How Is a 401(k) Withdrawal Taxed?

Research. Education. Perspective.

There is no single federal 401(k) withdrawal tax rate.

The tax result depends on what kind of money is being distributed, how old the participant is, why the distribution is being made, whether an exception applies, and whether the money is received personally or moved through a rollover.

A 401(k) payment can involve three separate federal tax questions:

1. How much of the distribution is included in taxable income?
2. How much federal income tax is withheld when the payment is made?
3. Does the separate 10% additional tax on early distributions apply?

Those are different calculations.

A participant can have 20% withheld but ultimately owe more or less than 20%.

A participant can avoid the 10% additional tax but still owe ordinary income tax.

A participant can receive a distribution containing both taxable and nontaxable dollars.

Understanding those distinctions is the foundation for understanding 401(k) withdrawal taxation.

Key Takeaways

• Traditional pre-tax 401(k) distributions are generally included in federal taxable income when distributed.^[1][2]
• The taxable amount is generally taxed as ordinary income, not automatically at a special 20% retirement-account tax rate.^[1][10]
• Employee after-tax contributions generally represent basis and are not taxed again when returned; associated earnings are generally pre-tax.^[1][8]
• When a plan account contains both pre-tax and after-tax money, a distribution generally contains a proportional share of each, subject to special rollover-allocation rules.^[8]
• Qualified designated Roth 401(k) distributions can be federally tax-free when the five-taxable-year requirement and a qualifying event are satisfied.^[6][7]
• Nonqualified Roth 401(k) distributions generally contain a pro-rata share of basis and earnings; basis is not included in income and the earnings portion generally is.^[6]
• A taxable distribution before age 59½ can face a separate 10% additional tax unless an exception applies.^[4][5]
• The 10% additional tax generally applies only to the portion of the distribution included in gross income.^[4]
• An eligible rollover distribution paid to the participant is generally subject to 20% mandatory federal withholding on the taxable portion.^[3][12]
• A direct rollover to an eligible retirement plan or IRA generally avoids current income inclusion and mandatory 20% withholding.^[3][9]
• Withholding is a tax prepayment. It is not the final tax calculation.
• Required minimum distributions, hardship distributions and substantially equal periodic payments are among distributions that generally are not eligible rollover distributions.^[3]
• Employer stock can have specialized net unrealized appreciation treatment that should be evaluated before a rollover.^[9][10][11]

The Three-Tax-Question Framework

When analyzing a 401(k) withdrawal, start with three independent questions.

The same withdrawal can produce three different numbers.

That is why phrases such as:

"My 401(k) is taxed at 20%"

are often inaccurate.

Traditional Pre-Tax 401(k) Withdrawals

Traditional employee elective deferrals are generally not included in federal taxable income when contributed.

Investment earnings also generally remain tax-deferred while inside the plan.

The tax is generally deferred until distribution.^[1][2]

If the account consists entirely of:

• pre-tax employee contributions
• pre-tax employer contributions
• tax-deferred investment earnings

then a cash distribution will generally be fully included in ordinary income unless it is properly rolled over or another special rule applies.

Example

Assume a retired participant withdraws:

$50,000

from a traditional 401(k) containing only pre-tax money.

If no rollover or specialized tax treatment applies, the participant generally has:

$50,000 of gross taxable retirement-plan distribution income

for federal purposes.

That does not mean the final federal income tax is $10,000 or 20%.

The distribution becomes part of the participant's broader federal income-tax calculation.

401(k) Withdrawals Are Generally Ordinary Income

Traditional pre-tax 401(k) distributions are generally taxed through the ordinary income-tax system.

They are not normally taxed at the long-term capital-gains rate merely because investments inside the plan appreciated.

This distinction matters.

Suppose a participant bought a stock fund inside the 401(k) and its value doubled.

The plan does not normally track a capital-gain holding period for purposes of taxing the eventual ordinary 401(k) cash distribution.

The tax treatment generally follows the retirement-plan distribution rules.

A specialized exception can apply to qualifying employer securities under the net unrealized appreciation rules, discussed later.

Your Tax Bracket Is Not Necessarily the Rate on the Whole Withdrawal

Federal income tax is progressive.

