401(k) Withdrawals
Withdrawals from a traditional 401(k) are generally included in taxable income unless an exception or rollover rule applies.
U.S. RETIREMENT TAX GUIDE
How Retirement Income Is Taxed in the U.S.
Retirement can bring income from several sources, and each one can have different federal tax rules. Understand how 401(k) withdrawals, traditional and Roth IRAs, Social Security, pensions, RMDs and early distributions can affect your taxes.
401(k)
Withdrawals may be taxable
IRA
Tax treatment depends on account type
RMDs
Generally begin at age 73
RETIREMENT INCOME
Tax treatment
Depends
Traditional IRA
Generally taxable
401(k)
Generally taxable
Qualified Roth
Generally tax-free
Social Security
May be taxable
Your overall income and the type of retirement account matter.
THE BASICS
Retirement Income Does Not All Get Taxed the Same Way
Reaching retirement does not automatically mean that your income becomes tax-free. In the U.S., the amount of federal income tax you owe can depend on where your retirement income comes from, how much you receive, your filing situation and the rules that apply to each account.
Traditional retirement accounts generally provide tax advantages while you are working, but withdrawals can become taxable when you take the money out. Roth accounts work differently because contributions are generally made with after-tax money and qualified distributions can generally be received tax-free.
Retirement income can also include Social Security benefits, pensions, annuities, investment income, rental income and other sources. Some of these may be partly taxable, while others may be taxed differently from ordinary retirement account withdrawals.
That is why retirement tax planning is less about finding one universal tax rate and more about understanding how your different sources of income interact.
RETIREMENT TAX PLANNING
Knowing where your retirement income comes from can make tax planning much easier.
ACCOUNT TYPES
Traditional and Roth Accounts Follow Different Tax Rules
Traditional IRAs are designed to provide tax advantages during the saving years. Contributions may be deductible depending on your circumstances, and investment earnings generally are not taxed while they remain inside the account.
When money is distributed from a traditional IRA, deductible contributions and earnings generally become taxable income. The exact taxable amount can depend on your account basis and other circumstances.
Roth IRAs generally work in the opposite direction. Contributions are made with after-tax dollars, and qualified Roth IRA distributions generally are not included in taxable income.
This difference can make the mix of traditional and Roth savings an important consideration when planning future retirement withdrawals.
RETIREMENT INCOME SOURCES
Common Sources of Retirement Income and Their Tax Treatment
The tax treatment of retirement income depends heavily on the source. Here are some of the most common categories retirees may encounter.
Traditional IRA
Deductible contributions and earnings withdrawn from a traditional IRA are generally taxable as ordinary income.
Roth IRA
Qualified Roth IRA distributions are generally tax-free because contributions are made with after-tax dollars.
Social Security
Social Security benefits may be taxable depending on your overall income and filing situation.
Pensions
Pension payments can be taxable depending on the nature of the payments and whether you have a cost basis.
Investment Income
Dividends, interest and capital gains can create additional tax obligations alongside retirement account income.
REQUIRED MINIMUM DISTRIBUTIONS
What Are RMDs and Why Do They Matter for Taxes?
Required minimum distributions, commonly called RMDs, are minimum amounts that generally must be withdrawn each year from certain retirement accounts after the applicable starting age.
Under current federal rules, you generally have to begin taking RMDs from traditional IRAs, SEP IRAs, SIMPLE IRAs and many retirement plans when you reach age 73. Roth IRAs are treated differently for the original account owner and generally do not require lifetime RMDs.
RMD amounts are generally included in taxable income unless the distribution represents an amount that is otherwise tax-free. That means RMD planning can become an important part of managing taxable income in retirement.
GENERAL RMD RULE
73
Traditional IRA
RMD generally applies
SEP / SIMPLE IRA
RMD generally applies
Many retirement plans
RMD generally applies
Roth IRA owner
No lifetime RMD
RMD rules can differ for specific plans, beneficiaries and individual circumstances.
EARLY WITHDRAWALS
What Happens If You Withdraw Retirement Money Early?
Taking money out of a retirement account before age 59½ can have both income tax and additional tax consequences.
For many traditional retirement plans and IRAs, the taxable portion of an early distribution may be subject to a 10% additional tax unless a qualifying exception applies.
The rules are not identical for every account. Certain distributions, rollovers and specific circumstances can qualify for exceptions to the additional tax.
Before taking an early distribution, it is important to understand both the regular income tax and any additional tax that could apply. A direct rollover to another eligible retirement account can also have different tax consequences from receiving the money personally.
