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How Your Income Can Be Taxed In Retirement

By Daniel @ LivingSenior - November 11, 2011

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In financial planning for retirement, it is vital to be aware about what you may be taxed from your income as a retired citizen. To be “in the know” about how your retirement income is taxed can help you to strategize to reduce your tax bills, and increase your earnings for a more comfortable retirement.

After all the years of looking forward to retirement, it’s better not to set yourself up for disappointing factors that you did not foresee.

So, how can your income be taxed after retirement, you ask?

How your retirement is taxed depends on your sources of income, some of which may be:

  • Social Security Benefits
  • IRAs
  • Annuities, Distributions from Pensions / Retirement Plans

There is much to consider in retirement. The following snippets about taxation on your retirement income are important to know if you are to protect your retirement nest egg.

Taxation on Social Security

Social Security Benefits provide a large portion of anyone’s retirement. Benefits from Social Security can either be tax-free or partially tax-free, depending upon what your income is. It is important to find out what the tax bracket will be on your social security income, if any, when planning and budgeting for retirement.

Taxation on Annuities, Pension & Retirement Distributions

Pension distributions and annuities income also provide a large portion of one’s retirement. If your pension contributions were tax deferred, your distribution will be totally taxable. To get a hold on what you will be taxed, it is wise to get the taxable portion of your pension distribution assessed plan administrator.

For example, there is some taxation on 401(k) distributions. Be aware that employers' 401(k) plan contributions are excluded from taxable income, so these distributions are fully taxable.

Taxation on IRAs

Depending on the type of IRA account you have, your income from individual retirement accounts (IRAs) may also be fully taxed, partially taxed, or even completely tax-free.

For example:

  • With deductible Traditional IRAs, your income is fully taxable;
  • With non-deductible IRAs, your income is partially taxable;
  • With Roth IRAs, your income is tax free IF you meet two conditions:
  • If the funds were distributed after you reached the age of 59 ½;
  • If your first Roth IRA contribution had been made at least 5 years prior to any distribution.


So you are probably wondering how to “plan your taxes” in retirement. There are strategies available to you that a tax advisor can help you with, or a plan administrator. For example, there are strategies like deferring your retirement plan benefits; or you can also opt for standard deductions.

The more you know before you retire about taxable income in retirement, the more you can save your earnings for your pocket!

There are many things to consider in making the most out of your retirement. For more information, see our Retirement Planning section here at LivingSenior!