Adding a 401(k) distribution to income can cause portions of taxable income to fall into different marginal tax brackets.

A $100,000 withdrawal therefore should not be analyzed by multiplying the entire amount by the participant's highest marginal bracket and calling that the definitive tax.

The actual calculation depends on items such as:

• filing status
• other income
• deductions
• taxable Social Security benefits
• capital gains
• credits
• other tax provisions

A distribution can also affect income-based calculations outside the basic income-tax table.

Taxable Amount Is Not the Same as Cash Received

Suppose:

• gross distribution: $50,000
• federal withholding: $10,000
• cash sent to participant: $40,000

The tax return does not generally begin with the $40,000 cash amount.

It begins with the gross distribution and taxable amount reported under the applicable rules.

The $10,000 withheld is generally treated as a federal tax payment.

That distinction is central.

What Does the 20% Withholding Rule Mean?

IRS guidance states that when an eligible rollover distribution from an employer retirement plan is paid to the participant rather than directly rolled over, the taxable amount is generally subject to:

20% mandatory federal income-tax withholding.^[3][12]

The participant generally cannot simply elect zero withholding on that eligible rollover distribution.

But the 20% is not a special 401(k) tax rate.

It is withholding.

Example: $50,000 Eligible Rollover Distribution Paid in Cash

Assume:

• participant receives an eligible rollover distribution
• taxable distribution: $50,000
• no direct rollover

Mandatory withholding:

$50,000 × 20% = $10,000

Cash received:

$40,000

The participant still reports the distribution according to the federal tax rules.

The $10,000 becomes federal tax withheld.

If the participant's final federal liability associated with total income is lower, some withholding can potentially contribute to a refund.

If the liability is higher, additional tax can be due.

20% Withholding Does Not Apply to Every 401(k) Distribution

The 20% mandatory rule is tied to eligible rollover distributions.

IRS rollover guidance identifies several payments that generally are not eligible rollover distributions, including:^[3]

• required minimum distributions
• certain loan distributions
• hardship distributions
• corrective distributions of excess contributions and earnings
• substantially equal periodic payments
• certain automatic-enrollment withdrawals
• certain other excluded payments

Those payments follow their applicable tax and withholding rules rather than automatically being treated as ordinary eligible rollover distributions.

The important principle is:

First classify the payment. Then determine the withholding rule.

Direct Rollover vs. Cash Distribution

A direct rollover changes the tax mechanics.

Direct rollover

Eligible retirement-plan money moves directly to:

• another eligible employer retirement plan, or
• an IRA

that can accept the rollover.

IRS guidance generally provides that a direct rollover avoids current federal income-tax withholding on the rolled amount.^[3][9]

Cash distribution

The plan pays the participant.

An eligible rollover distribution generally triggers mandatory 20% withholding on the taxable portion.^[3][12]

If the participant later wants to complete a 60-day rollover of the entire gross amount, the withheld amount can create a funding problem.

Example: Withholding and a 60-Day Rollover

Assume an eligible rollover distribution of:

$10,000

is paid to a participant.

The plan withholds:

$2,000

The participant receives:

$8,000

If the participant rolls over only the $8,000:

• $8,000 can qualify as rollover money
• the unrolled $2,000 can become taxable
• the $2,000 can also face the 10% additional tax if the participant is under 59½ and no exception applies
• the $2,000 withheld is still credited as federal tax paid^[3]

If the participant wants to roll over the entire $10,000, the participant generally must replace the $2,000 withholding from another source within the applicable rollover period.^[3]

This is why direct rollovers often have cleaner tax mechanics.

What Is the 10% Additional Tax?

Federal law generally imposes an additional:

10% tax

on the taxable portion of certain early distributions from qualified retirement plans before age:

59½.^[4][5]

The 10% tax is in addition to ordinary income tax.

It is not a substitute for ordinary income tax.

Example: Early Traditional 401(k) Withdrawal

Assume:

• age: 45
• taxable traditional 401(k) distribution: $30,000
• no exception applies

Potential additional tax:

$30,000 × 10% = $3,000

The $30,000 can also be included in ordinary taxable income.

The total tax cost is therefore not simply 10%.

