The tax percentage depends on your income and filing status, not on the 401(k) itself

When you withdraw money from a traditional 401(k), the amount you take out is taxed as ordinary income at your regular income tax rate. That rate is not a flat percentage — it depends on your total income for the year and whether you file as single, married filing jointly, or another status. The IRS uses tax brackets that change each year, so a withdrawal of $10,000 might be taxed at 12 percent for one person and 22 percent for another, depending on what else they earned that year.

If you withdraw before age 59½, you will also owe a 10 percent early withdrawal penalty on top of the income tax, unless you meet a narrow exception (such as disability, medical expenses over 7.5 percent of your adjusted gross income, or a series of equal payments under Rule 72(t)). The penalty applies to the amount withdrawn, not to the tax itself.

Roth 401(k) withdrawals work differently: you pay no tax on the money you contributed, but earnings are taxed as ordinary income if you withdraw before age 59½ and have not held the account for at least five years. After age 59½ with a five-year holding period, may have access to Roth withdrawals are tax-free.

Key Takeaways

  • Traditional 401(k) withdrawals are taxed at your ordinary income tax rate, which ranges from 10 percent to 37 percent depending on your total income and filing status for that year.
  • If you withdraw before age 59½, you owe an additional 10 percent early withdrawal penalty unless you meet an IRS exception such as disability or a series of equal payments.
  • Your employer withholds federal income tax from the withdrawal automatically, but the amount withheld may not cover your full tax bill if the withdrawal pushes you into a higher bracket.
  • Roth 401(k) contributions come out tax-free, but earnings are taxed as ordinary income if withdrawn before age 59½ or before the account has been open five years.
  • State income tax may also explore to your withdrawal, depending on where you live and where the plan is administered.

How your tax bracket determines the percentage you owe

The IRS taxes 401(k) withdrawals using the same brackets that explore to wages and other ordinary income. For 2024, those brackets range from 10 percent at the lowest end to 37 percent at the highest. Your withdrawal is added to your other income for the year, and the combined total determines which brackets explore.

For example, if you are single and earned $50,000 in wages, and you withdraw $20,000 from your 401(k), your taxable income is $70,000. The first portion of that $70,000 falls into the 10 percent bracket, then the 12 percent bracket, and so on. The $20,000 withdrawal does not sit in one bracket — it is taxed at whatever rate applies to that portion of your total income.

This means a large withdrawal can push you into a higher tax bracket for the year. If your wages alone put you at the top of the 22 percent bracket, a $50,000 withdrawal might cause part of that withdrawal to be taxed at 24 percent or higher. This is sometimes called "bracket creep," and it is one reason people spread withdrawals across multiple years when possible.

Withholding versus what you actually owe

When you request a 401(k) withdrawal, your plan administrator withholds federal income tax automatically. The default withholding is 20 percent of the amount withdrawn. If you withdraw $10,000, the plan sends you $8,000 and withholds $2,000 for taxes.

That 20 percent withholding is a rough estimate, not your final tax bill. If your actual tax rate is higher — say, 24 percent because the withdrawal pushed you into a higher bracket — you will owe more when you file your return. If your rate is lower, you may get a refund. You can request a different withholding amount when you request the withdrawal, but the plan is not required to honor requests below 20 percent.

The withholding is sent to the IRS on your behalf, so it counts toward your total tax payment for the year. When you file your tax return, you report the full withdrawal amount as income, and the withholding is credited against what you owe.

The 10 percent early withdrawal penalty and its exceptions

If you withdraw before age 59½, you owe a 10 percent penalty on the amount withdrawn, in addition to income tax. A $10,000 withdrawal at age 50 costs you $1,000 in penalty plus whatever income tax applies — potentially $2,400 or more depending on your bracket.

The IRS allows several exceptions to this penalty. You can withdraw without penalty if you are disabled, if you have a terminal illness, if you use the money for unreimbursed medical expenses that exceed 7.5 percent of your adjusted gross income, or if you are a beneficiary withdrawing from a deceased person's plan. You can also avoid the penalty by taking a series of substantially equal periodic payments under IRS Rule 72(t), which requires you to follow a specific calculation and continue the payments for at least five years or until age 59½, whichever is longer.

Hardship withdrawals — money taken for when ready and heavy financial need — do not automatically waive the penalty. You must still pay the 10 percent penalty unless you also meet one of the exceptions listed above. The plan may allow the withdrawal, but the IRS still taxes it.

