Depends whether your 401(k) withdrawal is from Traditional 401(k) or Roth 401(k). It also depends on your age and the reason of withdrawal. It is taxed as Ordinary income and early withdrawal may incur a 10% penalty on the federal return in addition to regular tax.
Traditional 401(k):
- Your contributions to traditional 401(k) are with pre-tax dollars, therefore, all withdrawals are taxed as ordinary income based on your tax bracket.
- If you withdraw before age 59 1/2, you will be subject to an additional 10% penalty. (This penalty can be avoided in certain situations).
- Any employer matching contributions are treated as Traditional 401(k) and are taxed on withdrawal.
Roth 401(k):
- Your contributions to Roth 401(k) are with after-tax dollars, and your money grows tax-free. Withdrawals are not taxed in retirement if you meet the requirements for a 'qualified withdrawal'. A distribution is considered qualified if you're at least age 59 1/2 and have held the account for at least five years.
For CA residents, 401(k) withdrawals are subject to both federal and state income taxes.
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