Exceptions Can Remove the Additional Tax

Federal law provides numerous exceptions to the 10% additional tax.^[4][5]

Examples can include qualifying distributions involving:

• separation from service under the Rule of 55
• substantially equal periodic payments
• death
• disability
• certain qualified domestic relations orders
• specified medical expenses
• IRS levies
• qualified reservist distributions
• certain birth or adoption distributions
• certain emergency personal expenses
• domestic abuse
• terminal illness

Each exception has its own requirements.

An exception to the 10% tax does not necessarily exclude the distribution from ordinary taxable income.

Rule of 55 Example

Assume:

• participant separates from the employer during the calendar year age 55 is reached
• distribution comes from that employer's qualifying 401(k)
• taxable pre-tax distribution: $40,000
• Rule of 55 requirements are satisfied

The distribution can still be included in ordinary income.

But the separate:

$4,000 potential 10% additional tax

can be avoided under the applicable exception.^[4][5]

The dedicated ROIStreet Rule of 55 article explains the employer and calendar-year tests in detail.

SEPP Example

A valid series of substantially equal periodic payments under Section 72(t) can also provide an exception to the 10% additional tax before age 59½.^[4][5]

The payments can still be taxable income.

And unlike the Rule of 55, a SEPP involves a prescribed payment series that generally must continue until the later of:

• age 59½
• the fifth anniversary of the first payment

The separate ROIStreet SEPP article covers those restrictions.

Hardship Withdrawals

A hardship distribution is a plan distribution made under the plan's hardship provisions.

It is generally:

• taxable to the extent it contains pre-tax amounts
• not an eligible rollover distribution
• potentially subject to the 10% additional tax if the participant is under 59½ and no separate exception applies^[2][3][4]

The fact that the plan approved a financial hardship does not automatically create an exception to the additional tax.

Plan hardship eligibility and tax-penalty eligibility are separate questions.

Required Minimum Distributions

An RMD is generally taxable to the extent it consists of pre-tax retirement money.^[1][10]

But an RMD generally cannot be rolled over.^[3]

That means a participant who has an RMD obligation cannot simply:

1. take the RMD
2. deposit the same amount into an IRA
3. characterize the transaction as a rollover

The RMD amount must first be distributed under the applicable rules.

How Are Roth 401(k) Withdrawals Taxed?

A designated Roth 401(k) is different because employee Roth contributions are made with after-tax dollars.

That creates basis in the Roth account.

The tax result depends heavily on whether the distribution is:

• qualified, or
• nonqualified.^[6][7]

Qualified Roth 401(k) Distributions

IRS guidance generally treats a designated Roth distribution as qualified when:

1. the applicable five-taxable-year participation period has been satisfied, and 2. the distribution is made after: - age 59½, - disability, or - death to a beneficiary.^[6][7]

A qualified distribution is generally federally tax-free.

That includes both:

• Roth contribution basis
• qualified earnings

The Roth Five-Year Rule Is Not Simply “Five Years Since This Contribution”

The designated Roth five-year period is measured under plan-specific federal rules.

It generally begins with the first taxable year for which the participant made a designated Roth contribution to that plan, subject to rollover coordination rules.

It should not be assumed that every Roth contribution creates a separate five-year clock.

The dedicated Roth 401(k) article explains the qualification rules in more detail.

Nonqualified Roth 401(k) Distributions

A Roth 401(k) distribution that does not satisfy the qualified-distribution requirements is not automatically fully taxable.

IRS guidance states that a nonqualified designated Roth distribution is generally treated as coming pro rata from:

• basis
• earnings^[6]

The basis portion is not included in income.

The earnings portion generally is included in income.

IRS Roth Example

The IRS provides an example in which a designated Roth account contains:

• Roth contributions: $9,400
• earnings: $600
• total account: $10,000

A nonqualified distribution is:

$5,000

Because 94% of the account is contribution basis and 6% is earnings, the distribution contains:

• basis: $4,700
• earnings: $300

The $4,700 basis is not included in gross income.

The $300 earnings portion is included in gross income.^[6]

If the participant is under 59½, the taxable earnings portion can also face the 10% additional tax unless an exception applies.^[6]

Traditional vs. Roth 401(k) Withdrawal Taxation

Tax treatment and investment performance are separate.

