How Much Tax Will You Owe On 401(k) Withdrawals In Retirement? A California Example

The Short AnswerPre-tax 401(k) withdrawals count as taxable income at the federal level, and California generally follows the federal treatment. In a hypothetical illustration for a married Ventura County couple with $60,000 of Social Security and no other income, withdrawals of $150,000, $250,000 and $400,000 a year produce combined modeled tax of $32,415, $64,774 and $115,944, or 15.4%, 20.9% and 25.2% of income.

Are 401(k) Withdrawals Taxed As Ordinary Income?

Yes. Money that went into a traditional 401(k) before tax comes out as taxable income. The IRS says of required withdrawals: “Your withdrawals will be included in your taxable income except for any part that was taxed before (your basis) or that can be received tax-free (such as qualified distributions from designated Roth accounts).” A pre-tax contribution generally has no basis, so the withdrawal is generally taxable.

The rate is the ordinary one. Publication 575 says that for people born on or after January 2, 1936, “lump-sum distributions are taxed as ordinary income unless properly rolled over into an IRA or another qualified plan.” Ordinary income is taxed in brackets, stacked on top of everything else the household reports that year. This is the Second Bill, the tax the deduction postponed on the way in. The Second Bill guide covers the full picture.

Roth money follows different rules. The IRS says “Qualified distributions from a Roth account, including earnings, are excluded from gross income.” A qualified distribution has its own conditions, including a five-year holding period, so the account type matters before any withdrawal is planned.

What Is The 10% Additional Tax Before Age 59½?

Withdrawals before age 59½ can carry a second layer. The IRS says “Individuals must pay an additional 10% early withdrawal tax unless an exception applies.” That 10% sits on top of the ordinary income tax.

Exceptions exist, and they depend on the plan and the facts. The IRS list includes death, total and permanent disability, and separation from service, where “the employee separates from service during or after the year the employee reaches age 55.” Whether an exception fits a given situation is a question for a CPA, since the conditions are specific.

When Do Required Minimum Distributions Start?

Required minimum distributions, or RMDs, start at age 73 on the IRS page: “You generally have to start taking withdrawals from your IRA, SIMPLE IRA, SEP IRA, or retirement plan account when you reach age 73.” The final regulations set a later age for younger savers: “In the case of an employee born on or after January 1, 1960, the applicable age is age 75.”

Designated Roth accounts in a 401(k) are treated differently. The IRS says “You’re not required to take withdrawals from Roth IRAs, or from designated Roth accounts in a 401(k) or 403(b) plan while the account owner is alive.”

Does California Tax 401(k) Withdrawals?

Yes, as a rule. The Franchise Tax Board’s pension guide says “The California treatment of pension and annuity income is generally the same as the federal treatment.” California generally follows the federal treatment of pension and annuity income, with some state-specific differences. One difference matters for retirees: “California law differs from federal law in that California does not tax: Social Security benefits.”

What Does The Tax Look Like For A Ventura County Couple?

Take a married couple filing jointly in Moorpark or Thousand Oaks. Both are retired and both draw from pre-tax accounts. They receive $60,000 a year of Social Security and have no other income.

The engine counts 85% of the Social Security benefit as federally taxable, its fixed assumption, and none of it for California, as the FTB guide describes. The actual federal share depends on total income. The engine models no itemized deductions, credits, investment income, Medicare surcharges or growth, so this is an illustration and not a projection for any household.

In the example, the withdrawal rose from $150,000 to $400,000, and the share of income going to tax rose from 15.4% to 25.2%. Additional withdrawals can push part of the household’s income into higher brackets.

What Changes If $1,000,000 Comes Out Over 10 Years Or 20?

Spreading the same balance over more years can change which brackets absorb it. The method matches the Second Bill calculator: equal withdrawals and no investment growth, with the same $60,000 of Social Security in every year.

The federal totals land close together because Social Security is taxed on top of the withdrawal in every year, and a longer timeline repeats that for more years. California exempts Social Security, so its smaller $50,000 slices fall in lower state brackets. The result belongs to this couple and this income. A household with a pension, rental income or a business sale in the same years would see a different result, and the small-business pension tax study uses reported aggregate employer-plan totals in separate hypothetical timing illustrations.

CalculatorSee the tax on the withdrawals your own pile will need→

What Questions Should You Bring To Your CPA?

These are questions, not recommendations. The right answers depend on the plan documents, the household’s full income and the state of residence, and they belong in a conversation with your CPA before the first withdrawal.

About The Author

Tyler Ostrovsky founded 19th Hole Financial after eight years as a professional golfer, including status on PGA Tour Canada. He builds tax strategy and advanced life insurance plans for high earners and works alongside their CPAs and attorneys.