You’ve saved for years so you can enjoy a comfortable retirement. Now prepare to give some of that money back to Uncle Sam. Taxes could take a big bite out of your savings, leaving you with less money for living expenses. Here’s a look at how some common sources of retirement income are taxed.
Withdrawals from traditional IRAs and 401(k) plans are taxed as ordinary income, which means at your top tax bracket. Withdrawals of earnings from your Roth IRA, on the other hand, are tax-free as long as the Roth has been open for at least five years and you’re 59 1/2 or older. You can withdraw contributions to your Roth IRA tax-free at any time, since you made the original contributions with after-tax money.
When it comes to your taxable accounts, the tax hit will depend on the types of investments you own and how long you’ve owned them. Interest on savings accounts and CDs is taxed as ordinary income. If you’re in the 10% or 15% tax bracket, you’ll pay 0% on capital gains from the sale of stocks, mutual funds and other investments you’ve owned for more than a year. Most others pay 15% on long-term capital gains.
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
Will you receive a private or government pension when you retire? That’s a nice benefit, but it’s also taxable, usually at your ordinary income rate. Some retirees are surprised to discover that a portion of their Social Security benefits may also be taxable. Depending on your other sources of income, up to 85% of your benefits could be taxed.
Finally, don’t ignore the impact of state and local taxes on your retirement income. Moving across state lines—or across the country—could have a big impact on your tax bill. Seven states have no income tax, but that doesn’t always mean that moving to one of them will save you money. Some states with no income taxes make up the difference with high property or sales taxes. And many states that impose income taxes offer generous tax breaks for retirees that could wipe out your tax bill.
For a rundown on how each state taxes its retirees, take a look at our State-by-State Guide to Taxes on Retirees.
-
Stock Market Today: Stocks Rally Despite Rising Geopolitical TensionThe main indexes were mixed on Tuesday but closed well off their lows after an early flight to safety.
-
What's at Stake for Alphabet as DOJ Eyes Google's ChromeAlphabet is higher Tuesday even as antitrust officials at the DOJ support forcing Google to sell its popular web browser. Here's what you need to know.
-
What Does Medicare Not Cover? Seven Things You Should KnowHealthy Living on a Budget Medicare Part A and Part B leave gaps in your healthcare coverage. But Medicare Advantage has problems, too.
-
13 Smart Estate Planning Movesretirement Follow this estate planning checklist for you (and your heirs) to hold on to more of your hard-earned money.
-
Should You Rent in Retirement?Making Your Money Last Renting isn't right for all retirees, but it does offer flexibility and it frees up cash.
-
6 RMD Changes We Could See This YearMaking Your Money Last Congress is considering two bills that would make major changes to required minimum distributions. Could your RMDs be affected?
-
A Kiplinger-ATHENE Poll: Retirees Are Worried About MoneyMaking Your Money Last Concerns about recession, inflation and health care costs weigh on retirees and near retirees.
-
The Retiree's Guide to Going Back to WorkMaking Your Money Last Inflation and a bear market have prompted some retirees to change course.
-
Does an Annuity Belong in a 401(k)?Making Your Money Last Unlike pensions, 401(k)s place the risk of outliving savings squarely on the retiree's shoulders. Find out what's right for you.
-
Social Security: 8 Must-Know Facts About Your BenefitsMaking Your Money Last What you don't understand about Social Security could cost you. Here are key facts worth knowing.
