Retirement means leaving many things behind.
Unfortunately, taxes arent one of them.
Taxes inretirementcan be complicated.
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When tax time rolls around, figuring out how much you owe can be a headache.
Heres a rundown of some taxes to expect in retirement.
Well also discuss ways to reduce those taxes, along with free tax prep programs for seniors.
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How Is Social Security Taxed?
Not everyone is taxed on theirSocial Security benefits.
You wont owe taxes on Social Security if its your only source of retirement income.
Also, Supplemental Security Income (SSI) payments are never taxable.
The amount of tax you may owe depends on other retirement income you receive.
Heres how it works.
Heres a table of the202324 tax bracketsfor reference.
Retirement Account Withdrawals
Withdrawals from qualified retirement accounts may also be taxable.
Traditional Retirement Accounts
Youll face taxes on withdrawals from traditional retirement accounts.
But your taxes come due when you start withdrawing money in retirement.
This ranges from 10% to 37%, depending on your tax bracket.
There are a couple tax rules to keep in mind about Roth accounts.
Once youre no longer earning income, you’re able to tap your traditional retirement accounts.
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But you cant leave money in your 401(k) forever.
Uncle Sam eventually wants his cut.
If you dont withdraw the money, youll owe big bucks.
How much youre required to withdraw changes from year to year and is based on IRS life expectancy tables.
Use thisRMD calculatorfrom the U.S. Securities and Exchange Commission to figure out how much you gotta withdraw.
Other Sources of Retirement Income
Heres how other common sources of retirement income are taxed.
Annuities
Tax treatment foran annuitydepends on how you purchased the contract.
Its taxed as ordinary income, which is based on your tax bracket.
Its a little different for annuities purchased outside retirement accounts with after-tax dollars.
The rest is taxed at your ordinary income rate.
Pensions
Youll owe federal income tax on payments you receive from a pension.
Pension payments are taxed at your ordinary income rate.
You may also owe state tax on some or all of your pension income.
Several states dont tax payments from pensions at all, including Florida, Illinois, Pennsylvania and Nevada.
This can range from 10% to 37%, depending on your tax bracket.
Taxable Accounts
Investments sold inside a taxable brokerage account i.e.
not a qualified retirement account are subject tocapital gains tax.
How much you owe in taxes depends on how long you owned the asset before you sold it.
Taking losses in a taxable brokerage account is another way to minimize taxes.
you could use capital losses to offset capital gains.
People who are 65 and older or people who are blind of any age get a higher standard deduction.
This can help reduce how much you owe at tax time.
Single filers over 65 can enjoy a $3,900 increase to the standard deduction.
Your spouse can also enjoy a higher standard deduction.
Thispage from the IRSexplains how to qualify for that deduction.
Thankfully, the IRS and AARP Foundation offerfree tax help for seniorsat no cost to you.
Speaking with a financial advisor or tax professional is the best way to minimize taxes after you retire.
A financial expert can help you navigate state and local taxes, as well as federal income taxes.
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Rachel Christian is a Certified Educator in Personal Finance and a senior writer for The Penny Hoarder.
She focuses on retirement, investing, taxes and life insurance.