Does the 4% rule account for taxes? No. The 4% rule is a gross, before-tax portfolio withdrawal rate, not the amount you get to spend. William Bengen’s 1994 study assumed a tax-free account, so a $40,000 first-year withdrawal on a $1,000,000 portfolio is reduced by income tax unless it comes from a Roth. How much of that $40,000 you actually keep depends on the type of account the money leaves.
No, the 4% rule does not account for taxes or fees. It sets a before-tax withdrawal equal to 4% of your starting balance, then adjusts that dollar amount for inflation. From a Traditional IRA or 401(k) the withdrawal is taxed as ordinary income, from a Roth a qualified withdrawal is tax-free, and in a taxable account only the gain is taxed. Plan for the after-tax figure, not the headline 4%.
Does the 4% rule account for taxes?
The 4% rule does not account for taxes. It describes a gross, before-tax withdrawal from your portfolio. Bengen tested a tax-free account, and both the later Trinity Study and Morningstar’s annual reports exclude taxes and fees. A 4% or 3.9% figure is what you take out, not what you can spend. Taxes, investment fees, inflation, and healthcare costs all reduce the real spending power that a stated rate implies.
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The 4% rule answers one narrow question: how large a first-year withdrawal, adjusted for inflation, has historically survived a 30-year retirement. It says nothing about the tax code. A retiree who takes $40,000 from a pre-tax account and a retiree who takes $40,000 from a Roth are treated identically by the rule, even though their spendable cash can differ by thousands of dollars.
This matters because most retirement wealth sits in tax-deferred accounts. The IRS treats Traditional IRA and 401(k) withdrawals as ordinary income (Source: IRS Publication 590-B). So the practical version of the question is not whether 4% is safe, but how much of a 4% withdrawal reaches your checking account after federal and state tax.
Where the 4% rule came from: Bengen (1994)
The 4% rule comes from William P. Bengen, a financial planner who published “Determining Withdrawal Rates Using Historical Data” in the Journal of Financial Planning in October 1994. Using US market data back to 1926, he found that a first-year withdrawal of about 4%, adjusted for inflation each year, survived at least 33 years in every historical start year he tested, with a portfolio of 50% stocks and intermediate-term Treasuries.
Bengen did not recommend a rigid 50/50 mix. He tested equity allocations from 0% to 100% and concluded that clients should hold as close to 75% stocks as they could accept, and in no case less than 50% (Source: Bengen 1994, FPA reprint). The rule is a historical worst-case finding, not a guarantee about the future.
What was Bengen’s precise figure?
Bengen’s precise worst-case sustainable rate, which he later called SAFEMAX, was approximately 4.15%, widely rounded to 4%. He wrote that a 4.25% first-year withdrawal could exhaust a portfolio in as little as 28 years under repeat historical conditions, which is why the popular shorthand settled just below that threshold at 4% (Source: Bengen 1994, Journal of Financial Planning, FPA reprint).
The tax-free-account assumption everyone forgets
Bengen’s 1994 analysis assumed a tax-free account and did not deduct income tax from the withdrawals. Every version of the rule published since has inherited that assumption: taxes are handled outside the model. The Trinity Study (1998) likewise excluded taxes, fees, and Social Security. So a stated 4% is a pre-tax number by design, and the tax on a real-world withdrawal must be added back separately.
This single assumption is why the rule reads as more generous than it is. When commentators cite 4% without the tax caveat, a retiree with pre-tax savings can overstate spendable income by a fifth or more, depending on bracket.
Is the 4% withdrawal before or after tax?
Before tax. Every widely cited safe withdrawal rate, from Bengen’s 4% (1994) to Morningstar’s 3.9% base case for 2026, is a gross portfolio figure. A 4% withdrawal from a Traditional IRA or 401(k) is reduced by ordinary income tax before you can spend it. Only a qualified Roth withdrawal is both a 4% gross figure and a 4% after-tax figure, because it is not taxed at all.
How much of a 4% withdrawal do you actually keep?
On a $1,000,000 portfolio, a 4% rule withdrawal is $40,000 before tax. What you keep depends on the account. A qualified Roth withdrawal leaves the full $40,000. A Traditional IRA or 401(k) withdrawal taxed at a 22% marginal rate leaves roughly $31,200. A taxable-account withdrawal that is half return of basis and half long-term gain leaves about $37,000. The table below shows the split.
| Account type | Gross withdrawal | How it is taxed (2026) | Federal tax (illustrative) | Approx. spendable |
|---|---|---|---|---|
| Traditional IRA / 401(k) | $40,000 | Ordinary income, 22% marginal bracket | $8,800 | $31,200 |
| Roth IRA (qualified) | $40,000 | Tax-free | $0 | $40,000 |
| Taxable brokerage (50% basis, 50% long-term gain) | $40,000 | $20,000 return of basis untaxed; $20,000 long-term gain at 15% | $3,000 | $37,000 |
Illustrative arithmetic for a married couple filing jointly, both age 65 or older, with the withdrawal taxed as marginal income in the 22% federal bracket (2026). Actual tax depends on total income, filing status, state tax, and basis. Not a projection. Source: IRS Publication 590-B; IRS Topic No. 409.