A Roth 401(k) can lose money even when a qualified distribution is tax-free.

What If the 401(k) Contains After-Tax Contributions?

Some plans allow voluntary employee contributions that are:

• after-tax
• not designated Roth contributions

These amounts are different from Roth elective deferrals.

The employee already included the contribution amount in taxable income when earned.

That amount therefore creates basis that generally should not be taxed again when returned.^[1][8]

The investment earnings associated with those after-tax contributions are generally pre-tax amounts.

Mixed Pre-Tax and After-Tax Distribution

IRS guidance provides a simple example.^[8]

Assume a plan balance of:

$100,000

consisting of:

• pre-tax amount: $80,000
• after-tax basis: $20,000

The participant takes a:

$50,000

distribution.

The distribution generally consists of:

• pre-tax: $40,000
• after-tax basis: $10,000

The $40,000 is generally taxable if paid as a cash distribution and not rolled over.

The $10,000 represents return of after-tax basis and generally is not taxed again.

After-Tax Basis Is Not a Roth Account

A voluntary after-tax 401(k) contribution and a designated Roth contribution are both funded with money that has already been subject to federal income tax.

But they follow different tax structures.

Designated Roth

Qualified earnings can eventually be distributed tax-free.

Voluntary after-tax contribution

The contribution basis is after-tax, but associated earnings are generally pre-tax unless moved into Roth status through a qualifying transaction.

The labels should not be treated as interchangeable.

Splitting Pre-Tax and After-Tax Rollover Destinations

IRS guidance under Notice 2014-54 allows a qualifying distribution containing both pre-tax and after-tax amounts to be directed to multiple destinations as one distribution.^[8]

For example, a participant can potentially direct:

• pre-tax portion → traditional IRA or eligible pre-tax plan
• after-tax portion → Roth IRA

when structured correctly.

That can preserve tax treatment without requiring the participant to receive the entire distribution personally.

This is one of the mechanics underlying some advanced Roth conversion strategies.

Cash-Out After Leaving a Job

A worker leaving an employer can often choose among:

• leaving the vested account in the former plan, if permitted
• rolling to a new employer plan, if accepted
• rolling to an IRA
• taking a cash distribution

A cash-out can accelerate tax.

Example

Assume a former employee has:

$100,000

in a fully pre-tax 401(k).

A direct rollover can generally preserve tax deferral.

A cash distribution can instead create:

• $100,000 of current gross distribution income
• mandatory withholding if it is an eligible rollover distribution
• potential 10% additional tax if the participant is under 59½ and no exception applies

That is why a rollover decision is partly a tax-timing decision.

What About a 401(k) Loan?

A properly administered 401(k) loan is not ordinarily taxed as a distribution when made.

But tax consequences can arise if the loan fails to comply with repayment rules or the plan offsets the participant's account.^[9][10]

Two concepts matter.

Deemed distribution

A loan can become a taxable deemed distribution when loan rules are violated.

Plan loan offset

The plan can reduce the participant's account balance by the unpaid loan amount.

The offset is treated as a distribution even though the participant does not receive that amount in cash.^[9]

Qualified Plan Loan Offset

If a plan loan in good standing is offset because:

• the employer plan terminates, or
• the participant separates from service

the offset can qualify for an extended rollover deadline.^[9]

Current IRS guidance generally allows the participant until the federal income-tax return due date, including extensions, for the tax year of the offset to complete the rollover using other funds.^[9]

Any taxable offset amount that is not rolled over can face:

• ordinary income tax
• possible 10% additional tax if no exception applies

This is why leaving a job with an outstanding plan loan can create a tax issue even when no check for the loan balance is received.

Employer Stock and Net Unrealized Appreciation

Employer stock held in a qualified plan can create one of the most specialized exceptions to ordinary 401(k) distribution taxation.

Under qualifying circumstances, net unrealized appreciation, or NUA, in employer securities distributed from the plan can be deferred when the stock is distributed and later taxed at capital-gain rates when sold.^[9][10][11]

NUA generally refers to the increase in the employer stock's value while held in the plan.

