The $60,000-a-Year 401(k) Withdrawal Plan That Pays Zero Federal Tax Until Social Security Starts at 70
The five years between retiring and collecting Social Security open a window where a couple controls their taxable income almost by hand, and the IRS hands back every dollar of a sizable 401(k) withdrawal. Most retirees never realize the window…
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Picture two partners, both 65 and just retired. They can spend $60,000 in 2026 and owe the IRS nothing. They pull $47,500 from a traditional 401(k), take the other $12,500 from a taxable brokerage account as long-term gains, and wait until 70 to claim Social Security.
The years between retiring and a delayed claim are the one stretch where a retiree sets taxable income almost by hand. Paychecks, benefit checks and forced distributions have all stopped or not yet started, so the income on the return is whatever you chose to take.
Three Deductions Stacked Against One Withdrawal
Joint filers get a 2026 standard deduction of $32,200. Each partners who is 65 or older adds $1,650, which brings the couple’s base to $35,500.
On top of that, the senior deduction adds $6,000 for each partners 65 or older. It only starts phasing out once joint modified AGI passes $150,000. Put all three together and $47,500 of 401(k) money comes out free of federal income tax.
The other $12,500 comes from selling shares held for more than a year. Long-term gains are counted after ordinary income. In 2026, those filing jointly pay 0% on them until taxable income reaches $98,900. If all of the couple’s taxable income is gains, the federal bill is zero.
Some couples have no brokerage account and take the full amount from the 401(k). In that case the extra dollars fall in the 10% bracket. The bill comes to $1,250, an effective rate of about 2% on pre-tax money.
What Changes When the First Benefit Check Arrives
The math stops working once benefits begin. At that point the IRS adds half of your Social Security benefit to all your other income. Once that total tops $44,000, couples can face taxes on up to 85% of benefits.
A $60,000 401(k) withdrawal crosses that line on its own, before a single benefit dollar is counted. So the same withdrawal that was tax-free at 66 makes part of the Social Security check taxable at 70. At that point, each extra 401(k) dollar can make up to 85 cents of benefits taxable. Money you withdraw in the gap years never triggers this chain reaction, which is also why those same years are the cheapest time to run Roth conversions (we sized up that window in a free guide).
A Smaller Required Withdrawal at 75
Anyone who turns 74 after 2032 has required distributions starting at 75. A couple turning 65 in 2026 falls into that group. Take five years of $60,000 withdrawals and the pre-tax account is $300,000 smaller, before counting growth.
At 75, the IRS life expectancy divisor is 24.6. Left in the account, that $300,000 would have forced out about $12,195 in the first year alone, plus whatever its growth added. A smaller required withdrawal keeps income lower, so less of the Social Security check gets taxed for the rest of retirement.
Who Should Skip This Plan
- Retirees with a pension. Pension income already uses up the deductions. Every 401(k) dollar then gets taxed from the first dollar, usually at 12% or more.
- Retirees with large taxable interest. The 10-year Treasury yield is above 5%, so a big CD or bond ladder in a taxable account can use up most of the deductions by itself.
- Early claimers. If you claim at 62 or 65, there are no gap years. Social Security tax applies to every 401(k) dollar from the first withdrawal.
There is one more catch. Under current law, the senior deduction only applies to tax years beginning before January 1, 2029. For this couple, that means 2029 and 2030 shelter only $35,500 unless Congress extends it. In those years, take less from the 401(k) and more from the brokerage account.
A Test You Can Run on Last Year’s Return
In every gap year, take at least enough from the 401(k) to use up your full deductions. Any deduction you leave unused is gone for good. Once benefits and required withdrawals start, they fill that space every year.
The check takes a minute. Find your most recent Form 1040 and compare your adjusted gross income with your total deductions. If you are retired, under 70, still have pre-tax 401(k) money, and your deductions are larger than your AGI, the difference is money you could have taken out with no federal tax. Next year, raise the 401(k) withdrawal until AGI matches your deductions. Then cover the rest of your spending with long-term gains from the brokerage account, which are taxed at 0% up to that limit.
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Jake has been been working in financial media for almost 15 years. He focuses on all things personal finance for 24/7 Wall St. with high hopes to educate and entertain. Most recently, Jake spent 12 years working various roles at The Motley Fool. He started copy editing fool.com content, worked on premium and marketing campaigns, and helped launch The Ascent, a personal finance brand.
His work has been featured on platforms like MSN, Yahoo Finance, USA Today, and more. He's written about credit cards, social security, ETFs, savings accounts, and just about anything else you can imagine when thinking about money. Jake love to cook, play golf, and tell people he's never had a cavity. (It's true!)