Traditional IRA and 401(k): taxed as ordinary income
Every dollar of a Traditional IRA or 401(k) withdrawal is taxed as ordinary income, with no capital-gains treatment (Source: IRS Publication 590-B). The 2026 federal ordinary rates run 10% to 37%. For married couples filing jointly, the 22% bracket begins at $100,800 of taxable income and the 24% bracket runs to $403,550. A $40,000 withdrawal stacked on other income at a 22% marginal rate costs about $8,800 in federal tax.
Beginning at age 73, the IRS forces required minimum distributions, which raise taxable income whether or not you spend the money (Source: IRS RMD FAQs). Retirees who want to reduce those future forced distributions sometimes shift money to Roth accounts earlier; our overview of required minimum distributions for 2026 covers the timing.
Roth: qualified withdrawals are 100% spendable
A qualified Roth IRA withdrawal is entirely tax-free, covering both contributions and earnings, so all $40,000 is spendable. Qualified status requires the 5-year rule (at least five tax years since your first Roth contribution) plus a qualifying event such as reaching age 59 and a half (Source: IRS Publication 590-B). Roth IRAs also carry no required minimum distributions during the original owner’s lifetime, giving you control over taxable income.
Taxable brokerage: only the gain is taxed
In a taxable brokerage account, only the gain is taxed when you sell, not the return of your original basis. Long-term gains (assets held more than a year) qualify for preferential 2026 rates of 0%, 15%, or 20%. For married couples filing jointly, the 0% rate applies up to $98,900 of taxable income and 15% applies up to $613,700 (Source: IRS Topic No. 409). Because much of a withdrawal is untaxed basis, the spendable fraction is often high.
Deductions that shelter part of your withdrawal in 2025-2026
Standard deductions can shelter a large part of a pre-tax withdrawal, which many articles ignore. For 2026 the standard deduction is $16,100 single and $32,200 married filing jointly, plus $2,050 single or $1,650 per spouse for age 65 and older. The One Big Beautiful Bill Act (P.L. 119-21) adds a $6,000 senior deduction per person age 65 and older for tax years 2025 through 2028.
Stacked together, these deductions can absorb a modest withdrawal entirely. A married couple, both age 65 or older, claiming the standard deduction can shield about $47,500 of income in 2026 ($32,200 base, plus $3,300 in age additions, plus $12,000 in senior deductions). If a $40,000 Traditional IRA withdrawal is their only income, the taxable amount can fall to zero, and the full $40,000 is spendable.
The senior deduction phases out above $75,000 of modified adjusted gross income for single filers and $150,000 for joint filers (Source: IRS newsroom, OBBBA provisions). The higher your other income, the less shelter is left and the more of a 4% withdrawal is taxed at your marginal rate.
Do RMDs, Social Security, IRMAA and NIIT change the math?
Yes. Beyond the headline tax, four rules can raise the effective cost of a withdrawal: required minimum distributions force taxable income at age 73, larger withdrawals can make up to 85% of Social Security benefits taxable, higher income can trigger Medicare IRMAA surcharges, and the 3.8% Net Investment Income Tax can apply to taxable-account gains above income thresholds. Each interacts with a 4% withdrawal.
- Required minimum distributions. RMDs begin at age 73, rising to age 75 for those born in 1960 or later, whose first age-75 RMD year is 2035. RMDs are taxable ordinary income (Source: IRS RMD FAQs).
- Social Security taxation. As withdrawals raise combined income, a larger share of benefits becomes taxable, up to a maximum of 85% (Source: IRS Publication 915).
- Medicare IRMAA. The 2026 standard Part B premium is $202.90 per month. Income-related surcharges apply above $109,000 of MAGI for single filers and $218,000 for joint filers, using a two-year lookback (Source: CMS, Medicare.gov).
- Net Investment Income Tax. A 3.8% tax applies to net investment income once MAGI exceeds $200,000 single or $250,000 married filing jointly. IRA and 401(k) withdrawals are not themselves net investment income, but they raise MAGI (Source: IRS Topic No. 559). See our note on the Net Investment Income Tax for 2026.
