What is the 401(k) withdrawal tax rate for my tax bracket?
One of the key benefits of contributing to a 401(k) account for saving for your retirement is that your contributions are not taxed until you withdraw them. Your contributions are made with pretax dollars, usually taken out of your paycheck. This means that you are liable for lower taxable income each year you make contributions, especially if you contribute up to the maximum limit of $19,500 annually (or $26,000 if you are 50 years or older).
Since you do pay taxes on 401(k) withdrawals, it helps to know what your tax rate will be based on your tax bracket, so you can plan accordingly.
401(k) withdrawal tax rate by bracket
Once you start withdrawing from your 401(k) account, your withdrawals are taxed as ordinary income. This means that your withdrawals are taxed at a similar rate as would be your W-2 employment.
Typically, retirees live on less in their retirement than during the working years, so usually you will be in a lower tax bracket. However, if you have never given tax brackets much thought or want to see how your withdrawals can affect your taxes, this table can help:
|Tax rate||Single||Married filing jointly or widow/widower||Married filing separately||Head of household|
|10%||Up to $9,325||Up to $18,650||Up to $9,325||Up to $13,350|
|15%||$9,326 – $37,950||$18,651 – $75,900||$9,326 – $37,950||$13,351 – $50,800|
|25%||$37,951 – $91,900||$75,901 – $153,100||$37,951 – $76,550||$50,801 – $131,200|
|28%||$91,901 – $191,650||$153,101 – $233,350||$76,551 – $116,675||$131,201 – $212,500|
|33%||$191,651 – $416,700||$233,351 – $416,700||$116,676 – $208,350||$212,501 – $416,700|
|35%||$416,701 – $418,400||$416,701 – $470,000||$208,351 – $235,350||$416,701 – $444,550|
|39.6%||$418,401 or higher||$470,001 or higher||$235,351 or higher||$444,551 or higher|
Talk to a ProVise CFP® professional about planning for your retirement
Whether your retirement is far off, you are nearing retirement or you are already retired, it helps to have a strategy for how to make withdrawals and get the most out of your savings. Without any guidance, it may be unclear how much you can withdraw to live within your means and keep your taxes at a minimum. This is where our team comes in.
At ProVise Management Group, our CERTIFIED FINANCIAL PLANNER™ professionals can get to know you and your current financial circumstances, goals, risk tolerance and personal values to help you develop a plan that works for you. We can also create a written plan for you at a fiduciary standard of care. All our written plans come with an unconditional money-back guarantee. If you are unhappy with your written plan, you can return it to us, and we will refund 100% of the fee paid.
Are you ready to talk to a professional about planning for retirement? Contact ProVise today to schedule a complimentary consultation.