Do You Pay FICA on 401k Withdrawals? Free Tax Calculator
POINTS
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401(k) withdrawals generally avoid FICA taxes.
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Traditional 401(k) withdrawals are taxable income.
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FICA applies to 401(k) contributions.
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Early withdrawals may face a 10% tax.
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Qualified Roth 401(k) withdrawals are tax free.
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401(k) withdrawals aren’t earned income.
401(k) withdrawals are not treated as wages for FICA tax purposes.
Traditional 401(k) distributions can be taxable as income when withdrawn, while Roth distributions follow different tax rules.
The tax treatment of a withdrawal is therefore separate from the Social Security and Medicare taxes imposed on earnings from work.
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Taxable income
Federal tax breakdown
Tax rate
Payroll taxes (informational)
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How To Withdraw Money From A 401(k) Before Retirement
Need money from your 401(k) early? See your withdrawal options, potential taxes and penalties, and ways to avoid costly surprises.
See Your 401(k) OptionsWhy 401(k) Withdrawals Aren’t Subject to FICA
FICA taxes are levied only on wages and self-employment income, not on investment or retirement income.
When you take a distribution from your 401(k), the money is no longer wages from an employer; it’s a return of retirement savings.
- Pensions
- Annuities and
- Investment withdrawals are not earnings for FICA purposes and don’t incur Social Security taxes.
Do You Pay Social Security Tax on 401(k) Withdrawals?
No, Social Security tax applies only to earned wages.
You do not pay the 6.2% Social Security payroll tax on a 401(k) withdrawal.
Does Medicare Tax Apply to 401(k) Withdrawals?
Again, no, the Medicare payroll tax is also part of FICA and only applies to wasocialges.
Withdrawals from retirement accounts are treated as investment income, not wage income.
So, no Medicare payroll tax is withheld or owed when you withdraw from a 401(k).
What Taxes Do Apply to 401(k) Withdrawals?
| 401(k) Withdrawal | Income Tax? | 10% Penalty? | Key Point |
|---|---|---|---|
| Traditional, Age 59½+ |
Yes
|
No
|
Taxed as ordinary income. |
| Traditional, Under 59½ |
Yes
|
Usually 10%
|
Exceptions may apply. |
| Under 59½ + Qualifying Exception |
Yes
|
No
|
Income tax still applies. |
| Direct Rollover |
No Current Tax
|
No
|
Tax is generally deferred. |
| Roth 401(k), Qualified |
No
|
No
|
Generally tax-free. |
| Roth 401(k), Nonqualified |
Earnings May Be Taxable
|
May Apply
|
Depends on the distribution. |
401(k) withdrawals are ordinary taxable income on your federal return.
You may owe both federal and state income taxes on a Traditional 401(k) distribution.
There is no federal employer withholding for Social Security/Medicare on the withdrawal, but your plan is required to withhold 20% for federal income taxes on most distributions unless you roll over the funds.
Which States Don’t Tax 401k Withdrawals?
Planning your retirement taxes? See which states don’t tax 401(k) withdrawals, which states offer partial exemptions, and where your retirement income could face state tax.
See The 401(k) Tax-Free StatesSo, When Does FICA Apply?
FICA is paid when you earn and contribute wages to a 401(k), not when you later withdraw the money.
When you deferred salary into your 401(k), those wages were still subject to Social Security and Medicare taxes at the time of payroll.
| When | Traditional 401(k) | Roth 401(k) |
|---|---|---|
| Contribute |
Income tax: Deferred FICA: Paid |
Income tax: Paid FICA: Paid |
| Qualified withdrawal |
Income tax: Paid FICA: $0 |
Income tax: $0 FICA: $0 |
| Early withdrawal |
Income tax: Paid 10% penalty: May apply FICA: $0 |
Contributions: Tax-free Earnings: Tax + possible 10% penalty FICA: $0 |
So, the basic idea is that you generally pay FICA once on the wages, not again on your 401(k) withdrawals.
Do Early 401(k) Withdrawals Have Additional Taxes?
Note that these penalties are IRS income taxes, not any type of payroll or FICA tax.
An early $10,000 withdrawal could trigger a $1,000 penalty, in addition to any income tax owed.
With a Roth account, non-qualified withdrawals can also subject earnings to the 10% early-withdrawal penalty. But, your original Roth contributions can generally be withdrawn without income tax or penalty.
- If you withdraw money before age 59½, you may have to pay an additional 10% tax.
- The withdrawal may also be subject to regular federal income tax.
- Certain exceptions can allow you to avoid the additional 10% tax.
- A hardship withdrawal may still be subject to the additional 10% tax unless you qualify for an exception.
- A properly completed rollover to another eligible retirement plan or IRA generally avoids current taxation.
Effects of Withdrawals on Social Security and Medicare Benefits
1. Social Security Benefits
Your benefit amount is based on your work history and lifetime earnings, not on how much you withdraw from retirement accounts now.
Withdrawals do not reduce the calculation of your Social Security benefit.
But large withdrawals do affect your tax situation.
If your total income is above certain thresholds, up to 85% of your Social Security can become taxable.
2. Medicare premiums (IRMAA)
If you are on Medicare Part B/D, high income can trigger the Income-Related Monthly Adjustment Amount, resulting in higher premiums for high earners.
| Medicare Cost | What Happens With a Large 401(k) Withdrawal | Why It Matters |
|---|---|---|
| Part B premiums | A large traditional 401(k) withdrawal can increase your income and may cause you to pay a higher Part B premium. | Higher income can trigger IRMAA, an extra Medicare charge. |
| Part D premiums | A large withdrawal can also cause you to pay an additional Part D charge. | IRMAA is added to your regular Part D plan premium. |
| Two-year lookback | Medicare generally uses your tax-return income from two years earlier to determine IRMAA. | A large withdrawal today could affect your Medicare premiums later. |
| Roth 401(k) withdrawals | Qualified Roth withdrawals generally don’t increase the income used to calculate IRMAA. | Roth withdrawals can give you more flexibility when managing Medicare costs. |
401(k) Withdrawals and Payroll Taxes FAQs
No. 401(k) withdrawals aren’t subject to Social Security or Medicare taxes.
No. 401(k) withdrawals aren’t subject to payroll taxes, even if you live outside the U.S. You may still owe U.S. income tax on a taxable withdrawal.
Yes. A large taxable withdrawal can increase your income and lead to higher Medicare Part B and Part D premiums.
No. 401(k) withdrawals aren’t considered earned income for purposes of the Earned Income Tax Credit.
Traditional 401(k) contributions generally reduce your taxable income when you contribute. Roth 401(k) contributions aren’t deductible.
Not if it’s a direct rollover to a traditional IRA. You generally pay income tax when you later take a taxable withdrawal.
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