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401(k) Taxes

Withdrawals from your 401(k) may be taxable depending on whether the distribution comes from the before-tax, after-tax, or Roth portion of your account. You may want to consult a qualified tax advisor. (DMBA representatives are not tax advisors.)

FAQs

How is my 401(k) taxed in retirement?
Before-tax contributions and gains will be taxed as ordinary income when withdrawn. Roth portion contributions and gains will NOT be taxed when withdrawn. Other after-tax contributions will not be taxed but gains on the contributions will be taxed when withdrawn.

Will I receive a form each year to let me know how much I have distributed from my 401(k) and how much is taxable?
Yes. You will receive Form 1099-R from DMBA by January 31 of the following year. This form will summarize your withdrawals, the amount that is taxable, and any withholdings. You will use this form to file your tax return.

Can I have taxes withheld from my 401(k) distribution to avoid owing a large amount on my tax return?
The taxable portion of a one-time or short-term recurring distribution will be subject to a mandatory 20% federal income tax withholding. This may be more or less than your actual tax rate. If you set up a recurring payment schedule for more than 10 years, you will be asked to make your own election for withholding on an IRS Form W-4P.

When does a 10% federal tax penalty apply to my withdrawal?
The 10% federal tax penalty generally applies to withdrawals taken before age 59½. The 10% early withdrawal penalty will not apply in the following cases:

  • Participants older than 59½, surviving spouses, beneficiaries, people with certain disability statuses
  • Withdrawals of your Roth 401(k) contributions or 401(a) after-tax contributions1
  • Payments to an alternate payee resulting from a QDRO
  • Withdrawals made between ages 55 and 59½ if you end employment in the year you turn 55 or later

1 Earnings may be subject to the 10% tax. When you make a withdrawal from the Roth portion of your 401(k), the withdrawal has a pro rata share of contributions and gains. Be sure that you are 59½ and have had your 401(k) Roth open for more than five years or your gains will be subject to the 10% penalty.

Can I have state taxes withheld as well?
You may choose whether you want state taxes withheld, unless you live in a state with mandatory withholding or a state that doesn’t allow withholding.

Do my beneficiaries have to pay taxes on my 401(k) if I pass away?
If your account balance is given to your beneficiary (whether a spouse, a trust, or an alternate payee), the beneficiary is responsible for paying the applicable taxes.

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