Retirees sometimes tap savings for one-off expenses. Here’s what advisors say to consider first - CNBC

Retirees facing a large expense that's not in their regular household budget may turn to their traditional 401(k) or individual retirement account balances to cover it.

While retirement savings may be the easiest place to turn for the money, financial advisors say there are a few things worth considering before making one-off withdrawals. 

"Be aware of the fact that it's not as simple as just taking out the amount of money that [covers] what you want it for," said certified financial planner Victoria Trumbower, managing member of Trumbower Financial Advisors in Bethesda, Maryland. The firm ranked No. 19 on CNBC's Financial Advisor 100 list for 2026. 

At the same time, research shows that many retirees aren't even spending their nest egg. About a third still have 100% or more of their initial assets when they reach their mid-80s, according to a May study by the Employee Benefit Research Institute, a nonpartisan research group.

"Retirement savings are meant to be spent," said CFP Alex Canellopoulos, director of wealth and a partner with Vista Capital Partners in Portland, Oregon. "A one-time withdrawal isn't necessarily a bad decision, as long as it fits within a sustainable retirement plan."

In 2025, about 15% of 401(k) owners ages 60 to 72 with balances of at least $100,000 who had left their employer made an ad hoc withdrawal from their account, according to Vanguard's How America Retires 2026 report, which analyzed more than 125,000 ex-plan participants.

This age group falls between the onset of penalty-free withdrawals — age 59½ — and the threshold for starting required minimum distributions — currently age 73. RMDs are amounts that retirees must withdraw annually from traditional 401(k)s and IRAs.

Not all 401(k) plans allow occasional withdrawals from ex-employees — about 43% did in 2025, up from 16% in 2015, the Vanguard study says. If a plan doesn't offer such ad hoc distributions, a former employee who wants to tap that money would have to withdraw or roll over the entire balance. Typically, they roll it over to an IRA and take withdrawals from there.

The most common reasons for retirees taking irregular distributions, based on a 2025 Vanguard survey of 8,000 clients noted in the recent report, are paying off debt, with 31% of respondents citing it; covering unforeseen expenses such as medical care and home repairs, noted by 23%; and discretionary spending, with 22% citing it as a reason.

Regardless of why you take the money, advisors say a key consideration is the impact on your tax situation.

Distributions from a traditional 401(k) or IRA are generally taxed as ordinary income. If you don't have other means to cover the tax bill, you may have to withdraw extra from your retirement account to compensate — which creates a tricky situation.

"It's like a double whammy because you have to pay income tax, but you don't have any money to pay income tax, so you've got to withdraw more money to pay the tax, and then you've got to pay taxes" on the extra amount, Trumbower said.

For illustration: If you need $50,000 after taxes and assume a combined federal and state income tax rate of 25%, the math says you would need to withdraw about $66,667. That's because the money withdrawn to cover the tax bill is itself taxable. A $66,667 withdrawal taxed at 25% would result in about $16,667 in taxes, leaving $50,000 after tax.

"It's going to cost you a lot more than you think," Trumbower said.

A taxable withdrawal from retirement savings can also trigger additional costs elsewhere.

For example, if you're receiving Social Security retirement benefits, the added income could cause a larger portion of that money to become taxable. Depending on how much other income you have, 0%, up to 50%, or up to 85% of your Social Security benefits may be subject to federal income tax. A large retirement-account withdrawal can increase that other income and make more of your benefits taxable.

For retirees on Medicare, a large taxable withdrawal also could increase their Part B and Part D premiums through the income-related monthly adjustment amount, or IRMAA.

For 2026, that surcharge applies when modified adjusted gross income exceeds $109,000 for an individual filer or $218,000 for a married couple filing jointly. Medicare generally bases the surcharge on tax information from two years earlier, meaning 2026 premiums are typically based on 2024 income.

"What catches many people off guard is that they often don't feel that impact until a couple of years after the withdrawal," said CFP Ciano Villaquiran, a partner with CURO Financial Planning in San Diego.

For some retirees, it may be worth delaying the additional withdrawal needed to cover the tax bill until the next calendar year, Trumbower said. That second distribution would be taxable in the following year, potentially spreading the income — and its tax impact — across two tax years.

"Pushing the [additional] distribution from the IRA into the following calendar year may possibly avoid jumping up into a higher tax bracket," Trumbower said.

However, she said, retirees should still withhold enough tax from the initial distribution to avoid an underpayment penalty. The federal income tax system is generally pay-as-you-go, meaning taxpayers must pay enough tax through withholding or estimated payments during the year rather than waiting until they file their return.

Generally, taxpayers can avoid an underpayment penalty if their withholding and estimated payments equal at least 90% of the current year's tax liability or 100% of the prior year's tax liability. For certain higher-income taxpayers, the prior-year threshold is 110%. Any remaining tax due generally can be paid when the return is filed.

If you have a brokerage account, that may be a better source to fund a one-off expense, Trumbower said.

Taxes on long-term capital gains — profits on investments such as stocks held for more than one year — are generally lower than ordinary income tax rates. Depending on your taxable income, some long-term capital gains may even be taxed at 0%.

For 2026, the 0% long-term capital gains rate applies to taxable income of up to $49,450 for single filers and $98,900 for married couples filing jointly. Above those thresholds, most long-term capital gains are taxed at 15%, with a 20% rate applying at higher income levels.

Depending on the expense, retirees may be able to borrow money instead of tapping their savings, Trumbower said.

For example, a home equity loan or line of credit could help pay for a major home improvement project, while a car purchase could be financed with an auto loan rather than a large withdrawal from retirement savings.

Of course, borrowing comes with its own costs and risks. The loan payments would need to fit within the retiree's budget, and the interest paid could outweigh the potential benefits of leaving retirement savings untouched.

Additionally, it's worth considering how the withdrawal could affect your savings over time.

"Pulling a large amount out for a one-time expense doesn't just reduce the account balance today; it can reduce what that money could have grown into down the road," Villaquiran said.

For illustration: $50,000 earning 5% annually would grow to about $81,400 after 10 years, according to the Securities and Exchange Commission's Investor.gov compound-interest calculator. If a retiree withdrew $10,000 at the start and left $40,000 invested under the same assumptions, it would grow to about $65,200 — a difference of roughly $16,300 after 10 years.

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