Is 401K Money Tax Free? 
A 401 -LRB- k -RRB- defers taxation on both deposits and earnings . The money deposited to a normal 401 -LRB- k -RRB- is not subject to ordinary income tax in the year that the contribution is made . That money is taxed as ordinary income when it is paid out . As mentioned , 401 -LRB- k -RRB- money is also subject to surtax if taken prior to age 59.5 . 