Here is how IRA distributions are taxed in 2026: withdrawals from a traditional IRA are ordinary income, taxed at 10% to 37%, except for any after-tax (non-deductible) contributions, which come out tax-free in proportion to your balance. Withdrawals before 59½ usually add a 10% penalty unless an exception applies. Qualified Roth IRA distributions are tax-free, and you can always take out your Roth contributions without tax or penalty. Here are the rules for each type of IRA, with examples and ways to lower the tax.
How IRA Distributions Are Taxed by Account Type
| Account | Income tax on withdrawals | 10% penalty before 59½ |
|---|---|---|
| Traditional IRA (deductible contributions) | Fully taxable as ordinary income | Yes, unless an exception applies |
| Traditional IRA with non-deductible basis | Partly tax-free under the pro-rata rule | On the taxable portion |
| SEP and SIMPLE IRAs | Same as traditional IRAs | Yes; 25% for SIMPLE IRAs in the first two years of participation |
| Roth IRA contributions | Tax-free at any time | No |
| Roth IRA earnings, qualified (59½ and 5 years) | Tax-free | No |
| Roth IRA earnings, non-qualified | Taxable | Yes, unless an exception applies |
The Pro-Rata Rule for Non-Deductible Contributions
Basis changes how IRA distributions are taxed. If you made non-deductible contributions, each traditional IRA distribution is partly tax-free. The tax-free share equals your total basis divided by the year-end value of all your traditional, SEP and SIMPLE IRAs plus distributions. You track basis on Form 8606. See IRS Form 8606.
Example: You have $20,000 of basis and IRAs worth $200,000. You withdraw $10,000. Ten percent, $1,000, is tax-free and $9,000 is taxable.
Roth IRA Ordering Rules
- Regular contributions come out first, always tax- and penalty-free.
- Conversions come out next, oldest first. They are not taxed again, but each conversion has its own five-year period for the 10% penalty if you are under 59½.
- Earnings come out last. They are tax-free only in a qualified distribution: age 59½ or older (or disabled or deceased) and at least five years since your first Roth IRA contribution.
Exceptions to the 10% Penalty for IRAs
- Age 59½, death or disability.
- Up to $10,000 lifetime for a first-time home purchase.
- Qualified higher education expenses.
- Health insurance premiums while unemployed.
- Medical expenses above 7.5% of AGI.
- Substantially equal periodic payments under 72(t).
- Birth or adoption, up to $5,000 per child.
- One emergency expense distribution of up to $1,000 a year.
- Terminal illness, domestic abuse victims (within limits), and federally declared disasters (up to $22,000).
- An IRS levy.
Note that IRAs do not have the “rule of 55” that applies to 401(k)s. See how to avoid the early IRA withdrawal penalty.
Withholding on IRA Distributions
Withholding does not change how IRA distributions are taxed, only when you pay. IRA custodians withhold 10% federal tax by default on non-periodic distributions, but you can choose any rate from 0% to 100% on Form W-4R. Periodic payments use Form W-4P. If you withhold nothing, you may need estimated payments.
Example: A Retiree’s IRA Withdrawal
A 70-year-old single retiree withdraws $30,000 from a traditional IRA and receives $24,000 of Social Security. Combined income is $30,000 plus $12,000, or $42,000, so $11,300 of benefits is taxable. Her AGI is $41,300. After the $16,100 standard deduction, $2,050 for age 65 and the $6,000 senior deduction, taxable income is $17,150 and her federal tax is about $1,810. Withholding 10% of the IRA ($3,000) more than covers it.
Required Minimum Distributions
Traditional, SEP and SIMPLE IRAs require minimum distributions starting at 73 (75 if born in 1960 or later). You can total the RMDs for all your IRAs and take them from any one. Roth IRAs have no RMDs for the original owner. See required minimum distribution rules for 2026.
Inherited IRA Distributions
Distributions from an inherited traditional IRA are taxable to the beneficiary as ordinary income, but never subject to the 10% penalty, regardless of age. Most non-spouse beneficiaries must empty the account within 10 years, with annual RMDs if the original owner had already started them. Inherited Roth IRA distributions are generally tax-free if the original owner’s five-year period was met. Spreading inherited IRA withdrawals over several years usually keeps more income in lower brackets than waiting until year 10.
Ways to Reduce Tax on IRA Withdrawals
- Qualified charitable distributions: From age 70½, give up to $111,000 in 2026 directly to charity, excluded from income. See qualified charitable distributions.
- Roth conversions in low-income years before RMDs.
- Spread withdrawals evenly to avoid spikes into higher brackets.
- Coordinate with Social Security to manage how much of your benefit is taxable.
Frequently Asked Questions
Are IRA distributions taxable?
Traditional IRA distributions are taxable as ordinary income, except for non-deductible basis. Qualified Roth IRA distributions are tax-free.
What is the penalty for early IRA withdrawal?
10% of the taxable amount before 59½, unless an exception applies.
How much tax is withheld from an IRA distribution?
10% by default for non-periodic payments, but you can choose a different rate on Form W-4R.
Can I take Roth IRA contributions out anytime?
Yes. Regular contributions can be withdrawn at any time without tax or penalty.
Final Thoughts
Knowing how IRA distributions are taxed helps you choose which account to draw from and when. Track non-deductible basis, use the Roth ordering rules to your advantage, and plan withdrawals around Social Security, RMDs and charitable giving. The IRS Publication 590-B has the full rules.
Have questions about how this applies to your situation? Book a free consultation with Aric and get answers from a CPA.
This article provides information only and should not be construed as advice. It is provided without warranty of any kind.