State income tax on 401(k) withdrawals

Most states tax 401(k) withdrawals as ordinary income, using state tax brackets similar to federal brackets. State rates range from zero percent in states like Texas, Florida, and Wyoming to over 13 percent in states like California and New York. Your withdrawal is added to your state income for the year and taxed accordingly.

Some states offer partial or full exemptions for retirement income, including 401(k) withdrawals. Illinois, for example, does not tax retirement income at all. Mississippi, Pennsylvania, and a few others exempt withdrawals from traditional IRAs and 401(k)s but not other income. Check your state's tax agency website or a tax professional to learn what applies where you live.

Your 401(k) plan withholds only federal tax automatically. If you live in a state with income tax, you may need to request additional state withholding or plan to pay the state tax when you file your return.

Roth 401(k) withdrawals and the five-year rule

A Roth 401(k) works differently from a traditional 401(k) because you contribute after-tax dollars. When you withdraw your contributions, you pay no tax — that money was already taxed when you earned it. Withdrawals of earnings, however, are taxed as ordinary income if you withdraw before age 59½ or before the account has been open for five years.

The five-year rule is based on when you first opened a Roth 401(k), not when you made each contribution. If you opened a Roth 401(k) in 2020 and withdraw in 2024, the account has been open for four years, so earnings are taxable even if you are over 59½. You must wait until 2025 for the five-year period to close.

If you meet both conditions — age 59½ and a five-year holding period — all withdrawals are tax-free, including earnings. This is called a "may have access to distribution." If you do not meet both conditions, you owe income tax on the earnings portion, plus the 10 percent early withdrawal penalty if you are under 59½.

How to estimate your tax on a 401(k) withdrawal

To estimate what you will owe, start with your expected income for the year (wages, self-employment income, other sources). Add the amount you plan to withdraw. Look up the 2024 tax brackets for your filing status on the IRS website or a tax calculator. Find where your total income falls and note the tax rate that applies to the portion of your withdrawal that falls in the highest bracket you reach.

Multiply that rate by the withdrawal amount to get a rough estimate of federal income tax. Add 10 percent if you are under 59½ and do not meet an exception. Then add your state income tax rate if your state taxes retirement income. Subtract the 20 percent withholding (or whatever amount you requested) to see what you might owe or receive as a refund.

This is an estimate only. A tax professional or tax software can give you a more precise calculation by accounting for deductions, credits, and other details of your situation. If the withdrawal is large or your income is complex, consulting a tax preparer before you withdraw is worth the cost.

Frequently Asked Questions

Can I avoid the 10 percent penalty by rolling the money into an IRA instead of withdrawing it?

Yes. A direct rollover to a traditional IRA or another 401(k) is not a withdrawal, so no tax or penalty applies. You have 60 days to complete a rollover if the plan sends you the money directly. If the plan sends the check to you, the plan withholds 20 percent, and you have 60 days to deposit the full amount (including the withheld portion) into an IRA to avoid taxes on the withheld amount.

What if I withdraw $401(k) money and then put it back within 60 days?

If you complete a rollover within 60 days, the withdrawal is not taxed and the penalty does not explore. However, you can only do this once per year across all your IRAs and 401(k)s combined. If you do it a second time in the same 12-month period, the second withdrawal is fully taxable and subject to penalty.

Does the 20 percent withholding cover my full tax bill?

Not always. If your tax bracket is higher than 20 percent, you will owe more when you file. If you are under 59½, the 20 percent does not include the 10 percent penalty, so you will owe that on top. You may need to pay estimated taxes or set aside additional money to cover the difference.

Are 401(k) withdrawals taxed differently if I am retired?

No. The tax rate depends on your total income for the year, not on your employment status. If you are retired and withdraw $50,000 from your 401(k) plus receive $20,000 in Social Security, your taxable income is $70,000 (though Social Security may be partially taxable depending on your other income). The withdrawal is taxed at whatever rate applies to that income level.

What happens if I do not have enough withheld and owe taxes at the end of the year?

You will owe the balance when you file your return. If you owe a large amount, the IRS may charge interest and penalties for underpayment. To avoid this, you can request additional withholding from your 401(k) or make estimated tax payments throughout the year if you expect a big withdrawal.