Seniors can benefit from many discounts and offers; however, taxes aren’t one of them. Retirees will be shocked to find that much of their income is, in fact, subject to taxes. Here are a few that you can expect to face in retirement:
- Taxes on Social Security benefits. Retirees who collect Social Security and don’t have other sources of income can often avoid taxes on their benefits. But if you do have other sources, such as a 401(k) or a part-time job, then there’s a good chance your benefits will be taxed. To determine this, you’ll need to calculate your “provisional” income, which is your non-Social Security income plus half of your yearly benefits. For single filers with a combined income between $25,000 to $34,000, or between $32,000 to $44,000, then you could face taxes up to 50% of your benefits if you file jointly. And if your combined income is above $34,000 as a single filer or $44,000 as a joint filer, you could pay taxes up to 85% of your benefits.1
- Taxes on retirement plan withdrawals. While traditional IRAs and 401(k)s offer an immediate tax break for contributing, as well as tax-deferred growth, you can expect to be taxed once you begin making withdrawals in retirement. And the amount is dependent on your tax bracket. If you expect to be in a higher tax bracket in retirement during your working years, you may want to consider converting your existing savings to a Roth-style account.
- Taxes on pension income. Those lucky enough to retire with one will unfortunately be subject to taxes; however, certain types of military or disability pensions may be partially or completely tax-free.2
Dealing with taxes, especially when you’re on a fixed income, is not something you want to face in retirement. But knowing is half the battle. Contact us today and let us help you discover ways you can minimize taxes so that you can retire optimally.
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[1] https://smartasset.com/retirement/is-social-security-income-taxable
[2] https://www.thebalance.com/taxable-partially-taxable-and-tax-free-retirement-income-2388975