How Much Are Taxes on an IRA Withdrawal?

Search Fintrev

Search our guides, reviews and glossary.

Yes, most IRA withdrawals are taxed, but how much depends on the account type, your age and why you take the money. Withdrawals from a traditional IRA (including rollover, SEP, SIMPLE and SARSEP IRAs) are generally taxed as ordinary income at your federal and state income tax rates. If you are under 59½, you may also owe a 10% additional tax unless an exception applies. Qualified withdrawals from a Roth IRA are completely tax-free, and Roth contributions can come out at any age without tax or penalty. There is no single flat “IRA tax rate.” The withdrawal is added to your other income for the year and taxed at whatever bracket that income reaches.

What decides the tax on an IRA withdrawal

The IRS calls a withdrawal a distribution. Every IRA balance has two parts: contributions (the money you put in) and earnings (the growth on that money). Whether each part is taxed depends on how it went in.

Traditional IRA withdrawals: taxed as ordinary income

Contributions to a traditional IRA typically reduce taxable income in the year they are made, and growth is tax-deferred. The tax comes due when you withdraw. At that point, the deducted contributions and all earnings are taxed as ordinary income at your current rate. This holds even if the earnings came from stocks you held for decades. Long-term capital gains rates don’t apply to money coming out of a traditional IRA.

The same treatment applies to rollover IRAs (usually funded from a 401(k)), SEP IRAs, SIMPLE IRAs and SARSEP IRAs. One difference: withdrawals from a SIMPLE IRA within the first two years of participation can face a 25% additional tax instead of 10%.

Which part of a distribution is taxable

If every dollar in your traditional IRAs was deductible or pre-tax, the entire distribution is taxable. The exception is basis: nondeductible contributions you made with after-tax money. You already paid tax on that basis, so it comes back tax-free.

You can’t choose to withdraw only the basis. The IRS applies a pro-rata rule. Every distribution is treated as a proportional mix of basis and pre-tax money across all of your traditional, SEP and SIMPLE IRAs combined, valued at year-end. You track basis on Form 8606, which you file with your return in any year you make nondeductible contributions or take distributions with basis. Without those records, you may end up paying tax twice on the same money.

The taxable amount is reported on Form 1040 alongside the gross distribution. Your IRA custodian sends Form 1099-R showing what was paid out and what was withheld.

How your marginal rate applies

Federal income tax is progressive. Your income fills the brackets from the lowest up, and the IRA withdrawal is added on top of everything else. If your income before the withdrawal already sits in the 22% bracket, each withdrawn dollar is taxed at 22% until you cross into the next bracket, so a large withdrawal can push part of itself into a higher bracket.

Two side effects matter mostly in retirement:

• Social Security taxation. IRA distributions count toward the income measure that determines how much of your Social Security benefit is taxable. A withdrawal can therefore raise tax on your benefits as well.
• Medicare premiums. Higher income can trigger income-related surcharges on Medicare Part B and Part D premiums in a later year.

Because of the bracket structure, spreading withdrawals across several tax years often produces a lower total bill than taking one large lump sum.

The 10% early withdrawal penalty and its exceptions

Taxable withdrawals before age 59½ are generally subject to regular income tax plus a 10% additional tax on the taxable amount. The penalty applies only to the taxable portion, so basis and Roth contributions aren’t penalized.

Exceptions for IRAs include:

• Total and permanent disability
• Terminal illness
• Death of the account owner (distributions to beneficiaries)
• Qualified first-time home purchase, up to a $10,000 lifetime limit
• Qualified higher education expenses
• Unreimbursed medical expenses above the deductible threshold
• Health insurance premiums paid while unemployed
• Qualified birth or adoption expenses, up to a per-child limit
• Costs from a federally declared disaster
• Limited emergency personal expense withdrawals
• Distributions to victims of domestic abuse, within limits
• An IRS levy on the IRA
• Military reservists called to active duty
• A series of substantially equal periodic payments based on life expectancy (sometimes called 72(t) payments)

An exception removes the 10% additional tax but not the regular income tax. Each exception has its own limits and documentation rules. The lists also differ between IRAs and 401(k) plans. For example, the “separation from service at 55” exception applies to employer plans but not to IRAs. That matters if you rolled a 401(k) into an IRA before you needed the money.

You can also undo a contribution. A contribution withdrawn along with its earnings by the due date of that year’s tax return (including extensions) avoids the 10% penalty, provided you didn’t deduct it. The earnings portion is still taxable income.

Contributions above the annual limit trigger a separate 6% excise tax for every year the excess stays in the account. Removing the excess on time avoids it.

Roth IRA withdrawals

A Roth IRA is funded with after-tax money. A qualified distribution is tax-free and penalty-free, including all the earnings. To be qualified, both conditions must hold:

1. At least five years have passed since January 1 of the year you first contributed to any Roth IRA.
2. You are 59½ or older, disabled, a beneficiary after the owner’s death, or using up to $10,000 for a first-time home purchase.

