Many people assume retirement means lower taxes. For some, it does -- particularly those with modest income from Social Security and small savings. But for others -- especially those with significant traditional IRA balances, pension income, or investment portfolios -- retirement income can be surprisingly tax-heavy. Understanding the tax treatment of each income source is the foundation of retirement tax planning.
Social Security: When It Becomes Taxable
Up to 85% of Social Security benefits can be subject to federal income tax -- depending on your "combined income" (AGI + non-taxable interest + half of Social Security benefits).
| Filing Status | Combined Income | Taxable Portion of SS |
|---|---|---|
| Single | Under $25,000 | 0% |
| Single | $25,000-$34,000 | Up to 50% |
| Single | Over $34,000 | Up to 85% |
| Married Filing Jointly | Under $32,000 | 0% |
| Married Filing Jointly | $32,000-$44,000 | Up to 50% |
| Married Filing Jointly | Over $44,000 | Up to 85% |
These thresholds are not indexed to inflation -- they have not changed since 1993. As a result, more retirees have Social Security benefits taxed each year. Notably, IRA withdrawals increase your combined income and can make more of your Social Security taxable.
Traditional IRA and 401(k) Withdrawals
Every dollar withdrawn from a traditional IRA or 401(k) is taxed as ordinary income in the year of withdrawal. There is no capital gains preference -- even if the underlying investments generated long-term gains, withdrawals are taxed at your ordinary income rate. This is the deferred tax bill that comes due.
Required Minimum Distributions (RMDs)
Starting at age 73 (75 for those born in 1960 or later), you must withdraw a minimum amount from traditional IRAs and most workplace retirement accounts each year. The RMD amount is calculated by dividing your account balance by an IRS life expectancy factor. As balances grow through decades of tax-deferred compounding, RMDs can be substantial -- pushing retirees into higher brackets and increasing the taxability of Social Security.
RMDs from Roth 401(k)s can be avoided by rolling to a Roth IRA before the RMD age. Roth IRAs have no RMDs during the owner's lifetime.
Roth Withdrawals
Qualified Roth IRA withdrawals are completely tax-free -- contributions and earnings. A qualified withdrawal requires that the account has been open at least 5 years and you are age 59.5 or older. Roth withdrawals do not count toward combined income for Social Security taxation purposes -- making Roth income especially clean in retirement.
Tax Planning Strategies for Retirement
- Roth conversions in low-income early retirement years: Convert traditional IRA funds to Roth during the gap between retirement and RMD age, or before Social Security starts -- often a window of lower income.
- Manage bracket thresholds: Take just enough traditional IRA withdrawals each year to fill your lower brackets, reducing future RMDs and their tax impact.
- Qualified Charitable Distributions (QCDs): If you are 70.5 or older and charitably inclined, you can direct up to $105,000/year from your IRA directly to a charity. The amount counts toward your RMD but is excluded from taxable income -- more valuable than a deduction for most retirees who take the standard deduction.
- Coordinate Social Security timing: Delaying Social Security to 70 maximizes the benefit, but also means more years of drawing from taxable accounts first -- potentially at lower tax rates before RMDs begin.
Use our Income Tax Calculator to estimate your retirement income tax across different withdrawal scenarios.
Retirement Tax Planning: What Changes and What Doesn't
The tax rules in retirement are meaningfully different from working years — in ways that catch many retirees off guard. With planning, your retirement tax rate can often be lower than your working-years rate. Here's what changes and how to manage it.
Social Security Taxation
Up to 85% of your Social Security benefits may be subject to federal income tax, depending on your combined income (AGI plus tax-exempt interest plus half your Social Security benefits). Below $25,000 (single) or $32,000 (married), no Social Security is taxable. Between those thresholds and $34,000 / $44,000, up to 50% may be taxable. Above those amounts, up to 85% may be taxable. These thresholds are not inflation-adjusted — they've remained unchanged since 1993 — so more retirees pay tax on Social Security each year as benefit amounts rise.
Required Minimum Distributions
Starting at age 73, you must take Required Minimum Distributions from traditional IRAs and 401(k)s. The amount is calculated by dividing your prior year-end account balance by your life expectancy factor from the IRS Uniform Lifetime Table. RMDs are taxed as ordinary income and are not optional. Failure to take an RMD triggers a 25% excise tax on the amount not withdrawn (reduced to 10% if corrected within two years).
The Roth Conversion Window
The years between retirement and age 73 — when RMDs haven't yet begun — are often the lowest-income years of your post-working life, making them the best opportunity for Roth conversions. Converting traditional IRA funds to Roth during this window taxes the conversion at lower rates and reduces future RMDs. A CPA who specializes in retirement tax planning can model the optimal conversion amount across these years.
State Taxes on Retirement Income
Several states exempt some or all Social Security, pension, and IRA income from state income tax. Others tax all retirement income at ordinary rates. States with favorable treatment include Florida, Texas, Nevada (no state income tax), and states like Pennsylvania that fully exempt most retirement income. The state where you retire can meaningfully affect your total annual tax burden — worth factoring into any relocation decision.
Use our income tax calculator to model your expected retirement income across sources, and our state income tax pages to compare the tax treatment in states you're considering retiring to.