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401(k) Taxes on Contributions and Withdrawals in 2025-2026
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Contributing to a traditional 401(k) could reduce your tax bill now, but you’ll likely pay tax when you withdraw the money in retirement.
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Tina Orem is an editor and content strategist at NerdWallet. Prior to becoming an editor and content strategist, she covered small business and taxes at NerdWallet. She has a degree in finance, as well as a master's degree in journalism and an MBA. Previously, she was a financial analyst and director of finance at public and private companies. Tina's work has appeared in a variety of local and national media outlets. Published in Editor & Content Strategist + more + more
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Lei Han, Ph.D., is an associate professor of accounting at Niagara University in Western New York and a New York state-licensed CPA. She obtained her Ph.D. in accounting with a minor in finance from the University of Texas at Arlington. Her teaching expertise is advanced accounting and governmental and nonprofit accounting. She is a member of the American Accounting Association and New York State Society of Certified Public Accountants. At NerdWallet, our content goes through a rigorous editorial review process. We have such confidence in our accurate and useful content that we let outside experts inspect our work. Professor of accounting + more + more
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4 years of experience Expertise Personal finance retirementJune Sham is a lead writer on NerdWallet’s investing and taxes team covering retirement and personal finance. She is a licensed insurance producer, and previously was an insurance writer for Bankrate specializing in home, auto and life insurance. She earned her Bachelor of Arts in creative writing at the University of California, Riverside.
June Sham is a lead writer on NerdWallet’s investing and taxes team covering retirement and personal finance. She is a licensed insurance producer, and previously was an insurance writer for Bankrate specializing in home, auto and life insurance. She earned her Bachelor of Arts in creative writing at the University of California, Riverside. Lead Writer + more + moreContributions to a traditional 401(k) plan, as well as any employer matches and earnings in the account (such as gains, interest or dividends), are tax-deferred. This means you won't pay income taxes on the money until you withdraw it from the account.
Contributions to a traditional 401(k) plan, as well as any employer matches and earnings in the account (such as gains, interest or dividends), are tax-deferred. This means you won't pay income taxes on the money until you withdraw it from the account. AD Owe $10,000+ or More? This Tax Season Could Be Your Chance to Qualify Each year the IRS writes off millions in tax debt, yet few have applied. Learn moreon Anthem Tax Services' website
AD Let’s resolve your tax issues: Tax Relief & Resolution Services for IRS Tax Debt Certified Enrolled Agents, CPAs, and Tax Attorneys on your case. Learn moreon TaxRise's website
Taxes on 401(k) contributions
Taxes on 401(k) contributionsAre 401(k) contributions tax-deductible?
Are 401(k) contributions tax-deductible?Contributions to your traditional 401(k) come out of your paycheck before the IRS takes its cut. This is also known as "pretax income," and it means two things:
Contributions to your traditional 401(k) come out of your paycheck before the IRS takes its cut. This is also known as "pretax income," and it means two things:You won’t pay income tax on those contributions.
You won’t pay income tax on those contributions.The contributions can reduce your adjusted gross income. If you have an employer match, that money won't be taxed either.
The contributions can reduce your adjusted gross income . If you have an employer match, that money won't be taxed either.For example, if you earn $50,000 before taxes and contribute $2,000 of it to your 401(k), that's $2,000 less you'll be taxed on. When you file your tax return, you’d report $48,000 rather than $50,000.
For example, if you earn $50,000 before taxes and contribute $2,000 of it to your 401(k), that's $2,000 less you'll be taxed on. When you file your tax return, you’d report $48,000 rather than $50,000.What else should I know about traditional 401(k) contributions?
What else should I know about traditional 401(k) contributions?The contribution limit is $24,500 in 2026. People aged 50 and older can contribute an extra $8,000 as a catch-up contribution. Due to the Secure 2.0 Act, those aged 60, 61, 62 and 63 get a higher catch-up contribution of $11,250.
The contribution limit is $24,500 in 2026. People aged 50 and older can contribute an extra $8,000 as a catch-up contribution. Due to the Secure 2.0 Act, those aged 60, 61, 62 and 63 get a higher catch-up contribution of $11,250. $24,500 in 2026. People aged 50 and older can contribute an extra $8,000 as a catch-up contribution. Due to the Secure 2.0 Act, those aged 60, 61, 62 and 63 get a higher catch-up contribution of $11,250. $24,500 in 2026. People aged 50 and older can contribute an extra $8,000 as a catch-up contribution. Due to the Secure 2.0 Act, those aged 60, 61, 62 and 63 get a higher catch-up contribution of $11,250.The annual contribution limit is per person and applies to all of your 401(k) account contributions in total.
