She’s 67 With $880,000 in a Traditional 401(k). A $45,000 Withdrawal Could Bring a $5,317 Tax Bill as Social Security Becomes Taxable

Picture a 67-year-old single retiree with $880,000 in a traditional 401(k) and $30,000 a year coming in from Social Security. She plans to take out $45,000 this year, and she expects to pay tax only on that money.

She’s wrong about that. The withdrawal pulls most of her Social Security onto her tax return, and her federal bill comes to $5,317. If she leaves the 401(k) alone, she owes nothing.

Her $60,000 Combined Income Clears Both Social Security Tax Thresholds

The IRS uses combined income to decide how much of your Social Security gets taxed. Under federal tax rules, that’s your other income plus half of your benefits. For her, that’s the full withdrawal plus $15,000, which comes to $60,000.

Single filers have two lines to watch. Once combined income tops $25,000, some of your benefits become taxable. Once it passes $34,000, up to 85% of them can be taxed. She’s well past both.

Before the cap, the formula produces $26,600. But the IRS limits taxable benefits to 85% of what she received, leaving $25,500 subject to tax.

How a $45,000 Withdrawal Turns Into a $5,317 Bill

Her adjusted gross income is the withdrawal plus her taxable benefits: $70,500.

At 67 she gets three deductions for 2026:

• the $16,100 standard deduction
• the $2,050 extra standard deduction for single filers 65 and older
• the new $6,000 senior deduction

The senior deduction starts shrinking once her modified adjusted gross income (MAGI) exceeds $75,000. She’s below that, so she keeps all of it, and her deductions total $24,150.

That leaves $46,350 of taxable income. The first $12,400 is taxed at 10%, and the rest is taxed at 12%.

The total is $5,317, or about 12% of the withdrawal. That average looks fine. The cost shows up in the last dollars she takes out.

Leaving the 401(k) Untouched Means a $0 Federal Bill

With only Social Security coming in, her combined income is $15,000. That’s under the $25,000 line, so none of her benefits are taxable and she owes no federal income tax.

So the whole $5,317 comes from the withdrawal.

In the zone where 85% of benefits get taxed, each 401(k) dollar pulls 85 cents of Social Security into taxable income with it. She’s in the 12% bracket on paper, but those dollars are taxed at about 22%. It’s one of several IRS rules that quietly drain retirement accounts, and we laid out the rest in a free guide here.

Lower Withdrawals Show Where the Expensive Dollars Sit

Going from $20,000 to $30,000 costs her about 20% of the extra money in tax.

The next $15,000 costs about 21%. These are the expensive dollars.

That penalty ends once the 85% cap is reached. After that, further income is taxed at a straight 12% until taxable income hits $50,400.

That’s where the 22% bracket starts. For her, that happens at a withdrawal of $49,050.

Medicare isn’t a problem at this income level. Her $70,500 in income is below the $109,000 single-filer threshold published for 2026. But Medicare generally looks back two years, so her 2026 income will determine whether she owes higher premiums in 2028, using that year’s thresholds.

Three Moves to Make Before She Takes the Money

1. Run the IRS worksheet before you withdraw. Use the Social Security worksheet in IRS Publication 915 with your benefits and your planned withdrawal. With her numbers, she can take $10,000 and pay $0, because her combined income remains at $25,000.
2. Plan around the expensive zone. With a balance this large, required withdrawals in her 70s will likely keep most of her benefits taxable anyway. Once she’s past the cap, additional withdrawals up to $49,050 in total fall in the 12% bracket for 2026. A Roth conversion could also make sense, depending on her future tax rate.
3. Use the senior deduction while it lasts. The deduction applies only to tax years that begin before January 1, 2029. With the IRS’s new 2027 tax brackets just out, now is the time to plan her withdrawals through 2028. Keeping her income under $75,000 lets her keep the full deduction.

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