What is the current safe withdrawal rate in 2026?
Morningstar’s “The State of Retirement Income: 2026,” published February 18, 2026, sets a base-case starting rate of 3.9%, up from 3.7% in 2025, assuming roughly 30% to 50% equities, a 30-year horizon, and a 90% success probability. It is a forward-looking Monte Carlo figure rather than Bengen’s historical one, and like every published rate it is stated before taxes and fees (Source: Morningstar 2026, via FA-Mag, Keil Financial Partners, RetireGuide).
Morningstar’s figure sits below Bengen’s 4% because it uses current valuations and forward return forecasts rather than historical averages. Bengen’s own later work, adding diversification, cites approximately 4.5% (2006) and about 4.7% in his 2025 book. All of these remain before-tax figures, so the account-type math above applies to each of them.
Should you withdraw more than 4% to cover taxes?
Some retirees gross up a pre-tax withdrawal to hit an after-tax spending target. To net $40,000 from a Traditional IRA in a 22% bracket, you would withdraw about $51,300 ($40,000 divided by 0.78). Others instead use tax-efficient withdrawal ordering or earlier Roth conversions to lower future taxable withdrawals. Both approaches carry tradeoffs, and many investors review the tax cost with a professional before changing a withdrawal rate.
Grossing up preserves your spending but draws down the portfolio faster, which can strain the survival math the 4% rule was built to protect. A different path is to change where the money comes from over time. Filling low brackets with Roth conversions in early retirement can reduce later RMDs and the taxable share of Social Security, though a conversion is itself taxable ordinary income in the year you make it. Our guides on how much to convert to a Roth and the Roth conversion deadline for 2026 explain the timing and the December 31 cutoff. Whether any of these steps fits depends on your income, account mix, and goals.
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Frequently asked questions
Does the 4% rule include taxes?
No, the 4% rule does not include taxes. It sets a before-tax withdrawal of 4% of your starting portfolio, adjusted for inflation each year. Bengen’s 1994 study assumed a tax-free account, and both the Trinity Study and Morningstar’s reports exclude taxes and fees. What you actually keep depends on whether the money comes from a Traditional, Roth, or taxable account.
Is the 4% rule before or after tax?
Before tax. Every published safe withdrawal rate, from Bengen’s 4% in 1994 to Morningstar’s 3.9% base case for 2026, is a gross portfolio figure. Bengen assumed a tax-free account, and both Trinity and Morningstar exclude taxes. A 4% withdrawal from a Traditional IRA or 401(k) is reduced by ordinary income tax before you can spend it.
How much tax do you pay on a 4% withdrawal?
It depends on the account and your bracket. A $40,000 Traditional IRA withdrawal taxed at a 22% marginal rate in 2026 owes about $8,800, leaving roughly $31,200. A qualified Roth withdrawal owes $0. In a taxable account, only the long-term gain is taxed at 0%, 15%, or 20%, so a large share is often untaxed return of basis.
Does the 4% rule still work in 2026?
The 4% rule remains a widely cited starting point, but current research uses lower base cases. Morningstar’s “The State of Retirement Income: 2026” sets a 3.9% base-case starting rate, up from 3.7% in 2025, for a 30-year horizon at 90% success. Bengen’s later work cites about 4.7% with a more diversified portfolio. All are before-tax figures.
Is $1 million enough to retire on the 4% rule?
At a 4% rate, a $1,000,000 portfolio produces a $40,000 gross first-year withdrawal, before tax. From a Traditional IRA, tax may reduce that to roughly $31,200 in a 22% bracket, or leave it near $40,000 if 2026 deductions absorb the income. Whether that is enough depends on your spending, other income such as Social Security, and your account mix.
Should you withdraw more than 4% to cover taxes?
Some retirees gross up a pre-tax withdrawal to hit an after-tax target. To net $40,000 from a Traditional IRA in a 22% bracket, you would withdraw about $51,300. Others use tax-efficient withdrawal ordering or earlier Roth conversions to reduce future taxable withdrawals. These approaches carry tradeoffs and depend on your situation; many investors review them with a professional.
This material is provided by Q3 Advisors, a registered investment adviser, for informational and educational purposes only. It is not investment, legal, or tax advice, nor a recommendation to buy or sell any security or to adopt any strategy. Figures are believed accurate as of the dates cited but are subject to change. Registration with the SEC or a state does not imply a certain level of skill or training. See Q3 Advisors’ Form ADV Part 2A for information on services, fees, and conflicts of interest. Consult your own qualified tax, legal, or financial advisor before making any decisions.
