Two 65-Year-Old Couples Withdraw $90,000 From Their 401(k)s. One Owes About $4,600 in Federal Tax and the Other $10,700
Two retired couples pull the same amount from their 401(k)s, file jointly, and end up with federal tax bills that are thousands of dollars apart. The reason has nothing to do with the size of the withdrawal.
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Picture two retired couples planning their 2026 withdrawals. All four spouses are 65, and each couple takes $90,000 in fully taxable 401(k) withdrawals. The withdrawals may match, but everything else on the two tax returns is different, and that is what sets the federal bill.
Couple A lives on the 401(k) alone. Couple B also collects $60,000 in Social Security. Neither couple itemizes or claims credits. Couple A owes about $4,600 in federal income tax. Couple B owes about $10,700.
The gap comes from how Social Security gets taxed. The IRS adds half of a couple’s benefits to all their other income, including 401(k) withdrawals. Once that total passes set thresholds, a growing share of the benefits becomes taxable. For Couple B, the $90,000 withdrawal brings the maximum taxable share of their Social Security onto the return.
Couple A Pays Tax on the Withdrawal Alone
Couple A’s deductions total $47,500. The IRS inflation adjustments for 2026 set the joint standard deduction at $32,200. Because both spouses are 65 or older, they add another $3,300 in additional standard deduction.
The last piece is the enhanced senior deduction created by the One, Big, Beautiful Bill. The IRS says it is worth $6,000 for each eligible person 65 or older from 2025 through 2028. That comes to $12,000 for a married couple when both spouses qualify.
That leaves $42,500 of taxable income. Run through the 2026 brackets, it produces $4,604 of federal tax. Couple A has no benefits for the withdrawal to drag into income, so the 401(k) money is taxed once and only once.
Couple B’s Benefits Become Taxable Income
IRS Publication 554, the agency’s tax guide for seniors, explains that up to 85% of those monthly payments can be taxable once a couple’s income rises high enough. For Couple B, the IRS worksheet counts $51,000 of their benefits as income. Without the 401(k) withdrawals, far less of that money would land on the return.
Their adjusted gross income (AGI) comes to $141,000. That is under the $150,000 threshold where the IRS starts phasing out the senior deduction for joint filers, so Couple B still gets the full deductions. Subtracting the same deductions leaves $93,500 of taxable income, and the rate calculation produces $10,724 of federal tax.
Couple B also has much less room before the phaseout. A bigger withdrawal or a Roth conversion drives income toward the point where the $12,000 senior deduction starts shrinking. Above that line, extra withdrawals add taxable income while shrinking the deduction. Their Social Security is already at the 85% limit, so no additional benefits become taxable.
Look at the Whole Household Before Judging the Bill
Couple B takes home more gross cash: the same withdrawals plus a full year of benefits. A bigger bill on a bigger income is fair, and claiming benefits at 65 may still be the right choice for them. The same 401(k) withdrawal can accompany very different total tax bills, depending on the household’s other income.
The gap between leaving work and claiming Social Security can be the cheapest time to take 401(k) money. Couple A’s return shows why: the withdrawal stands alone, the deductions offset a large share of it, and no benefits ride along into taxable income. Couples who haven’t claimed yet should treat those years as a window to draw down pre-tax balances on purpose (we sized up that quiet stretch, and how to use it for Roth conversions, in a free guide here).
Run the Full Return Before Setting Next Year’s Withdrawals
- Model the Social Security worksheet first. The worksheet in the IRS instructions for Form 1040 shows the share of your benefits that each extra withdrawal will pull in. Do this before you pick a 2027 withdrawal amount, so the tax cost on the last dollar shows up in advance.
- Set withholding to match the full return. Withholding calculated as though the 401(k) were the couple’s only income can leave the tax on Social Security uncovered. For a couple like Couple B, that can mean a surprise bill in April.
- Check your income against the phaseout before any conversion. Couples near the $150,000 line should size Roth conversions and extra withdrawals so they keep the full senior deduction while it lasts.
These figures leave out state income tax and Medicare premiums, and filing with the IRS tax tables can round slightly differently. The enhanced senior deduction also ends after 2028 under current law. Couples deciding how fast to draw down a 401(k) have until then to use those cheaper years.
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Gerelyn Terzo is the author of dividend investing handbook "Dividend Investing Strategies: How to Have Your Cake & Eat It Too." A veteran financial journalist, she covers agri-finance for outlets like Global AgInvesting and the broader stock market and personal finance for 24/7 Wall Street. She began at CNBC and later helped launch Fox Business in New York. Gerelyn currently resides in Woodland Park, Colorado and dabbles in nature photography as a hobby.
