A Retired Couple Taking $150,000 From a 401(k) in 2026 Still Gets the Full $12,000 Senior Deduction. At $170,000, They Lose $2,400

A new senior deduction created under the One Big Beautiful Bill may sound simple, but the phaseout rules are more complicated than they first appear. For married couples drawing from a traditional 401(k), the gap between two withdrawal levels creates a tax surprise that can be costly.

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Picture a married couple, both 66, with $900,000 in a traditional 401(k) and no other income. They plan to delay Social Security until age 70 and live on 401(k) withdrawals in the meantime. With only two months left in 2026, the size of their December withdrawal determines how much of the new senior tax break they can keep.

Why $150,000 Is the Withdrawal Number to Watch

The One, Big, Beautiful Bill created a $6,000 deduction for each qualified person age 65 or older. It applies to tax years before January 1, 2029, and it comes in addition to the $32,200 standard deduction for joint filers.

The deduction begins to phase out once modified adjusted gross income, or MAGI, exceeds $150,000 for joint filers. Because every pre-tax 401(k) dollar counts as ordinary income, this couple’s MAGI is simply the amount they withdraw. At $150,000, they keep the full $12,000.

That leaves them with taxable income of $105,800, before the separate extra standard deduction available to people age 65 and older.

Either way, they remain in the 22% tax bracket, which for joint filers runs from $100,800 to $211,400.

What the Extra $20,000 Really Costs

A quick reading might make it seem as though the $12,000 deduction is one pool that shrinks by 6%.

At first glance, the couple appears to lose only 6% of the $20,000 above the income cap, which would leave them with a $10,800 deduction.

But the law phases out each spouse’s $6,000 deduction separately, reducing each one by 6% of joint MAGI above $150,000.

That means each spouse loses $1,200. Combined, the couple loses $2,400 and keeps $9,600.

The extra withdrawal adds $4,400 to their federal tax bill at 22%, and the smaller deduction adds another $528, bringing the total increase to $4,928.

In effect, they pay close to 25% on that additional income, even though their bracket is 22%.

Where the Deduction Reaches Zero

Between $150,000 and $250,000, every additional $1,000 withdrawn eliminates $120 of deduction.

When both spouses are 65 or older, the deduction disappears at $250,000, far earlier than the $350,000 level suggested by a one-pool interpretation.

Shifting $20,000 to January Preserves $2,400 in Deductions

If the $170,000 is tied to a one-time expense such as a new roof or a car, the couple can take $150,000 by December 31 and delay the remaining $20,000 until January.

That preserves the full $12,000 deduction for the year, and the January withdrawal stays below the threshold as long as their total income for the following year is $150,000 or less.

If $170,000 is what they spend every year, simply moving the timing pushes the problem into the next year. Cash savings or qualified Roth withdrawals are better ways to cover the gap because neither one increases MAGI.

Neither amount creates a Medicare issue. IRMAA surcharges, which are the extra Medicare premiums paid by higher earners, use income from two years earlier, so current MAGI affects future premiums.

For joint filers, the first IRMAA threshold is $218,000.

Crossing it adds $81 a month for Part B and $15 a month for Part D per person, or about $2,300 a year for the couple.

The bigger tax issue comes later, at age 70. Once Social Security begins, 401(k) withdrawals on top of benefits can make as much as 85% of those benefits taxable. Taking $150,000 from the 401(k) before Social Security starts reduces the pretax balance while keeping the highest-taxed dollars within the 22% bracket.

Three Moves to Make Before the Year Ends

1. Estimate 2026 MAGI so far. Include 401(k) withdrawals already taken, plus interest, dividends, and realized gains. Then size the final withdrawal so you end the year at or just under $150,000.
2. If next year’s income allows it, move anything above that amount into January. For this couple, splitting a one-time expense across two tax years preserves the full $12,000 deduction for the current year and lowers that year’s federal tax by $528.
3. Map out the next two years now. The deduction ends after the 2028 tax year, so plan withdrawals or Roth conversions to keep each year at $150,000 or less. Above that level, each additional dollar costs close to 25% for most of the way to $250,000.

Think of the $150,000 line as a ramp. Every dollar of MAGI above it trims six cents from each spouse’s deduction. For couples with large traditional 401(k) balances, careful withdrawal timing is the least expensive way to preserve the benefit while it remains available through 2028.