His $60,000 Pension Covers the Bills. At 66, Another $10,000 From His 401(k) Adds $2,332 to the Tax Bill
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A 66-year-old single retiree gets a $60,000 pension and has already taken $15,000 out of his traditional 401(k) this year. Now he’s considering another $10,000 withdrawal for a large purchase. The pension pays his bills, so this withdrawal is optional. That makes it worth pricing before he puts in the request.
To keep the math clean, assume he hasn’t claimed Social Security yet. That leaves the pension and the 401(k) as his only taxable income.
Retirement Income Line He’s Already Reached
His income for the year is already $75,000. That number matters because of the temporary senior deduction, worth up to $6,000 for taxpayers 65 or older in tax years 2025 to 2028.
Under federal tax rules, that $6,000 deduction shrinks by 6% of modified adjusted gross income (MAGI) above $75,000 for single taxpayers. He sits right at that line. All of his income so far left the deduction untouched. Every dollar he adds from here starts to cut into it.
Why the Next $10,000 Costs $2,332
The withdrawal adds $10,000 of ordinary income and raises his MAGI to $85,000.
The reduction takes $600 off his senior deduction, leaving $5,400. So his taxable income actually goes up by $10,600.
After the $16,100 standard deduction for single taxpayers and his senior deductions, he’s in the 22% bracket, which starts at $50,400 of taxable income in 2026.
At 22%, that $10,600 adds $2,332 to his federal tax bill.
Without the reduction, the same withdrawal would cost $2,200. The extra $132 is what he pays for getting over the line.
Six Cents Lost on Every Extra Dollar
Each dollar over $75,000 wipes out six cents of deduction. At 22%, losing those six cents costs him about 1.3 cents in tax.
Add the 22 cents he owes on the dollar itself, and his real marginal rate is about 23%.
That extra cost stays in place until the deduction runs out at $175,000 of MAGI. In practice, it applies to every 401(k) dollar he might realistically take above the line.
His earlier withdrawals were cheaper. With only the pension, his taxable income falls well short of $50,400, so most of his first $15,000 withdrawal was taxed at 12%. His last dollars cost almost twice as much as his first ones.
His $85,000 in income is below the 2026 single-filer Medicare surcharge threshold of $109,000. But Medicare looks back two years, so his 2026 income will determine whether he owes an income-related monthly adjustment amount (IRMAA) in 2028, using that year’s thresholds.
Once he claims Social Security, the math gets worse. Up to 85% of benefits can become taxable. That taxable portion also counts toward the MAGI that shrinks his senior deduction.
Is the Purchase Worth Taking the Money This Year?
If he has $10,000 in cash, paying from there avoids the $2,332 entirely. A taxable brokerage account is another option, although selling investments at a gain could create its own tax bill. His 401(k) remains invested and tax-deferred.
Waiting helps only under one condition. If his 2027 plan is another $15,000 withdrawal on top of the pension, moving the purchase to January just shifts the same $2,332 onto next year’s return. To actually save money, he’d need to shrink his regular withdrawal so the purchase goes under $75,000.
Because the deduction ends after 2028, the extra tax from losing part of it is temporary. A purchase delayed until 2029 would avoid that particular cost, although the withdrawal would still be taxable.
If he goes ahead now, he should check his withholding. An eligible 401(k) withdrawal paid directly to him generally has 20% withheld. That leaves him $8,000 in cash from his $10,000 withdrawal, with another $332 in federal tax to cover when he files.
Moves to Make Before the Withdrawal Request
- Project your 2026 MAGI. Add up your pension, every 401(k) withdrawal and any taxable interest. If the total is close to $75,000 as a single filer, each extra 401(k) dollar costs about 23 cents in the 22% bracket.
- Pay for optional purchases from cash first. In years when you’d cross that line, take only enough from the 401(k) to keep MAGI at or below $75,000. Pay for the rest from savings or a taxable account.
- Cover the withholding gap. If you still withdraw, make an estimated payment or raise your pension withholding to cover the difference between the 20% withheld and your actual cost.
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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.