The annual contribution limit is per person and applies to all of your 401(k) account contributions in total.You still have to pay some FICA taxes (Medicare and Social Security) on the money you contribute to a 401(k).
You still have to pay some FICA taxes (Medicare and Social Security) on the money you contribute to a 401(k).Your employer will send you a W-2 in January that shows how much it paid you during the previous calendar year, as well as how much you contributed to your 401(k) and how much withholding tax you paid.
Your employer will send you a W-2 in January that shows how much it paid you during the previous calendar year, as well as how much you contributed to your 401(k) and how much withholding tax you paid.» Use our 401k calculator to see if you're on track for retirement
» Use our 401k calculator to see if you're on track for retirement » Use our 401k calculator to see if you're on track for retirementTaxes on 401(k) withdrawals
Taxes on 401(k) withdrawalsWhat is the tax rate on 401(k) withdrawals?
What is the tax rate on 401(k) withdrawals?Traditional 401(k) withdrawals are taxedas regular income in the year you take the money out. The tax rate depends on which federal tax bracket(s) you're in at the time of the withdrawal.
Traditional 401(k) withdrawals are taxedas regular income in the year you take the money out. The tax rate depends on which federal tax bracket (s) you're in at the time of the withdrawal.You can begin withdrawing money from your traditional 401(k) without penalty when you turn 59 ½ — but you still have to pay taxes on the withdrawal. (You didn't pay income taxes on it back when you put it in the account.)
You can begin withdrawing money from your traditional 401(k) without penalty when you turn 59 ½ — but you still have to pay taxes on the withdrawal. (You didn't pay income taxes on it back when you put it in the account.)A few important points:
A few important points:If you’ve retired, you have to start taking required minimum distributions from your traditional 401(k) account when you're 73.
If you’ve retired, you have to start taking required minimum distributions from your traditional 401(k) account when you're 73.If you don’t take the required minimum distribution when you’re supposed to, the IRS can assess a penalty of 10% to 25% of the amount not distributed
If you don’t take the required minimum distribution when you’re supposed to, the IRS can assess a penalty of 10% to 25% of the amount not distributed Internal Revenue Service. Retirement Plan and IRA Required Minimum Distributions FAQs. Accessed Nov 14, 2025. .You can withdraw more than the minimum.
You can withdraw more than the minimum.» MORE: Calculate how long your retirement savings might last
» MORE: Calculate how long your retirement savings might last » MORE: Calculate how long your retirement savings might lastWhat if you withdraw from your 401(k) early?
What if you withdraw from your 401(k) early?For traditional 401(k)s, there are three main consequences of an early withdrawal or cashing out before age 59 ½:
For traditional 401(k)s, there are three main consequences of an early withdrawal or cashing out before age 59 ½:Taxes will be withheld. The IRS generally requires automatic withholding of 20% of a 401(k) early withdrawal for taxes
Taxes will be withheld. The IRS generally requires automatic withholding of 20% of a 401(k) early withdrawal for taxes Internal Revenue Service. 401(k) Resource Guide - Plan Participants - General Distribution Rules. Accessed Nov 14, 2025. . So, if you withdraw $10,000 from your 401(k) at age 40, you may get only about $8,000.The IRS will penalize you. If you withdraw money from your 401(k) before you’re 59 ½, the IRS usually assesses a 10% penalty when you file your tax return
The IRS will penalize you. If you withdraw money from your 401(k) before you’re 59 ½, the IRS usually assesses a 10% penalty when you file your tax return Internal Revenue Service. Topic No. 558, Additional Tax on Early Distributions From Retirement Plans Other Than IRAs. Accessed Nov 14, 2025. . That could mean giving the government an additional $1,000 of that $10,000 withdrawal.You will have less money for retirement, especially if the market is down when you start making withdrawals. That could have long-term consequences.
You will have less money for retirement, especially if the market is down when you start making withdrawals. That could have long-term consequences.There are exceptions to the IRS’ penalty for early withdrawals from a traditional 401(k) if you:
There are exceptions to the IRS’ penalty for early withdrawals from a traditional 401(k) if you:Receive the payout over time.
Receive the payout over time.Qualify for a hardship distribution with the plan administrator.
Qualify for a hardship distribution with the plan administrator.Leave your job and are over a certain age.
Leave your job and are over a certain age.Are a survivor of domestic abuse.
Are a survivor of domestic abuse.Are getting divorced.
Are getting divorced.Give birth to a child or adopt a child.
Give birth to a child or adopt a child.Are or become disabled.
Are or become disabled.Put the money in another retirement account.
Put the money in another retirement account.Use the money to pay an IRS levy.
Use the money to pay an IRS levy.Use the money to pay certain medical expenses.
Use the money to pay certain medical expenses.Were a victim of a disaster.