This can produce very different tax treatment from:

sell employer stock in the plan → roll proceeds to IRA → later withdraw cash

Why Rolling Employer Stock Can Matter

IRS Notice 2026-13 explains that if qualifying employer stock is rolled into an IRA or another employer plan, the special distributed-stock NUA treatment generally will not apply to later payments from that destination.^[9]

That does not mean NUA is automatically better than a rollover.

NUA analysis can depend on:

• stock cost basis
• amount of appreciation
• participant age
• concentration risk
• current and future tax rates
• distribution requirements
• diversification needs
• timing

But employer stock is one area where a rollover should not be treated as a purely administrative decision.

Traditional 401(k) Tax Example With Withholding and Additional Tax

Assume:

• age: 45
• fully pre-tax eligible rollover distribution: $50,000
• participant receives cash
• no exception to the 10% additional tax applies

Step 1: Taxable income

Potential taxable amount:

$50,000

Step 2: Mandatory withholding

20% × $50,000 = $10,000

Cash received:

$40,000

Step 3: Potential additional tax

10% × $50,000 = $5,000

The $5,000 additional tax is separate from ordinary income tax.

The $10,000 already withheld is a payment toward the participant's total federal tax liability.

The final return can show:

• more tax due
• no additional amount due
• or a refund

depending on the taxpayer's entire return.

Mixed-Basis Example

Assume the same $50,000 distribution instead comes from the IRS-style account containing:

• 80% pre-tax
• 20% after-tax basis

Distribution composition:

• taxable pre-tax amount: $40,000
• nontaxable basis: $10,000

If the taxable amount is an eligible rollover distribution paid to the participant, the 20% withholding framework applies to the applicable taxable portion under the withholding rules.^[8][12]

If the participant is under 59½ and no exception applies, the 10% additional tax generally applies to the amount included in gross income rather than the returned basis.^[4]

Qualified Roth Example

Assume:

• Roth 401(k) has satisfied its five-taxable-year requirement
• participant is age 62
• distribution: $50,000

If the distribution is qualified:

• contribution basis: tax-free
• earnings: tax-free
• 10% additional tax: not applicable because the distribution is not an early taxable distribution

The tax result differs materially from the same dollar distribution from a traditional pre-tax 401(k).

Nonqualified Roth Example

Assume:

• participant under age 59½
• Roth 401(k) distribution: $10,000
• account is 80% contribution basis and 20% earnings
• distribution is not qualified

Conceptually:

• basis: $8,000
• earnings: $2,000

The $8,000 basis generally is not included in gross income.

The $2,000 earnings generally is included.

The 10% additional tax can potentially apply to the taxable $2,000 if no exception applies.^[4][6]

Federal Withholding vs. Final Tax

A useful reconciliation looks like this:

Gross distribution

What left the 401(k).

Taxable amount

What federal law includes in income.

Federal withholding

What the payer sent to the IRS as a tax prepayment.

Additional tax

Any separate tax such as the 10% early-distribution tax.

Final tax liability

What the tax return determines after combining all income, deductions, credits, withholding and other tax rules.

These amounts can be very different.

Form 1099-R

A 401(k) payer generally reports distributions on:

Form 1099-R.^[12]

Important fields can include:

• gross distribution
• taxable amount
• federal income tax withheld
• distribution code
• employee contributions or designated Roth contributions where applicable
• net unrealized appreciation where applicable

The form is an essential tax record.

A participant should compare it with:

• plan statements
• rollover confirmations
• withholding records
• basis records

rather than treating the cash deposited into a bank account as the only relevant figure.

Distribution Codes Matter, but They Are Not the Whole Tax Analysis

Form 1099-R uses distribution codes to describe the payer's reporting treatment.

Those codes can help identify issues such as:

• normal distribution
• early distribution
• rollover
• Roth treatment
• death
• disability

But a taxpayer can sometimes have an exception to the 10% additional tax that is not fully reflected by the payer's code.

Form 5329 can be used to report certain additional taxes and exceptions.^[5]

The underlying facts still control.

State Taxes Are a Separate Layer

This article focuses on federal tax treatment.