For non-qualified withdrawals, the IRS applies ordering rules. Money comes out in this order: regular contributions first, then converted amounts, then earnings. Contributions are never taxed or penalized when withdrawn, because you already paid tax on them. Converted amounts are tax-free on withdrawal, but each conversion carries its own five-year clock for the 10% penalty if you are under 59½. Earnings are taxed as ordinary income in a non-qualified withdrawal and can face the 10% additional tax unless an exception applies.

Keep a record of your total contributions so you can show how much of a withdrawal came from contributions rather than earnings.

Roth IRAs have no required minimum distributions during the owner’s lifetime. Beneficiaries who inherit a Roth face their own distribution rules.

Moving money between IRAs

Moving funds from one traditional IRA to another, or from a 401(k) into a rollover IRA, is not a taxable withdrawal when done correctly.

• Trustee-to-trustee transfer (direct transfer). The money moves between institutions without you touching it. No tax, no withholding, and no limit on how often you do it.
• 60-day rollover. You receive the funds and redeposit them into an IRA within 60 days. You can do only one IRA-to-IRA rollover of this type in any 12-month period. A second one is treated as a taxable distribution and possibly a penalized one. Missing the 60-day window has the same result.

Moving money from a traditional IRA into a Roth IRA is a Roth conversion, and it is a different case. The pre-tax amount converted is taxed as ordinary income in the year of conversion. The 10% early withdrawal tax doesn’t apply to the conversion itself. The pro-rata rule applies here too if you hold any nondeductible basis.

Required minimum distributions

You can’t defer tax in a traditional IRA forever. RMDs force annual withdrawals starting at an age set by your birth date:

• Born before July 1, 1949: age 70½
• Born July 1, 1949, through December 31, 1950: age 72
• Born 1951 through 1959: age 73
• Born 1960 or later: age 75

Each RMD is calculated by dividing the prior year-end balance by a life expectancy factor from IRS tables. The full RMD is taxable as ordinary income, except for any basis.

Missing an RMD triggers a 25% excise tax on the shortfall. It drops to 10% if you correct it within the correction window.

If you are 70½ or older, a qualified charitable distribution (QCD) sent directly from your IRA to a qualifying charity, up to an annual limit, is excluded from taxable income and can count toward your RMD.

Withholding and estimated tax

Withholding is how you prepay the tax. It is not a separate charge. For nonperiodic IRA distributions, the custodian withholds 10% for federal income tax by default. You can choose a different percentage, or none, on Form W-4R. Periodic payments use Form W-4P. The default 10% is not tied to your bracket, and it doesn’t account for the 10% early withdrawal penalty. Someone in the 22% bracket who is also penalized owes 32% federal on the taxable amount.

If withholding falls short, you can make an estimated tax payment for the quarter of the withdrawal, or raise withholding from your paycheck using Form W-4 for the rest of the year. Withholding from an IRA distribution is treated as paid evenly through the year, so increasing it on a late-year distribution can make up an earlier shortfall without an underpayment penalty.

When an employer plan such as a 401(k) pays an eligible rollover distribution directly to you, it must withhold 20%. To roll over the full amount within 60 days, you would have to replace that 20% from other funds. A direct rollover to an IRA avoids this.

State and local taxes

Most states with an income tax treat IRA distributions as taxable income. A few states have no income tax, and several offer partial exclusions for retirement income, often tied to age. New York, for example, excludes up to $20,000 of eligible pension and annuity income, including IRA distributions, for residents 59½ and older. New York City residents also owe the city’s resident income tax on whatever New York taxes. Some states impose their own early withdrawal penalty, and state withholding rules vary.

Worked examples

These are hypothetical cases. The bracket rates are assumptions chosen to show the mechanics, not current IRS bracket thresholds.

Example 1: $10,000 early withdrawal from a traditional IRA. You are 45, all pre-tax money, no exception applies, and your other income keeps the whole $10,000 in an assumed 22% federal bracket.

• Federal income tax: $10,000 × 22% = $2,200
• Additional tax: $10,000 × 10% = $1,000
• Total federal cost: $3,200, before state tax. The default 10% withholding of $1,000 would leave $2,200 still owed at filing.

Example 2: Withdrawal with nondeductible basis. Your traditional IRAs total $100,000 at year-end, including $20,000 of nondeductible basis. You are 62 and withdraw $10,000.

• Nontaxable share: $20,000 ÷ $100,000 = 20%, so $2,000 is tax-free
• Taxable amount: $8,000 at your ordinary rate, with no penalty because you are over 59½

Example 3: Early Roth withdrawal. You are 40 with a Roth IRA holding $30,000 of contributions and $10,000 of earnings.

• Withdraw $25,000: it all comes from contributions, so there is no tax and no penalty.
• Withdraw $35,000: $30,000 is contributions, and $5,000 is earnings taxed as ordinary income plus a 10% additional tax ($500) unless an exception applies.

FAQs

The Bottom Line

Anyone planning to take money from an IRA should check the account type, their age and any exception before withdrawing. Spreading traditional IRA withdrawals across several years can keep more income in lower brackets, and Form 8606 records protect basis from double taxation. The default 10% withholding often falls short, so plan for estimated payments or extra withholding to avoid a bill at filing.