How Much Tax Do You Pay on 401(k) Withdrawals?

How much tax do you pay to get money out of a 401(k) or pre-tax retirement account? It depends on several factors. Most importantly, you want to be aware of:
✔️ Income taxes
✔️ Penalty taxes for early withdrawals
✔️ Tax withholding

The amount of income tax you pay on 401(k) withdrawals depends on everything happening on your return. For example, income from work, investments, Social Security, and other sources can raise your income level. That might put you into a relatively high bracket.

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At the same time, any deductions, including the standard deduction, can reduce the taxes. You might even be able to get retirement money without paying taxes in some cases.

Of course, your age is important, as penalty taxes can increase the tax bite. That’s usually only when you’re under the age of 59 ½, but there are exceptions and wrinkles to be aware of—they might help you avoid paying that tax.

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CHAPTERS:
00:00 How Much Tax Do You Pay?
00:30 Pre-Tax Withdrawals Are Ordinary Income
01:02 Income Tax
01:27 Penalty Taxes
01:48 Tax Withholding
02:29 Examples on Tax Return
05:22 Social Security Taxation
06:25 Is it a Taxable Withdrawal?
07:12 More on Taxable Income
09:00 Tax Brackets and Rates
11:35 Why Income Matters
12:08 Withholding and Penalties
15:07 Exceptions to 10% Penalty

We’ll walk through the key points and a few examples in this video. But it’s critical to review your situation with a tax expert before making any decisions, taking withdrawals, or filing a return. Your reality might be significantly different from what this video describes, so you need to triple-check everything.

Justin Pritchard, CFP® is a fee-only fiduciary advisor who can work with clients in Colorado and most other states.

IMPORTANT:
Retirement account withdrawals can complicate income taxes (both federal and state), tax penalties, underpayment penalties, and more. It's impossible to cover everything you need to know in a video like this. The only thing that's certain is that you need more information than this. Always consult with a CPA before making decisions or filing a tax return. This is general information and entertainment, and is not created with any knowledge of your circumstances. As a result, you need to speak with your own tax, legal, and financial professional who is familiar with your details. This video is not a substitute for individualized, personal advice. Please verify with your plan administrator when employer plans are involved. This information may have errors or omissions, may be outdated, or may not be applicable to your situation. Investments are not bank guaranteed and may lose money. Opinions expressed are as of the date of the recording and are subject to change. “Likes” should not be considered a positive reflection of the investment advisory services offered by Approach Financial, Inc. The Comments section contains opinions that are not the opinions of Approach Financial, Inc., and you should view all comments with skepticism. Approach Financial, Inc. is registered as an investment adviser in the state of Colorado and is licensed to do business in any state where registered or otherwise exempt from registration.

[ApproachFinancial]

Note: I do not discuss offerings, pricing, etc. in these comments. Please proceed to the website, where you can find a substantial amount of detail.

[petermasson]

Thank you for this video. There seem to be countless videos on saving for retirement but not as many about what to do when you are retired in regard to taxation.

[yvonneperkins]

I found this video very helpful. Thank you.

[danielleon]

This is why Asset Location is so important, having an efficient mix amongst your taxable, tax-deferred, & tax-free buckets of money will allow individuals to take greater control over the risk of higher taxation. Also, it’s worth mentioning that the standard deduction offsets taxable income in retirement as well as the 0% capital gains / dividends rates for married couples whose income doesn’t exceed $89, 250.

[teams]

Between 12-14 % on Fed. 0% on State. I live in Georgia.

[Karen-ibjc]

Finnaly someone explain tax witholding, after many videos.

[dave]

Don’t forget the potential impact of a large withdrawal on IRMAA. Seems like a hidden tax inside Social Security

[BlessedBeMyDay]

I have so little when I withdraw a monthly small amount to help feed me, that once the standard deduction is taken off there's not enough income to be taxed.

[July..]

It would be interesting to know what the median amount of withdrawal is from a traditional 401k, 403B, 457, or TSP in a year? I would imagine it is quite small due to size of the median retirement account. 🤔

[bluegillmich]

question: if you pull money from an acount and later in the year you unfortunately lose your spouse does that change your taxable rate? or only apply when you make the withdrawal? Great video BTW...most impressive knowledge

[markocean]

Assuming early withdrawal of ira in california. I understand the federal tax plus penalty.
How would i calculate the tax with penalty first the state?

[lannyyeakle]

NICE FOR THE INFORMATION FOR MICHIGAN I HAVE A MORTAGAE AND HAVE 1 1/2 YRS UNTIL I GET TO 591/2. NOW HOW MUCH WOULD IT BE ON 30 THOUSAND? I FILE WITH MY WIFE SELLS AVON NOT MUCH AT ALL MORE LIKE A HOBBY HOW DOES IT WORK AS FAR AS PAYING THE BANK OFF MY MORTAGAGE? DOES THE BANK WRITE OUT A CHECK TO THEM TO PAY IT OFF OR DO I HAVE TO DO IT MYSELF? DO THEY TELL ME WHAT THE TAX WILL BE AND GIVE ME A PAPER TO GIVE TO THE ACCOUNTANT THAT PREPAIRS IT FOR ME WHEN I GET MY W-2 FROM WORK?

[LifeHappy]

Where do I report 1099-R Code U from my 401(K) in 1040?

[FCompactUSP]

Enjoyed the video. Is the sheet you are using for the tax figures available to share? I see the AARP link. Thank you

[JulienCarter-whuv]

Great video. Do you now where there is a 1040 form I can complete online that will calculate tax liability? The IRS website only has one for withholding from work. I want enter in planning numbers from my 401a/403b, social security, and brokerage account numbers to determine the mix that provides the lowest tax liability

[johnsos]

Thank you for the info!!
For me to know my 2023 tax is it as simple as knowing my taxable income and looking at the 2023 tax tables to figure out what my tax would be?? Thank you!!

[David-jmyo]

I haven’t withdrawn any of mine yet but mine is going to be taxed at 12% when I do decide to make withdrawal.

[robertknewitz]

Thanks for the video. It was very informative. One question, when you withdraw from a Traditional 401k, are the gains taxed as "income tax" or are they taxed as a "capital gains" tax? It appears from the video that all of the 401k withdrawal (initial contributions, gains, dividends, etc) are taxed as "income tax".

[bigtoeknee]

When using the rule of 55 can i withdraw any amount any time i need or does it need to be a fuxed periodic payments like 72T rule

[algoflush]

I retired April 2022. The tax is 20% on my 401K withdrawals. Fidelity sells $2300 of stock funds and i receive $1840 into my checking account monthly. 2300 x .20 = 460. 2300 - 460 = 1840.