States can differ in how they tax:

• retirement-plan distributions
• pension income
• Roth distributions
• early withdrawals

Some states provide retirement-income exclusions or have no individual income tax.

Others generally tax retirement distributions.

A federal tax exception therefore should not be assumed to produce the same state result.

Tax Effects Beyond the Withdrawal Itself

A large taxable 401(k) distribution increases federal adjusted gross income.

That can potentially affect other tax or income-based items.

Depending on the taxpayer, those can include:

• taxation of Social Security benefits
• deductions and credits with income limits
• Medicare income-related premium calculations in later periods
• taxation of investment income through other provisions
• state income taxes

The direct tax on the distribution is therefore not always the only household consequence.

A 401(k) Withdrawal Tax Checklist

1. Identify the source

Is the money:

• traditional pre-tax
• Roth
• voluntary after-tax basis
• employer stock
• a combination

2. Identify the transaction

Is it:

• direct rollover
• cash withdrawal
• hardship distribution
• RMD
• plan-loan offset
• installment payment
• lump sum

3. Calculate the taxable amount

Do not assume gross distribution equals taxable distribution.

4. Determine whether the payment is rollover-eligible

This affects both tax deferral and withholding.

5. Check age and early-distribution status

Is the participant under 59½?

6. Test the exceptions

Examples include:

• Rule of 55
• SEPP
• disability
• death
• other statutory exceptions

7. Determine withholding

Do not assume 20% merely because the payment came from a 401(k).

8. Review basis records

This is especially important for:

• voluntary after-tax contributions
• designated Roth accounts

9. Review employer stock before rolling it over

NUA treatment can be affected by the transaction structure.

10. Reconcile Form 1099-R

Confirm:

• gross amount
• taxable amount
• withholding
• distribution code
• basis information

11. Estimate the full-year tax impact

A large distribution can change the tax picture beyond the retirement-plan line item.

Common 401(k) Withdrawal Tax Mistakes

Assuming the tax is 20%

Twenty percent is generally a withholding rule for certain eligible rollover distributions paid to the participant.

It is not a universal tax rate.

Forgetting ordinary income tax when an exception applies

The Rule of 55 can eliminate the 10% additional tax without making the traditional 401(k) distribution tax-free.

Calling the 10% tax a withholding

The additional tax is a tax liability.

It is not the same thing as ordinary federal withholding.

Assuming Roth means every withdrawal is tax-free

Nonqualified designated Roth distributions can contain taxable earnings.

Ignoring after-tax basis

Money already taxed when contributed should not simply be treated as fully pre-tax when distributed.

Taking a check instead of a direct rollover

An eligible rollover distribution paid personally can trigger mandatory withholding and create a 60-day rollover funding issue.

Trying to roll over an RMD

RMDs generally are not eligible rollover distributions.

Assuming hardship means penalty-free

Hardship eligibility under the plan does not itself create a blanket federal 10% additional-tax exception.

Ignoring a plan loan after leaving a job

A plan-loan offset can create taxable distribution consequences.

Automatically rolling employer stock to an IRA

That can eliminate potential NUA treatment on the distributed stock.

Frequently Asked Questions

Are 401(k) withdrawals taxed as ordinary income?

Traditional pre-tax 401(k) distributions generally are included in ordinary federal income when distributed, unless properly rolled over or subject to another applicable rule.^[1][2]

Is every 401(k) withdrawal taxed at 20%?

No. The 20% rule is generally mandatory withholding on the taxable portion of an eligible rollover distribution paid to the participant. It is not the participant's final federal tax rate.^[3][12]

What is the 10% early-withdrawal tax?

It is a separate additional federal tax that generally applies to the taxable portion of certain retirement-plan distributions before age 59½ unless an exception applies.^[4][5]

If I qualify for the Rule of 55, is my withdrawal tax-free?

No. The Rule of 55 can remove the 10% additional tax from a qualifying distribution, but a traditional pre-tax distribution generally remains ordinary taxable income.^[4][5]

Are Roth 401(k) withdrawals tax-free?

Qualified designated Roth distributions generally are. A distribution typically must satisfy the five-taxable-year requirement and occur after age 59½, disability or death.^[6][7]

What happens if my Roth 401(k) distribution is not qualified?

