Arabic version: المتقاعدون يوازنون بين التكاليف الضريبية لسحوبات 401(k)
According to Cnbc, retirees considering a large, one-time withdrawal from a traditional 401(k) or individual retirement account should account for taxes and possible effects on other expenses. Advisors say retirement savings can be used for unplanned costs, but withdrawals should fit within a sustainable retirement plan.
Traditional 401(k) and IRA distributions are generally taxed as ordinary income. Victoria Trumbower of Trumbower Financial Advisors said retirees may need to take out more than the amount needed for an expense because the funds used to pay the tax bill are taxable, too. For example, receiving $50,000 after tax at an assumed combined federal and state rate of 25% would require a withdrawal of about $66,667.
In 2025, about 15% of former 401(k) plan participants ages 60 to 72 with balances of at least $100,000 made an ad hoc withdrawal, according to Vanguard’s How America Retires 2026 report. Its survey found that paying off debt was the most common reason for irregular distributions, cited by 31% of respondents. Unforeseen expenses, including medical care and home repairs, were cited by 23%, while 22% cited discretionary spending.
A larger taxable withdrawal can have wider consequences. It may cause more Social Security benefits to become taxable and can raise Medicare Part B and Part D premiums through the income-related monthly adjustment amount. For 2026, the Medicare surcharge applies above modified adjusted gross income of $109,000 for individual filers and $218,000 for married couples filing jointly. Medicare generally uses tax data from two years earlier.
Trumbower said some retirees could consider delaying the additional distribution needed for taxes until the next calendar year, potentially spreading taxable income across two years. Retirees still need to withhold enough tax or make estimated payments to avoid underpayment penalties. Other potential sources for a one-off cost include a brokerage account, where long-term capital gains may face lower tax rates, or borrowing, although loans carry costs and risks. Advisors also noted that a withdrawal reduces the money available for future growth.
