Retirement means leaving many things behind. Unfortunately, taxes aren’t one of them.
Taxes in retirement can be complicated. You might be drawing income from multiple sources, including 401(k) distributions, Social Security, interest from a savings account, a pension or even a part-time job.
When tax time rolls around, figuring out how much you owe can be a headache.
Here’s a rundown of some taxes to expect in retirement. We’ll also discuss ways to reduce those taxes, along with free tax prep programs for seniors.
How Is Social Security Taxed?
Not everyone is taxed on their Social Security benefits.
You won’t owe taxes on Social Security if it’s your only source of retirement income. Also, Supplemental Security Income (SSI) payments are never taxable.
The amount of tax you may owe depends on other retirement income you receive.
To figure out if you owe taxes on your benefits, the Social Security Administration considers what’s known as your “combined income.”
Here’s how it works.
Retirees must pay taxes on their Social Security benefits if:
Half of their yearly Social Security benefits + adjusted gross income = more than $25,000 for single filers or $32,000 for married couples filing jointly.
The Internal Revenue Service won’t tax your entire Social Security income, even if you exceed those combined income thresholds. Instead:
50% of your Social Security benefits are taxable if:
Half of your benefits + other income = $25,000 to $34,000 for individuals or $32,000 to $44,000 for married couples filing