The distribution generally contains a proportional share of contribution basis and earnings. Basis is not included in gross income; earnings generally are.^[6]

Are after-tax 401(k) contributions taxed again when withdrawn?

The contribution basis generally is not taxed again. A mixed account distribution generally contains a proportional share of pre-tax and after-tax amounts, subject to applicable rollover-allocation rules.^[8]

Can I avoid tax by rolling my 401(k) to an IRA?

A proper rollover generally preserves tax deferral; it does not permanently eliminate tax on pre-tax retirement money. Later taxable IRA distributions generally remain subject to applicable income-tax rules.^[3]

Does a direct rollover have 20% withholding?

Generally no. IRS guidance states that mandatory withholding does not apply when an eligible amount is directly rolled over to another retirement plan or IRA.^[3][12]

Is a hardship withdrawal subject to tax?

Generally yes to the extent it contains pre-tax amounts. A hardship distribution also generally cannot be rolled over and can face the 10% additional tax if the participant is under 59½ and no exception applies.^[2][3][4]

Is an RMD taxable?

Generally yes to the extent it contains pre-tax retirement money. An RMD generally cannot be rolled over.^[1][3]

Can a 401(k) loan become taxable?

Yes. A loan can become a deemed distribution or plan-loan offset under applicable circumstances. A qualified plan loan offset after separation can have an extended rollover period.^[9][10]

What is NUA?

Net unrealized appreciation is the increase in value of qualifying employer securities while held in the plan. Under specialized rules, qualifying distributed employer stock can receive deferred taxation on the NUA until sale, when the NUA is generally taxed under capital-gain rules.^[9][10][11]

The Bottom Line

A 401(k) withdrawal does not have one tax rate.

The federal result is built from separate questions.

First: how much is taxable?

• traditional pre-tax money: generally taxable
• returned after-tax basis: generally not taxed again
• qualified Roth distribution: generally tax-free
• nonqualified Roth distribution: basis generally tax-free, earnings potentially taxable

Second: how much is withheld?

An eligible rollover distribution paid to the participant is generally subject to 20% mandatory withholding on the taxable portion.

A direct rollover generally avoids that withholding.

Third: does the 10% additional tax apply?

If a taxable distribution occurs before age 59½, the additional tax can apply unless an exception is available.

The Rule of 55 and SEPPs are examples of exceptions.

They do not automatically erase ordinary income tax.

The most useful question is therefore not:

"What percentage tax will I pay on my 401(k) withdrawal?"

It is:

"What type of 401(k) money is being distributed, how much of it is taxable, is the payment eligible for rollover, what will be withheld, and does an early-distribution exception apply?"

Those questions produce the actual tax analysis.

Sources & References

1. IRS: Retirement topics — Tax on normal distributions
2. IRS: 401(k) Resource Guide — General Distribution Rules
3. IRS: Rollovers of retirement plan and IRA distributions
4. IRS: Topic no. 558 — Additional tax on early distributions from retirement plans other than IRAs
5. IRS: Retirement topics — Exceptions to tax on early distributions
6. IRS: Retirement plans FAQs on designated Roth accounts
7. IRS: Roth account in your retirement plan
8. IRS: Rollovers of after-tax contributions in retirement plans
9. IRS: Notice 2026-13 — Safe Harbor Explanations for Eligible Rollover Distributions
10. IRS: Publication 575 — Pension and Annuity Income
11. IRS: Topic no. 412 — Lump-sum distributions
12. IRS: Instructions for Forms 1099-R and 5498 (2026)

Educational Disclaimer

ROIStreet publishes educational content intended to help readers understand retirement-plan taxation. Nothing in this article is personalized investment, tax, legal or financial advice, or a recommendation to take a 401(k) withdrawal, complete a rollover, use an early-distribution exception, retain or distribute employer stock, or select a particular tax strategy. Federal and state tax results depend on the account, plan terms, age, distribution reason, basis, employment history, other income and individual circumstances.

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We strive to explain before we evaluate, present evidence before opinions, discuss risks alongside potential benefits, distinguish facts from analysis, and correct material errors transparently.

Our purpose is to help readers better understand investing—not to tell them what to do.