Were a victim of a disaster.Overcontributed to your 401(k).
Overcontributed to your 401(k).Were in the military.
Were in the military.Are terminally ill.
Are terminally ill.Die.
Die.Finally, a provision in the Secure 2.0 Act allows special emergency 401(k) distributions of up to $1,000 per year without the 10% penalty
Finally, a provision in the Secure 2.0 Act allows special emergency 401(k) distributions of up to $1,000 per year without the 10% penalty IRS.gov. Certain Exceptions to the 10 Percent Additional Tax Under Code Section 72(t) Notice 2024-55. Accessed Nov 14, 2025. . The taxpayer can pay the $1,000 back over a three-year period, and no other distributions can be made in that three-year period until the money is repaid.» Dive deeper: How 401(k) withdrawals and penalties work
» Dive deeper: » Dive deeper: How 401(k) withdrawals and penalties work AD Owe $10,000+ or More? This Tax Season Could Be Your Chance to Qualify Each year the IRS writes off millions in tax debt, yet few have applied. Learn moreon Anthem Tax Services' website
AD Let’s resolve your tax issues: Tax Relief & Resolution Services for IRS Tax Debt Certified Enrolled Agents, CPAs, and Tax Attorneys on your case. Learn moreon TaxRise's website
Traditional vs. Roth 401(k) taxes
Traditional vs. Roth 401(k) taxesThe main difference between a traditional 401(k) and a Roth 401(k) is tax treatment. Contributions to a traditional 401(k) are made with pre-tax income; contributions to a Roth 401(k) are made with post-tax income. This means that contributions to a Roth 401(k) won’t lower your taxable income. However, because you paid taxes on the money before it went into your account, you can withdraw the contributions tax-free later.
The main difference between a traditional 401(k) and a Roth 401(k) is tax treatment. Contributions to a traditional 401(k) are made with pre-tax income; contributions to a Roth 401(k) are made with post-tax income. This means that contributions to a Roth 401(k) won’t lower your taxable income. However, because you paid taxes on the money before it went into your account, you can withdraw the contributions tax-free later.» Learn more about Roth 401(k)s vs. traditional 401(k)s
» Learn more » Learn more about Roth 401(k)s vs. traditional 401(k)sWhat else should I know about Roth 401(k) taxes?
What else should I know about Roth 401(k) taxes?You can begin withdrawing money from a Roth 401(k) without penalty once you’ve held the account for at least five years and you’re at least 59 ½.
You can begin withdrawing money from a Roth 401(k) without penalty once you’ve held the account for at least five years and you’re at least 59 ½.You can withdraw contributions from a Roth 401(k) early if you’ve held the account for at least five years and need the money due to disability or death.
You can withdraw contributions from a Roth 401(k) early if you’ve held the account for at least five years and need the money due to disability or death.Roth 401(k)s no longer require taking RMDs as of January 2024.
Roth 401(k)s no longer require taking RMDs as of January 2024.A Roth 401(k) might be something to consider if you think you'll be in a higher tax bracket once you reach retirement age.
A Roth 401(k) might be something to consider if you think you'll be in a higher tax bracket once you reach retirement age.» MORE: See our picks for the best financial advisors
» MORE: See our picks for the best financial advisors » MORE: See our picks for the best financial advisorsRoth 401(k)
Roth 401(k)
Roth 401(k)Traditional 401(k)
Traditional 401(k)
Traditional 401(k)Contribution limits
Contribution limitsThe 401(k) contribution limit applies to both accounts.
The 401(k) contribution limit applies to both accounts.You can contribute to both accounts in the same year, as long as you keep your total contributions under the cap. You can contribute
You can contribute to both accounts in the same year, as long as you keep your total contributions under the cap. You can contribute $24,500 in 2026. People aged 50 and older can contribute an extra $8,000 as a catch-up contribution. Due to the Secure 2.0 Act, those aged 60, 61, 62 and 63 get a higher catch-up contribution of $11,250. $24,500 in 2026. People aged 50 and older can contribute an extra $8,000 as a catch-up contribution. Due to the Secure 2.0 Act, those aged 60, 61, 62 and 63 get a higher catch-up contribution of $11,250. .Tax treatment of contributions
Tax treatment of contributionsContributions are made after taxes, with no effect on current adjusted gross income. Employer matching dollars must go into a pretax account and are taxed when distributed.
Contributions are made after taxes, with no effect on current adjusted gross income. Employer matching dollars must go into a pretax account and are taxed when distributed.Contributions are made pretax, which reduces your current adjusted gross income.
Contributions are made pretax, which reduces your current adjusted gross income.Tax treatment of withdrawals
Tax treatment of withdrawalsNo taxes on qualified distributions in retirement.
