Taxes in Retirement

Your filing status, the sources of your retirement income and the total amount of income you receive each year factor into how much you'll be taxed.

 

While you’re still working it’s important to understand how much money will be taken for taxes in retirement so you can estimate how much to save to leave you enough income. But it’s never too late to make adjustments – even in retirement.

 

Your total taxable income may determine your tax bracket and ultimately the rate you may be taxed. Money from IRAs and 401(k)s may be taxed depending on whether you made before-tax contributions and if you claimed tax deductions while contributing to your IRA. The tax rate for these accounts – and any earned income in retirement – can range between 10 and 35 percent. The tax rate may be lower if you contributed to an IRA after paying taxes.

 

At age 72, IRAs, 401(k)s, and similar plans are set to make annual required minimum distributions (RMDs.)

 

Not all income is taxed the same in retirement. Earned income – income you worked for like pensions and 401(k)s – is subject to FICA taxes (such as Social Security and Medicare) while passive income is not. The IRS makes a distinction between passive income and portfolio/investment income. You can take tax deductions on passive, investment income.

 

Timing distributions, bunching income, bunching deductions that can be itemized and converting retirement accounts; all can help retirees manage their tax burden.

​