A Retired Couple Pulling $150,000 From a 401(k) in 2026 Keeps the Full $12,000 Senior Deduction. At $170,000 They’ve Lost $2,400 of It
A new senior deduction created by the One Big Beautiful Bill sounds straightforward until you read how the phaseout actually works, and for couples drawing from a traditional 401(k), the difference between two withdrawal sizes carries a tax surprise most…
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Consider a married couple, both 66, with $900,000 in a traditional 401(k) and no other income. They plan to wait until 70 to claim Social Security, living on 401(k) withdrawals until then. There are two months left in 2026, so the size of their December withdrawal sets the amount of a new senior tax break they get to keep.
Why $150,000 Is the Withdrawal Number to Hit
A deduction of $6,000 for each qualified individual for those age 65 or older was created by the One, Big, Beautiful Bill. It applies to tax years beginning before January 1, 2029, and it comes on top of the $32,200 standard deduction for joint filers.
The deduction starts shrinking once modified adjusted gross income (MAGI) goes above $150,000 for joint filers. Every pre-tax 401(k) dollar counts as ordinary income, so this couple’s MAGI is just the total of their withdrawals. At $150,000 they keep the full $12,000.
That leaves taxable income of $105,800, before the separate extra standard deduction for people 65 and older.
Either way, they’re in the 22% bracket, which for joint filers runs from $100,800 to $211,400.
What the Next $20,000 Really Costs
A quick read views the $12,000 as one pot that shrinks by 6%.
At first glance, it looks as if the couple loses just 6% of the $20,000 above the income limit. That would leave them with a $10,800 deduction.
The law applies the phaseout to each spouse separately, cutting each $6,000 deduction by 6% of joint MAGI above $150,000.
That means each spouse loses $1,200. Together the couple loses $2,400 and keeps $9,600.
The extra withdrawal adds $4,400 to their federal tax bill at 22%. The smaller deduction adds another $528, so the total is $4,928.
So the couple is paying close to 25% on those dollars, even though their bracket says 22%.
Where the Deduction Hits Zero
| Joint MAGI | Couple’s Senior Deduction |
|---|---|
| $150,000 | $12,000 |
| $170,000 | $9,600 |
| $200,000 | $6,000 |
| $250,000 | $0 |
Between $150,000 and $250,000, every $1,000 withdrawn wipes out $120 of deduction.
When both spouses are 65 or older, the deduction is gone at $250,000, well before the $350,000 the one-pot reading suggests.
Moving $20,000 Into January Keeps $2,400 of Deductions
Say the $170,000 pays for a one-time cost, like a new roof or a car.
The couple can take $150,000 by December 31 and the other $20,000 in January 2027.
The full $12,000 remains theirs for 2026, and the January money stays under the threshold as long as their total for 2027 is $150,000 or less.
If $170,000 is what they spend every year, shifting dates just moves the problem into 2027. A better way to cover the gap is cash savings or qualified Roth withdrawals, since neither adds to MAGI.
Neither amount creates a Medicare concern. IRMAA surcharges (the extra Medicare premiums higher earners pay) look back two years, so 2026 MAGI sets their 2028 premiums.
For joint filers, 2026’s first IRMAA threshold is $218,000.
Going over it adds $81 for Part B and $15 for Part D per person each month. The couple pays about $2,300 a year.
The bigger tax hit comes at 70. Once Social Security starts, 401(k) withdrawals on top of benefits can make up to 85% of those benefits taxable. Withdrawing $150,000 in 2026, before Social Security starts, shrinks the pretax balance while keeping their highest-taxed dollars in the 22% bracket.
Three Moves to Make Before December 31
- Add up your 2026 MAGI so far. Include 401(k) withdrawals to date, interest, dividends and realized gains. Then size the December withdrawal so you finish at or just under $150,000.
- If next year’s income allows, move anything over that into January. For this couple, splitting a one-time cost across the new year preserves the full $12,000 deduction for 2026 and cuts that year’s federal tax by $528.
- Plan 2027 and 2028 now. The deduction ends after the 2028 tax year, so set up withdrawals or Roth conversions to bring each year up to $150,000. Above that line, each extra dollar costs close to 25% for most of the way to $250,000.
Think of the $150,000 line as a ramp. Each dollar of MAGI above it takes six cents off each spouse’s deduction. For couples with big traditional 401(k)s, timing withdrawals is the cheapest way to keep the benefit while it lasts through 2028.
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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.
