How 401(k) and IRA Withdrawals Are Taxed in Retirement (2026 Guide)

Published September 7, 2026 · 9 min read

You spent decades building up your 401(k) or IRA. Now that it’s time to use it, here’s the part nobody warns you about: the IRS still wants a cut. How much you pay — and when you pay it — depends on the type of account you have, your other income, and which state you live in.

This guide covers the full tax picture for retirement withdrawals in 2026: traditional accounts vs. Roth accounts, the early withdrawal penalty, Required Minimum Distributions, and how states treat retirement income differently.

The Basic Rule: Traditional vs. Roth

Every retirement account falls into one of two tax buckets:

Most Americans have traditional accounts, so most retirees are surprised by the tax bill. A person with $1 million in a traditional 401(k) doesn’t have $1 million in retirement money — they have $1 million minus future taxes.

How Traditional 401(k) and IRA Withdrawals Are Taxed

When you take money from a traditional 401(k) or Traditional IRA, the full amount is counted as ordinary income in the year you withdraw it. It is added to any other income you have — Social Security, a pension, part-time work, or investment income — and the combined total determines your federal tax bracket.

For 2026, the federal income tax brackets for a single filer are:

Your employer withholds 20% from 401(k) distributions by default (as a prepayment toward federal taxes). IRA withdrawals do not have automatic withholding unless you request it. Either way, you settle up at tax time when you file your return. (IRS Topic 412 — Lump-Sum Distributions)

How Roth Withdrawals Work (and When They’re Tax-Free)

Roth accounts offer the most tax-efficient retirement income, but there are two requirements to get the tax-free treatment:

• Age 59½ or older. You must be at least 59½ when you take the withdrawal.
• Five-year rule. The Roth account must have been open for at least five years. This clock starts January 1 of the year you made your first Roth contribution.

If both conditions are met, every dollar you withdraw — including all investment growth — is 100% tax-free. A retiree who turned a $100,000 Roth IRA into $400,000 over 30 years pays zero federal income tax on any of those withdrawals.

Another big advantage of Roth IRAs specifically: no Required Minimum Distributions during your lifetime. You can let the money grow indefinitely and leave it to your heirs. (Roth 401(k)s had RMDs before 2024, but the SECURE 2.0 Act eliminated them.)

The Early Withdrawal Penalty: 10% Before Age 59½

If you pull money from a traditional 401(k) or IRA before age 59½, you owe the normal income tax plus a 10% early withdrawal penalty. That means a $10,000 withdrawal could cost you $3,200 in taxes if you are in the 22% bracket — $2,200 in income tax plus a $1,000 penalty.

The IRS does allow exceptions to the 10% penalty. Common ones include:

• Total and permanent disability
• Substantially Equal Periodic Payments (SEPP / Rule 72(t))
• Separation from service at age 55 or older (401(k) only)
• Unreimbursed medical expenses exceeding 7.5% of AGI
• First-time home purchase (Roth IRA contributions and up to $10,000 in earnings)
• Birth or adoption expenses (up to $5,000)
• Qualified disaster distributions (when Congress specifically permits them)

Even when the penalty is waived, you still owe income tax on the withdrawal. Only Roth contributions (not earnings) can be withdrawn completely penalty- and tax-free at any age. (IRS Topic 558 — Additional Tax on Early Distributions)

Required Minimum Distributions (RMDs): You Must Take Money Out

The IRS does not let money sit in traditional accounts forever. Once you reach age 73, you must begin taking Required Minimum Distributions (RMDs) each year from your traditional 401(k)s and Traditional IRAs. (The SECURE 2.0 Act raised this age from 72 starting in 2023.)

The RMD amount is calculated by dividing your account balance at the end of the previous year by a life expectancy factor from the IRS Uniform Lifetime Table. For a 73-year-old, that factor is 26.5 — so a $500,000 balance would require an RMD of about $18,868.

