I’m a bit confused why my dad had so much in fees withheld when he pulled some money out of his 401k. He is 67 and his 401k is through ADP. He wanted to withdraw 5k dollars. We did all the paper work correctly. When he received his check it was only $3,745 after taxes -around $989 for federal and $210 for state taxes.

It seems a bit odd given that he is retired and is much further along then 59-1/2 and based on 401k rules and lost around $1,300 just on taxes alone? Is this normal??

My dad's only income is Social Security. He has no other income and does not have a job. Please help me understand this.

2 Answers 2


That seems reasonable given the facts presented.

Normally, a 401(k) is a tax deferred account (you can have after tax money in there but that is less common so I ignore that possibility). The money wasn't taxed when it went in so it has to be taxed as regular income on the way out. If federal taxes were $989, that's 19.78%. If your father is single, his marginal tax rate would be 12% on income between $9,701 and $39,475 and 22% on income between $39,476 and $84,200 so you'd expect to have somewhere between 12% and 22% withheld. Since 19.78% was actually withheld, that would make sense if the 401(k) administrator expected your father's income to be a bit below $40,000 for the year and the 401(k) distribution to push it a bit over the $40,000 threshold. That's plausible for Social Security income though it's probably a bit high unless your father made a pretty decent income.

Of course, if they took more in taxes than they needed to, he'll get a larger refund when he files his taxes in a couple months. If your father makes less than $30,000 in other income, for example, so the entire 401(k) distribution would be in the 12% bracket, he'd get 7.78% back when he files taxes ($389).

  • 3
    tl;dr 401k is not tax free, and Uncle Sam will eventually get his "pound of flesh".
    – RonJohn
    Nov 28, 2019 at 4:51

Justin's answer is absolutely correct. I'd like to focus on the aspect of 'withheld tax' vs 'tax due'.

Say I retired early. 55, so no penalty to withdraw from 401(k), and no social security income yet.

At $100K withdrawn, and a standard deduction of $24,400, (married filing joint), I'd have a taxable $75,600 and a tax due of $8684, ($1940 + 12% of amount exceeding $19,400). Yet, my 401(k) provider withholds $20K.

In real life, I was 50, my wife 56.5, and, after 3 years of this nonsense, once she turned 59.5, we were able to stop the 401(k) withdrawals and just use the IRA account.

So, for your dad, my advice is to first transfer 401(k) funds to an IRA, even for an hour, as long as the funds are direct transferred, there is no tax withholding. Then withdraw from the IRA, where you get to control the exact tax withheld.

  • Re "control the exact tax withheld", not my experience. The provider (and of course this may differ with different companies) allows only discrete percentages - 0, 10, 20, &c - to be withheld. Of course you can fine-tune this by making several withdrawals of appropriate size over the course of a year.
    – jamesqf
    Nov 28, 2019 at 17:57
  • Our Schwab IRAs allow integer granularity, 10%, 11, 12, etc. Any integer. To your point, $87K at 10% plus $13K at zero isn't too much effort. Nov 28, 2019 at 18:00
  • Sure, though it gets a bit more complicated if you have other income. For instance, in the OP's case, his father is collecting Social Security, some of that could be taxable ssa.gov/planners/taxes.html and he may or may not be doing withholding on the benefits ssa.gov/planners/taxwithold.html
    – jamesqf
    Nov 29, 2019 at 17:24

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