How are 401K distributions taxed?

401(k) distributions are generally taxed as ordinary income in the year they are withdrawn, meaning they are subject to federal income tax rates. If you take a distribution before age 59½, you may also incur a 10% early withdrawal penalty unless you qualify for an exception. Additionally, state taxes may apply depending on your residence. It’s important to note that Roth 401(k) withdrawals may be tax-free if certain conditions are met.