Do I pay tax on the whole SWP withdrawal or just the gains?

In a taxable account, only the capital-gain portion of each withdrawal is taxed; the part that represents your original contributions is a tax-free return of capital. In a traditional 401(k) or IRA, by contrast, the entire withdrawal is taxed as ordinary income.

Can I really pay 0% tax on my withdrawals?

Yes — if your total taxable income (including the gain) stays under the 0% long-term capital-gains threshold, which is around $49,450 for a single filer in 2026. This is why careful retirees sometimes realise gains deliberately in low-income years.

How is this different from the 4% rule?

The 4% rule is a rule of thumb for how much to withdraw. Tax is a separate question about what you keep. An SWP calculator that models both shows your after-tax income year by year, rather than assuming a flat withdrawal.

How SWP withdrawals are taxed in the US

By GrowThenDraw Editorial Team · Updated July 4, 2026 · 7 min read · Editorial policy

A systematic withdrawal plan (SWP) turns an invested lump sum into a monthly paycheck. The question that trips people up is tax: if you withdraw $2,500 a month, how much of that is actually taxable?

The reassuring answer is: usually far less than the full amount. In a US taxable brokerage account, only the capital-gain portion of each withdrawal is taxed — and at 2026 long-term rates that can even be 0%. Here's how it works, and how the account type changes everything.

Only the gain is taxed, not the whole withdrawal

When you sell part of your portfolio to fund a withdrawal, you're selling a mix of your original contributions (your cost basis) and the growth on top. Your own money coming back is never taxed again — only the gain is.

The practical share is proportional. If your portfolio is 60% contributions and 40% growth, then roughly 40% of each withdrawal is a taxable gain and 60% is tax-free return of capital. Early in retirement, when growth is a smaller slice, your taxable portion — and your tax — is lower.

The 2026 long-term capital-gains rates

For assets held over a year, US long-term capital gains are taxed at 0%, 15% or 20% — and which rate applies depends on your total taxable income, because the gain stacks on top of it.

For 2026, a single filer pays 0% on long-term gains while total taxable income sits below about $49,450, 15% up to about $545,500, and 20% above that (the thresholds are higher for married-filing-jointly). This is why a retiree with modest other income can pay little or no tax on the same gain that would cost a high earner 15–20%.

Don't forget the 3.8% NIIT

On top of the capital-gains rate, a 3.8% Net Investment Income Tax applies to investment income once your modified adjusted gross income exceeds $200,000 (single) or $250,000 (married filing jointly). These thresholds aren't inflation-adjusted, so more people drift into NIIT over time. For most retirees drawing a modest income it won't apply — but it's real for larger portfolios.

The account type changes everything

Taxable brokerage account — the capital-gains rules above apply to the gain portion of each withdrawal.
Traditional 401(k) or IRA — there's no capital-gains split at all; the entire withdrawal is taxed as ordinary income at your regular bracket.
Roth IRA — qualified withdrawals are completely tax-free, gains included.

A note on what this doesn't cover

State income tax is separate and varies widely — some states tax capital gains as ordinary income, others not at all. And these rules assume long-term holdings; selling within a year of buying triggers higher short-term rates. For a real plan, model your specific account, income and state, and treat any calculator result as a well-grounded estimate rather than a filing.