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Will You Pay Taxes During Retirement?



You might think you know how much you have saved for retirement and whether you’ll get money from Social Security or a pension. However, do you know how that money will be taxed? The sources of your retirement income and how much retirement income you draw each year will determine your taxes in retirement. And your taxes determine how much money you really have to live on.

It’s imperative that you understand how your retirement income will be taxed. If you’re still working, knowing this information will help you figure out how much you need to save before you can retire. If you’re already retired, it will tell you whether you need to do some additional planning to avoid running out of money. Understanding how taxes will affect your retirement can help you pursue ways to minimize your tax bill and maximize your retirement income.

Key Takeaways

  • Up to 85% of your Social Security benefits may be taxable, depending on your income and filing status.
  • Even if you’re receiving Social Security benefits, you will have Social Security contributions withheld from your pay if you’re still earning income from work.
  • Distributions from 401(k) and traditional IRA accounts are taxable.
  • How much tax you’ll pay on those distributions and your other sources of retirement income depends on the tax bracket into which you fall.

How Is Social Security Taxed in Retirement?

Is My Social Security Income Taxable?
Combined IncomeIndividual ReturnMarried, Joint ReturnMarried, Separate Return
$0 to $24,999No tax  
$25,000 to $34,000Up to 50% of SS may be taxable  
More than $34,000Up to 85% of SS may be taxable  
$0 to $31,999 No tax 
$32,000 to $44,000 Up to 50% of SS may be taxable 
More than $44,000 Up to 85% of SS may be taxable 
$0 and up  Up to 85% of SS may be taxable

Where It Gets Confusing

The “combined” in combined income is where things can get confusing. It consists of your adjusted gross income, your nontaxable interest income, and half of your Social Security benefits.

Adjusted gross income is your gross (total) income minus adjustments to that income. Common sources of gross income include wages, salaries, tips, interest, dividends, IRA/401(k) distributions, pensions, and annuities.  Common adjustments to gross income include health savings account contributions, deductions for IRAs, student loan interest deduction, alimony paid, and contributions to self-employed retirement plans.

40%

The percentage of people who get Social Security and have to pay income taxes on those benefits, according to the Social Security Administration.

How Much Can a Retiree Earn Without Paying Taxes?

Standard Deductions for Retirees

Standard Deductions for Taxpayers Age 65 or Over, Tax Year 2019
Filing StatusStandard DeductionSenior BonusTotal Deduction
Single$12,200$1,650$13,850
Married filing jointly or qualified widow(er)$24,400$1,300 per senior spouse$25,700 or $27,000
Married filing separately$12,200$1,300$12,500
Head of household$18,350$1,650$20,000

Tax Brackets for 2019

Tax Brackets for 2020

The Bottom Line



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