BEFORE WITHDRAWING
Consider the income tax, additional tax and rollover consequences before taking retirement funds.
SOCIAL SECURITY
Can Social Security Benefits Be Taxable?
Social Security benefits are not automatically tax-free. Depending on your total income and filing status, a portion of your benefits may be included in taxable income.
The IRS generally looks at a combination of one-half of your Social Security benefits, your other income and tax-exempt interest when determining whether benefits may be taxable.
This means that someone receiving Social Security alongside withdrawals from a traditional IRA, pension income or investment income may have a different tax result from someone whose only income is Social Security.
Understanding the interaction between Social Security and other retirement income can therefore be an important part of retirement tax planning.
TAX PLANNING
Ways to Think About Taxes Before and During Retirement
Retirement tax planning is most useful when it starts before withdrawals begin. The right approach depends on your income, account types, tax bracket, goals and future spending needs.
Know Your Account Types
Understand which savings are held in traditional, Roth and taxable accounts and how each may be taxed when accessed.
Plan Withdrawal Timing
The timing of withdrawals can affect taxable income in a particular year, especially when several income sources overlap.
Watch RMDs
Required distributions can increase taxable income, so account owners should understand when RMD rules apply to them.
Consider Roth Savings
Qualified Roth distributions can generally be tax-free, making Roth savings one possible component of a diversified retirement strategy.
Review Social Security
Consider how Social Security interacts with other income sources when estimating your overall federal tax exposure.
Keep Records
Keep records of contributions, basis, distributions, rollovers and tax documents so your taxable and nontaxable amounts can be determined correctly.
COMMON QUESTIONS
Retirement Tax Mistakes Worth Avoiding
A few common assumptions can lead to unexpected tax bills during retirement.
01
Assuming all retirement income is tax-free
Traditional retirement account distributions are generally taxable, while Roth distributions follow different rules.
02
Forgetting about RMDs
Missing an applicable RMD can create tax consequences, so retirement account owners should understand their distribution requirements.
03
Ignoring early withdrawal rules
A withdrawal before age 59½ may trigger an additional 10% tax on the taxable portion unless an exception applies.
04
Looking at each income source separately
Your total income can affect how different retirement income sources are treated for federal tax purposes.
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01
Income Tax
Learn how federal income tax works and what determines your taxable income.
Explore Income Tax → 02Tax Brackets
Understand marginal tax brackets and how different portions of income are taxed.
Explore Tax Brackets → 03Tax Deductions
Explore deductions that may reduce taxable income when you qualify.
Explore Tax Deductions → 04Tax Credits
See how tax credits differ from deductions and can directly reduce tax.
Explore Tax Credits → 05Capital Gains Tax
Understand how profits from investments and other assets can be taxed.
Explore Capital Gains → 06Tax Withholding
Learn how federal taxes are collected and why withholding matters.
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RETIREMENT TAX FAQ
Clear answers to common questions about taxes in retirement.
FREQUENTLY ASKED QUESTIONS
Retirement Tax Questions, Answered
Retirement income can be taxed differently depending on the source. Traditional 401(k) and IRA distributions are generally taxable, qualified Roth distributions are generally tax-free, and Social Security benefits may be partly taxable depending on your income and filing situation.
Withdrawals from a traditional 401(k) are generally included in taxable income unless a specific rule, exception or rollover applies. Early taxable distributions may also be subject to an additional 10% tax.
Generally, deductible traditional IRA contributions and earnings that are withdrawn are taxable. The taxable amount can depend on your contribution history and basis.
Qualified Roth IRA distributions are generally tax-free. Nonqualified distributions can have different tax treatment, and early withdrawals may be subject to additional tax depending on the circumstances.
Under current federal rules, required minimum distributions generally begin at age 73 for traditional IRAs and many retirement plans. Specific rules can vary, so account owners should check their circumstances.
Social Security benefits may be taxable. The taxable portion depends on your total income, including other income and tax-exempt interest, as well as your filing situation.
The taxable portion of many retirement plan or IRA distributions taken before age 59½ may be subject to a 10% additional tax unless a qualifying exception applies.
Tax planning can include understanding traditional versus Roth accounts, managing withdrawal timing, planning for RMDs and considering how Social Security and other income sources interact. Individual circumstances matter.
PLAN AHEAD
Explore Tax Resources →
Make taxes part of your retirement plan.
Understanding how your retirement accounts and income sources are taxed can help you make more informed financial decisions before and during retirement.