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401(k) and IRA withdrawals in retirement: What to know
CNBC • • business
Key Points:
- Retirees often tap into traditional 401(k) or IRA savings for unexpected expenses, but financial advisors caution that withdrawals come with tax implications and potential long-term impacts on retirement funds.
- About 15% of 401(k) owners aged 60 to 72 made ad hoc withdrawals in 2025, primarily to pay off debt, cover unforeseen costs like medical bills or home repairs, and for discretionary spending.
- Withdrawals from traditional retirement accounts are taxed as ordinary income, which can increase tax liabilities and potentially raise taxes on Social Security benefits and Medicare premiums due to higher reported income.
- Advisors suggest strategies like delaying part of the withdrawal to spread tax impact across years, considering brokerage accounts for expenses due to lower capital gains tax rates, or borrowing via loans to avoid depleting retirement savings.
- Large withdrawals reduce the principal that could grow over time, potentially diminishing future retirement income, highlighting the importance of weighing immediate needs against long-term financial health.
