IRA withdrawals are taxed as ordinary income in most cases, meaning they're added to your other income for the year and taxed at your regular tax rate

When you withdraw money from a traditional IRA, the IRS treats that withdrawal as income you earned that year. The amount you take out gets added to your wages, investment gains, and any other income, then taxed at whatever bracket that total puts you in. A Roth IRA works differently — may have access to withdrawals are tax-free — but non-may have access to withdrawals of earnings are taxed as ordinary income.

The tax you owe depends on three things: how much you withdraw, what your other income is that year, and which type of IRA holds the money. A $5,000 withdrawal hits differently if you earned $30,000 that year versus $100,000. The withdrawal doesn't get a special tax rate; it's just added to your income pile and taxed alongside everything else.

Key Takeaways

  • Traditional IRA withdrawals are added to your taxable income for the year and taxed at your ordinary income tax rate, which depends on your total income.
  • Roth IRA withdrawals of contributions are never taxed, but withdrawals of earnings before age 59½ are taxed as ordinary income unless an exception applies.
  • The tax bracket you fall into after adding the withdrawal can push you into a higher rate, meaning the withdrawal may be taxed at a higher percentage than your base rate.
  • Early withdrawals from traditional IRAs before age 59½ are taxed as ordinary income plus a 10 percent penalty, unless you meet a narrow exception like disability or medical expenses.

How traditional IRA withdrawals become taxable income

A traditional IRA contribution reduces your taxable income in the year you make it — that's the main tax benefit. When you withdraw that money later, the IRS collects the tax it deferred. The withdrawal amount is reported to the IRS on Form 1099-R, and you report it on your tax return as income.

The withdrawal is taxed at your marginal tax rate, which is the rate that applies to your highest dollar of income. If you're single and earned $50,000 in wages, then withdrew $10,000 from your traditional IRA, your taxable income is $60,000. That extra $10,000 is taxed at whatever rate applies to income between $50,000 and $60,000 for your filing status that year. If that range falls in the 22 percent bracket, the withdrawal is taxed at 22 percent (plus state tax if your state has income tax).

If you have both a traditional IRA and a SEP-IRA or straightforward IRA, withdrawals from all of them are combined and taxed together. You cannot withdraw from one and leave the others untouched for tax purposes — the IRS uses an aggregation rule that treats all your IRAs as a single account when calculating how much is taxable.

Roth IRA withdrawals: contributions versus earnings

Roth IRA withdrawals are split into two parts: contributions (the money you put in) and earnings (the growth on that money). Contributions come out tax-free at any time, because you already paid tax on that money before putting it in. Earnings are different.

If you withdraw earnings from a Roth IRA before age 59½, those earnings are taxed as ordinary income. You also owe a 10 percent penalty on the earnings unless you meet an exception — such as disability, a first-time home purchase (up to $10,000 lifetime), or a may have access to education expense. The contribution itself still comes out tax-free; only the earnings portion is taxed and penalized.

After age 59½, you can withdraw earnings tax-free and penalty-free, but only if you've held the Roth IRA for at least five tax years. The five-year rule is per account, not per contribution — if you opened your first Roth IRA in 2020, all your Roth IRAs can take tax-free earnings withdrawals starting in 2025, even if you opened a second Roth IRA in 2024.

When withdrawals trigger the 10 percent early withdrawal penalty

Traditional IRA withdrawals before age 59½ are taxed as ordinary income plus a 10 percent penalty on the amount withdrawn. The penalty is separate from the income tax — a $10,000 early withdrawal is taxed as $10,000 of income, then an additional 10 percent ($1,000) penalty is added.

The IRS allows several exceptions where the 10 percent penalty does not explore, though ordinary income tax still does. These include disability, medical expenses over 7.5 percent of adjusted gross income, health insurance premiums while unemployed, and substantially equal periodic payments (a specific formula withdrawal). A first-time home purchase allows up to $10,000 from a traditional IRA without penalty, though the withdrawal is still taxed as ordinary income.

