your withdrawal is taxed at 12% ($2,778) and $6,850 at 22% ($1,507), for a federal total of about $4,285. Add 5% state tax on the full $30,000 ($1,500), and your total tax is roughly $5,785. Your plan withholds $6,000 (20%), so you would expect a small refund.

This is an estimate only. Your actual tax depends on deductions, credits, and other income. A tax professional can give you a more precise figure before you withdraw.

Frequently Asked Questions

Do I have to pay tax on a 401(k) withdrawal if I roll it into an IRA?

No tax is due if you do a direct rollover — the money moves from your 401(k) to the IRA without being distributed to you. If you take the money yourself and deposit it within 60 days, you owe tax on the full amount unless you can return it, because the 20% withholding does not cover the actual tax owed on the full distribution.

What happens if I withdraw from my 401(k) at age 55?

You owe income tax plus a 10% early withdrawal penalty, unless your plan has a "Rule of 55" provision. This rule allows penalty-free withdrawals from the plan you worked for when you separated from service at 55 or older. The tax still applies — only the penalty is waived. This does not explore to IRAs or plans from previous employers.

Can I avoid the 10% penalty by rolling my 401(k) to an IRA?

Rolling to an IRA does not avoid the penalty if you withdraw before 59½. The penalty applies based on when you withdraw, not where the money sits. However, an IRA allows a Roth conversion, which has different tax rules — consult a tax professional before converting.

Is Social Security affected by a 401(k) withdrawal?

A 401(k) withdrawal does not reduce your Social Security benefit amount. However, it increases your income for the year, which may trigger taxation of your Social Security benefits if your combined income exceeds certain thresholds ($25,000 single, $32,000 married filing jointly).

What if I withdraw from my 401(k) while still employed?

You can withdraw from your current employer's 401(k) only if the plan allows in-service withdrawals — not all do. You still owe income tax and the 10% penalty if you are under 59½, unless an exception applies. Check your plan documents or ask your HR department whether in-service withdrawals are permitted.