Missing an RMD is expensive. The penalty is 25% of the amount you should have withdrawn (reduced to 10% if you fix the shortfall within two years). (IRS — RMD FAQs)

RMDs from traditional accounts are taxed as ordinary income in the year you receive them. This is why careful retirement planning — including Roth conversions before age 73 — can help manage your tax bill.

How States Tax Retirement Income

Federal taxes are just part of the story. State taxes on retirement income vary enormously — from states that tax everything to states that exempt it all. Here is a quick overview:

If you are planning retirement and have flexibility on where you live, your state choice can make a significant difference. A $60,000 annual IRA withdrawal in Florida costs nothing in state tax. The same withdrawal in California could cost an additional $3,000–$5,000 per year depending on your total income. (Tax Foundation — States That Do Not Tax Retirement Income)

Worked Example: Maria’s First Year of Retirement

Meet Maria. She is 68, single, retired, and lives in Georgia. She has no pension, and her income for 2026 comes from three sources:

• $24,000 in Social Security benefits
• $36,000 in Traditional IRA withdrawals
• $12,000 in Roth IRA withdrawals (opened more than 5 years ago)

A few things to notice in this example:

• Roth IRA withdrawals are invisible to the IRS. Maria’s $12,000 from the Roth IRA does not appear in any taxable income calculation.
• Social Security is partially taxable. Because Maria’s “combined income” (AGI + half of Social Security) exceeds $34,000, up to 85% of her Social Security is taxable. Only the $20,400 taxable portion is included.
• The standard deduction is higher at 65+. Single filers age 65 and older get an extra $1,950 added to the standard deduction — $17,000 total for 2026 instead of $15,000.
• Georgia gives retirees a break. Georgia excludes up to $65,000 per person in retirement income from state taxes for taxpayers 65 and older. Maria owes $0 in Georgia state income tax.

Strategies to Reduce Taxes on Retirement Withdrawals

A few planning strategies can reduce how much tax you pay on retirement income:

• Roth conversions before age 73. Moving money from a traditional IRA to a Roth IRA during lower-income years (like early retirement, before Social Security starts) lets you pay taxes now at a lower rate — and avoid RMDs and taxes later.
• Delay Social Security. Waiting until age 70 to claim Social Security increases your monthly benefit by up to 32% compared to claiming at 67. More importantly, it can reduce your tax burden in your 60s when you have more flexibility over your income.
• Qualified Charitable Distributions (QCDs). If you are 70½ or older, you can donate up to $105,000 directly from your IRA to a qualified charity. This counts toward your RMD but is excluded from your taxable income — a powerful combination.
• Spread withdrawals across years. If you can control how much you withdraw, keeping your total income in the 12% bracket saves significantly over pulling large lump sums that push you into 22% or higher.
• Choose a tax-friendly state. If retirement timing gives you location flexibility, moving to a state with no income tax or a generous retirement income exemption can save thousands annually. States like Texas, Florida, and Nevada have no state income tax at all.

The Bottom Line

Traditional 401(k) and IRA withdrawals are taxed as ordinary income — every dollar counts as income in the year you take it. Roth withdrawals are tax-free if you meet the age and five-year rules. The 10% early withdrawal penalty applies before 59½ unless an exception applies. And starting at age 73, Required Minimum Distributions force you to start drawing down traditional accounts whether you want to or not.

The most powerful retirement tax planning happens before you retire — building Roth accounts, timing Roth conversions, and choosing where to live. But even in retirement, managing how much you withdraw each year can mean the difference between a 12% and a 22% marginal rate on your savings.

Sources

• IRS Topic 412 — Lump-Sum Distributions
• IRS Topic 558 — Additional Tax on Early Distributions from Retirement Plans
• IRS — Required Minimum Distributions FAQs
• IRS Publication 590-B — Distributions from Individual Retirement Arrangements (IRAs)
• Tax Foundation — Which States Tax Retirement Income?
• SSA.gov — Benefits Planner: Income Taxes and Your Social Security Benefits