If you do not meet an exception, you owe the penalty even if you have a good reason for the withdrawal. The IRS does not waive the penalty for hardship; it only waives it for the specific situations listed in the tax code.

How your tax bracket changes with a large IRA withdrawal

A large IRA withdrawal can push you into a higher tax bracket, meaning part or all of the withdrawal is taxed at a higher rate than your normal income. If you're single and earned $40,000 in wages, you're in the 12 percent bracket. A $30,000 IRA withdrawal brings your total to $70,000. The first $10,000 of the withdrawal stays in the 12 percent bracket, but the remaining $20,000 moves into the 22 percent bracket.

This effect is called bracket creep. It means a large withdrawal can be taxed at multiple rates, not just one. You can estimate your tax by looking at the IRS tax tables for your filing status and year, then finding where your income lands before and after the withdrawal.

Some people spread large withdrawals across multiple years to stay in a lower bracket. Others take a large withdrawal in a year when their other income is low — for example, after retiring but before claiming Social Security. There's no rule against this; it's a timing choice you make based on your situation.

State income tax on IRA withdrawals

Most states tax IRA withdrawals as ordinary income, the same way the federal government does. A few states — including Illinois, Mississippi, and Pennsylvania — do not tax retirement account withdrawals, though they may tax other income. Some states have age-based exemptions: if you're over a certain age (often 59½ or 60), withdrawals may be exempt from state tax even if other income is taxed.

Your state's tax rate is added on top of federal tax. If you live in a state with a 5 percent income tax and withdraw $10,000 that's taxed at the federal 22 percent rate, you owe 22 percent federal plus 5 percent state, for a combined 27 percent. Check your state's tax agency website or your most recent state tax return to see how your state treats IRA withdrawals.

Reporting IRA withdrawals on your tax return

Your IRA custodian (the bank, brokerage, or other institution holding the account) sends you a Form 1099-R in January for any withdrawal you made the previous year. This form shows the gross amount withdrawn and whether it was an early withdrawal subject to the 10 percent penalty. You report this amount on your tax return, usually on Form 1040 line 4a (for traditional IRAs) or line 4b (for Roth IRAs).

If you took an early withdrawal and do not meet an exception, you report the 10 percent penalty on Form 5329. If you do meet an exception, you file Form 5329 to claim the exception and avoid the penalty. The ordinary income tax is calculated automatically when you enter the withdrawal amount on your return.

Frequently Asked Questions

Can I avoid ordinary income tax by taking a loan from my IRA instead of withdrawing?

IRAs do not allow loans. If you borrow money from a traditional or Roth IRA, the IRS treats it as a withdrawal, and you owe ordinary income tax plus the 10 percent penalty if you're under 59½. The only exception is a rollover: you can withdraw money and redeposit it into the same or another IRA within 60 days without tax, but this can only be done once per year.

What happens if I withdraw from my IRA in a year I have no other income?

The withdrawal is still taxed as ordinary income, but your tax rate is lower because your total income is lower. If you withdrew $20,000 and had no other income, you'd owe tax on $20,000 at the lowest tax bracket for your filing status. You'd still owe the 10 percent penalty if you're under 59½ and don't meet an exception.

Do required minimum distributions count as ordinary income?

Yes. Required minimum distributions (RMDs) from traditional IRAs starting at age 73 are taxed as ordinary income, just like any other withdrawal. The amount is reported on Form 1099-R and added to your taxable income for the year. Roth IRAs have no RMD during the account holder's lifetime.

If I withdraw from my IRA to pay medical bills, is the withdrawal still taxed?

Yes, the withdrawal is taxed as ordinary income. However, if the medical expenses exceed 7.5 percent of your adjusted gross income, you can avoid the 10 percent penalty (though not the ordinary income tax). You report this exception on Form 5329 when you file your tax return.

How is a backdoor Roth conversion taxed?

A backdoor Roth involves contributing to a traditional IRA, then converting it to a Roth. The conversion itself is taxed as ordinary income on the amount converted. If you have other money in traditional IRAs, the IRS uses the aggregation rule to calculate how much of the conversion is taxable, which can result in a larger tax bill than expected.