Tax planning

Retirement Account Withdrawals: The Tax Basics Explained

Updated October 5, 2026

Money from a traditional IRA or 401(k) is taxed as ordinary income in the year you take it. Withdraw before age 59 and a half and an extra 10% tax can apply unless an exception fits. Qualified Roth withdrawals are not taxed.

Two kinds of accounts, two kinds of tax

Most retirement accounts fall into one of two groups, and the group decides how a withdrawal is taxed.

Traditional (pre-tax) accounts. Withdrawals from a traditional IRA, 401(k) or similar plan are included in your gross income in the year you take them. They are added to your wages, pension and other income and taxed at your regular rates.
Roth accounts. A qualified Roth IRA withdrawal is not included in gross income. To qualify, the money must come out after the five-year period that starts with the first tax year you put money in, and on or after age 59 and a half, or because of disability or death, or for a first home purchase (limited to $10,000).

When a Roth withdrawal does not qualify, the money comes out in a set order: regular contributions first, then converted amounts, then earnings. Earnings come last, and earnings are the part that can be taxable.

The extra 10% before age 59 and a half

Take money from a traditional or Roth IRA, or from a workplace plan, before age 59 and a half and the taxable part can face an additional 10% tax on top of regular income tax. Exceptions include:

Death or total and permanent disability
A series of substantially equal payments over your life expectancy
Up to $10,000 over your lifetime toward a first home purchase, from an IRA
Up to $5,000 for the birth or adoption of a child
Medical costs above a set share of your income
Leaving an employer at age 55 or older, which applies to that employer's plan and not to an IRA

Exceptions are claimed on Form 5329. The rules differ between IRAs and workplace plans, so check which one you are drawing from before assuming an exception covers you.

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Withholding and rollovers: where the 20% comes from

When a workplace plan pays an eligible rollover distribution directly to you, 20% of it must be withheld for federal tax. Withholding is a prepayment, not your final bill. Your real tax is figured when you file, based on all your income that year, so the amount withheld can end up too high or too low. Form W-4R lets you tell the payer how much to withhold from retirement payments.

A direct rollover avoids the issue. The plan sends the money straight to another plan or IRA, and nothing is withheld. If the money is paid to you first, you have 60 days to deposit it into another eligible plan. To roll over the full amount after 20% was withheld, you would need to replace the withheld part from other money.

A rollover from one pre-tax account into another, such as a 401(k) into a traditional IRA, is not taxed. It still produces a Form 1099-R and must be reported correctly so it is not mistaken for a withdrawal. Moving pre-tax money into a Roth account is different, because the amount you move counts as income that year. Check before you do it.

Required withdrawals starting at age 73

Traditional IRAs and most workplace plan accounts require you to start taking money out at age 73. Your first required minimum distribution can wait until April 1 of the year after you turn 73, but waiting can stack two withdrawals into one tax year. A workplace plan may let you wait until you retire if you are still working for that employer. The yearly amount is based on your account balance and your age, and the starting age is scheduled to rise for people born later.

Missing one is costly. The amount you failed to withdraw can face a 25% excise tax, reduced to 10% if you correct the shortfall in time. Roth IRAs have no required withdrawals during the owner's life.

Withdrawals also affect other parts of your return. Taxable withdrawals feed the formula that decides how much of your Social Security is counted as income, and a large one can shrink the new $6,000 senior deduction once income passes $75,000 for single filers or $150,000 for joint filers.

Reading your Form 1099-R

Every withdrawal produces a Form 1099-R from the plan or IRA provider. Four items do most of the work:

Gross distribution: the total that came out
Taxable amount: the part that counts as income, which can be less than the total
Federal tax withheld: what was already sent to the IRS
Distribution code: for example 1 for an early withdrawal with no known exception, 7 for a normal withdrawal, G for a direct rollover or Q for a qualified Roth withdrawal

Gross and taxable amounts often differ because of rollovers, Roth money or after-tax contributions. If a code looks wrong for your situation, ask the provider to fix it before you file, since the code tells the IRS what kind of withdrawal it was.

Who this fits and what to gather

This applies if you took money from an IRA or workplace plan, rolled an old 401(k) into an IRA, or reached age 73. Gather:

Every Form 1099-R, one for each account or plan that paid you
Dates and amounts for any rollover, plus the statement from the receiving account
Proof for any exception you plan to claim, such as closing papers for a first home
Records of tax withheld and any estimated payments
Last year's return

Florida has no personal income tax, so Florida residents face only the federal tax on withdrawals. Other states vary. Tax not withheld may need estimated payments, and self-employed savers can read about SEP and solo 401(k) plans. To get everything organized early, use the early organizing guide, then start your return or see pricing.

FAQ

Do I pay tax when I roll a 401(k) into an IRA?

Not when pre-tax 401(k) money goes into a traditional IRA. A direct rollover moves the money without it being paid to you. If the plan pays you first, 20% is withheld, and you have 60 days to deposit the money into the new account. Moving pre-tax money into a Roth IRA is taxable, because the amount counts as income that year.

Is the extra 10% tax the same as my regular income tax?

No. It is an additional tax on the taxable part of an early withdrawal. You still owe regular income tax on that withdrawal, unless it is a qualified Roth withdrawal or a tax-free rollover.

Do I have to take money out of my Roth IRA at 73?

No. Roth IRAs have no required withdrawals during the original owner's lifetime. Traditional IRAs and most workplace plans do.

What happens if I miss a required withdrawal?

The amount you should have taken can face a 25% excise tax, or 10% if you correct the shortfall in time. Take the missed amount as soon as you notice, and ask a qualified professional how to report the correction.

Sources

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General information, not tax advice for your specific situation. Rules can change, and a human preparer reviews your facts before any return is filed. Zero Fuss Taxes is a PTIN-holding tax preparation firm. We are not a CPA firm, enrolled agents or attorneys.

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