No taxes on qualified distributions in retirement.Distributions in retirement are taxed as ordinary income.
Distributions in retirement are taxed as ordinary income.Withdrawal rules
Withdrawal rulesWithdrawals of contributions and earnings are not taxed as long as the distribution is considered qualified by the IRS: The account has been held for five years or more and the distribution is:
Withdrawals of contributions and earnings are not taxed as long as the distribution is considered qualified by the IRS: The account has been held for five years or more and the distribution is:Due to disability or death.
Due to disability or death.On or after age 59 ½.
On or after age 59 ½.Unlike a Roth IRA, you cannot withdraw contributions any time you choose.
Unlike a Roth IRA, you cannot withdraw contributions any time you choose.Withdrawals of contributions and earnings are taxed. Distributions may be penalized if taken before age 59 ½, unless you meet one of the IRS exceptions.
Withdrawals of contributions and earnings are taxed. Distributions may be penalized if taken before age 59 ½, unless you meet one of the IRS exceptions.7 ways to reduce your 401(k) taxes
7 ways to reduce your 401(k) taxesWait to withdraw. If you can, consider staying out of your 401(k) account. Withdrawals, especially early ones, can trigger taxes and penalties.
Wait to withdraw. Wait to withdraw. If you can, consider staying out of your 401(k) account. Withdrawals, especially early ones, can trigger taxes and penalties.Look for exceptions. If you must make an early withdrawal from a 401(k), see if you qualify for an exception that will help you avoid paying an early withdrawal penalty.
Look for exceptions. Look for exceptions. If you must make an early withdrawal from a 401(k), see if you qualify for an exception that will help you avoid paying an early withdrawal penalty.Consider credits. See if you qualify for the saver’s credit on your contributions.
Consider credits Consider credits . See if you qualify for the saver’s credit on your contributions.Know the rules about 401(k) rollovers. Rolling a 401(k) account into another 401(k), or into an IRA, usually won’t trigger taxes — if you get the money into the new account within 60 days of when you withdraw the money. Otherwise, the IRS might consider the move a distribution, triggering taxes and maybe even a penalty.
Know the rules about 401(k) rollovers. Know the rules about 401(k) rollovers. Rolling a 401(k) account into another 401(k), or into an IRA , usually won’t trigger taxes — if you get the money into the new account within 60 days of when you withdraw the money. Otherwise, the IRS might consider the move a distribution, triggering taxes and maybe even a penalty.Weigh taking a 401(k) loan vs. a withdrawal. In most circumstances, you’ll need to repay the loan within three to five years and make regular payments. And not all 401(k) plans offer loans. Check with your plan administrator for the rules.
Weigh taking a 401(k) loan vs. a withdrawal. Weigh taking a 401(k) loan vs. a withdrawal. In most circumstances, you’ll need to repay the loan within three to five years and make regular payments. And not all 401(k) plans offer loans. Check with your plan administrator for the rules.Explore tax-loss harvesting. You might be able to offset the taxes on your 401(k) withdrawal by selling underperforming securities at a loss in another investment account you might have. Those losses can offset some or all of the taxes on your 401(k) withdrawal through a strategy called tax-loss harvesting.
Explore tax-loss harvesting. Explore tax-loss harvesting. You might be able to offset the taxes on your 401(k) withdrawal by selling underperforming securities at a loss in another investment account you might have. Those losses can offset some or all of the taxes on your 401(k) withdrawal through a strategy called tax-loss harvesting .See a tax professional. There are other ways to minimize your 401(k) taxes, too. A qualified tax pro can discuss your options with you.
See a tax professional. See a tax professional. There are other ways to minimize your 401(k) taxes, too. A qualified tax pro can discuss your options with you.Helpful resources
Helpful resources Best Financial Advisors Search for a Financial Advisor Near You How to Choose a Financial Advisor in 5 Steps 3 Best Wealth Management Services More like this Taxes How Much Does a Financial Advisor Cost? Most financial advisors charge based on how much money they manage for you. Fees are typically 1% a year but can be lower. 2 By Andrea Coombes, Taryn Phaneuf Do You Need a Financial Advisor? 7 Ways to Tell You may need a financial advisor if you're facing big life changes, don't have financial goals, have complex compensation, high tax bills or for other reasons. Taryn Phaneuf How to Find Cheap or Free Financial Advice Quality financial advice is more accessible than ever — and much of it is free or inexpensive. Here's how to get it. Anna-Louise Jackson Retirement Calculator Are you on track to save enough for retirement? Use our calculator to check your progress, see how much retirement income you'll have and estimate how much more you should save. 2 By June Sham, Alana Benson Get started Get startedon Anthem Tax Services's website
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