Retirement Plan Withdrawal Basics
- When a worker withdraws money from a retirement plan, whether it is a profit-sharing plan, a 401k plan or a traditional individual retirement account, he must pay income tax on the withdrawal. Contributions made to profit-sharing plans and other retirement accounts are generally tax-deductible and investment gains are tax-deferred, meaning account holders are able to delay paying income taxes on funds in their accounts until they ultimately withdraw the money in retirement. Since income tax rates are higher for those with higher incomes, workers who withdraw money early while they are still earning wages or a salary can result in their paying more income taxes on the money than if they waited until retirement.