A new senior deduction created by the One Big Beautiful Bill phases out at $150,000 of joint modified adjusted gross income, but qualified Roth IRA withdrawals do not count toward that limit.
The bottom line: retirees who blend traditional 401(k) draws with tax-free Roth distributions can keep the full $12,000 deduction for couples 65 and older through 2028.
By the Numbers
The deduction is $6,000 per spouse age 65 or older, on top of the $32,200 standard deduction for joint filers. It applies to tax years beginning before January 1, 2029. The full $12,000 benefit disappears at $250,000 MAGI.
A couple withdrawing $170,000 from a traditional 401(k) loses $2,400 in deductions and pays roughly $4,928 in extra federal tax, an effective marginal rate near 25%. Every $1,000 above $150,000 wipes out $120 of the combined deduction.
Why Traditional Withdrawals Trigger the Cliff
Every pre-tax 401(k) dollar counts as ordinary income and feeds directly into MAGI. For a married couple, both 66, with $900,000 in a traditional 401(k) and no other income, their MAGI equals their total withdrawals. At $150,000 they keep the full deduction. At $170,000 the phaseout cuts $2,400 from the deduction and adds $528 to the tax bill on top of the 22% bracket rate.
The law applies the phaseout to each spouse separately.
Roth Withdrawals Stay Off the Radar
Qualified Roth IRA withdrawals are tax-free and do not count as ordinary income or MAGI. The Roth IRA was established by the Taxpayer Relief Act of 1997 to provide tax-free growth and distributions. Because qualified distributions are excluded from MAGI, a retiree can pull spending money from a Roth account without shrinking the senior deduction.
Roth IRAs also have no required minimum distributions during the owner’s lifetime, unlike traditional 401(k)s. That gives retirees full control over timing and amount.
Blending Accounts for Tax Efficiency
Investors will note the step-by-step strategy: add up 2026 MAGI so far, including 401(k) withdrawals to date, interest, dividends and realized gains. Size the December withdrawal to finish at or just under $150,000. Cover any spending above that line with cash savings or qualified Roth withdrawals. Neither adds to MAGI, so the deduction stays intact permanently.
If the extra $20,000 is a one-time cost, shifting it into January 2027 preserves the 2026 deduction. But if $170,000 is the annual spending need, moving the withdrawal only moves the cliff to 2027. The figure that matters is the $150,000 MAGI threshold each year through 2028.
Contribution Rules for Retirees
Roth IRA contributions require taxable compensation. Retirees without earned income cannot contribute new funds. The total contribution limit for all IRAs is the lesser of taxable compensation and the annual limit, which can be split between traditional and Roth accounts. Each spouse may contribute up to the limit if they have their own compensation.
Required Minimum Distribution Differences
Traditional 401(k) owners must begin required minimum distributions at age 73 under current law. Roth IRAs have no RMDs during the owner’s lifetime. That means Roth balances can continue growing tax-free and withdrawals remain optional, giving retirees another lever to manage MAGI in later years.
The deduction ends after the 2028 tax year.
Sources
- A Retired Couple Pulling $150,000 From a 401(k) in 2026 Keeps the Full $12,000 Senior Deduction. At $170,000 They've Lost $2,400 of It
- Roth IRA
- Roth 403(b) Plans: Rules, Tax Benefits and More
Photo: G. Edward Johnson (CC BY 4.0)
