Taxes in Retirement: What to Expect and How to Save Money

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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 jointly.

85% of your Social Security benefits are taxable if:

  • Half of your benefits + other income = $34,000 and up for individuals or $44,000 and up for married couples filing jointly

Only about 40% of people who receive Social Security have to pay federal income taxes on their benefits, according to the Social Security Administration.

While 50% or 85% of your Social Security benefits may be taxable, they will be taxed at your ordinary income rate. Here’s a table of the 2022-2023 tax brackets for reference.

Retirement Account Withdrawals

Withdrawals from qualified retirement accounts may also be taxable.

Whether you owe taxes depends on if you funded the account with pre-tax dollars (a traditional account) or post-tax dollars (a Roth account).

Traditional Retirement Accounts

You’ll face taxes on withdrawals from traditional retirement accounts. This can include traditional 401(k)s, IRAs, SEP IRAs, Simple IRAs and 403(b)s.

Contributions to traditional retirement accounts reduce your taxable income in the year they’re made. But your taxes come due when you start withdrawing money in retirement.

Distributions from a traditional 401(k) plan or other qualified retirement accounts are taxed at your ordinary income rate. This ranges from 10% to 37%, depending on your tax bracket.

Roth Retirement Accounts

Distributions from Roth accounts — including a Roth IRA and Roth 401(k) — generally aren’t taxable, which can make these accounts a great source of tax-free income in retirement.

There are a couple tax rules to keep in mind about Roth accounts.

  • Contributions are always tax-free. You can always withdraw contributions from Roth accounts tax-free. That’s the original money you put in, not any earnings your investments made over time.
  • Earnings become tax-free. A five-year rule applies to Roth IRAs. Your account must be open for at least five years before you can withdraw your earnings from a Roth IRA without paying taxes. After five years, you can withdraw your contributions and earnings tax-free.
  • Employee contributions aren’t tax-free. If your employer made contributions to your Roth 401(k) account, those employer contributions are taxable when you withdraw money in retirement.

Withdrawing money from a Roth account when your taxable income is higher is a good way to save money on taxes.

For example, if you plan on working a part-time job the first year after you retire, withdrawing money from a Roth IRA can minimize your tax bite. Once you’re no longer earning income, you can tap your traditional retirement accounts.

Required Minimum Distributions

It might be tempting to leave money in your traditional retirement accounts as long as possible so you can avoid taxes.

But you can’t leave money in your 401(k) forever. Uncle Sam eventually wants his cut.

A required minimum distribution (RMD) is the amount of money you are required to withdraw from your retirement account each year after you turn 72.

If you don’t withdraw the money, you’ll owe big bucks. Failing to take required minimum distributions — or not withdrawing enough — can result in a 50% tax on the amount you didn’t take.

How much you’re required to withdraw changes from year to year and is based on IRS life expectancy tables.

Use this RMD calculator from the U.S. Securities and Exchange Commission to figure out how much you need to withdraw.

A quick note: A Roth IRA isn’t subject to required minimum distributions while you’re alive, though when you die, your account beneficiary may have to take RMDs.

Other Sources of Retirement Income

Here’s how other common sources of retirement income are taxed.


Tax treatment for an annuity depends on how you purchased the contract.

If you bought an annuity inside a 401(k) or traditional IRA, the entire payment you receive is considered taxable income. It’s taxed as ordinary income, which is based on your tax bracket.

It’s a little different for annuities purchased outside retirement accounts with after-tax dollars. In that case, the portion of the payment that represents the principal (your original investment) is tax-free. The rest is taxed at your ordinary income rate.

For example, if you purchased an annuity for $100,000, and in 20 years it’s worth $180,000, the $80,000 is taxable.


You’ll owe federal income tax on payments you receive from a pension. Pension payments are taxed at your ordinary income rate.

Your employer will withhold taxes as the payments are made, so at least some of what’s due will already be paid, according to the Financial Industry Regulatory Authority.

You may also owe state tax on some or all of your pension income. Several states don’t tax payments from pensions at all, including Florida, Illinois, Pennsylvania and Nevada.

Interest from Savings Accounts and CDs

Interest earned on savings accounts, certificates of deposit (CDs) and money market accounts is considered taxable income by the IRS.

Interest earned from these accounts is taxed at your marginal tax rate, also known as your ordinary income tax rate. This can range from 10% to 37%, depending on your tax bracket.

If you earned $10 or more in interest income last year, you’ll receive tax form 1099-INT from your bank or credit union before Jan. 31.

Taxable Accounts

Investments sold inside a taxable brokerage account — i.e. not a qualified retirement account — are subject to capital gains tax.

How much you owe in taxes depends on how long you owned the asset before you sold it.

  • Short-term capital gains: This tax rate applies to investments you sell less than one year after purchasing them. The short-term capital gains tax rate is basically your ordinary income rate, which ranges from 10% to 37%, depending on your tax bracket.
  • Long-term capital gains: This tax rate applies to investments you sell after owning them for at least one year. The rate is either 0%, 15% or 20%.

Tax Year 2022 Long-Term Capital Gains Tax Rates

Tax filing status 0% tax rate 15% tax rate 20% tax rate


$0 to $41,675

$41,676 to $459,750

$459,751 or more

Married, filing jointly

$0 to $83,350

$83,351 to $517,200

$517,201 or more

Married, filing separately

$0 to $41,675

$41,676 to $258,600

$258,601 or more

Head of household

$0 to $55,800

$55,801 to $488,500

$488,501 or more

Hold investments inside a taxable brokerage account for at least a year if you want to reduce taxes in retirement. If your income is low enough (less than $41,675 for tax year 2022), you might be able to avoid capital gains taxes on long-term investments entirely.

Taking losses in a taxable brokerage account is another way to minimize taxes.

When you sell a stock or other asset for less than what you paid for it, you experience a capital loss. You can use capital losses to offset capital gains.

If you made a big profit earlier in the year, for example, selling stocks at a loss can reduce or even eliminate how much you owe in capital gains taxes.

Special Tax Deduction for People 65 and Older

Seniors who take the standard deduction enjoy an additional tax break in retirement.

People who are 65 and older — or people who are blind of any age — get a higher standard deduction. This can help reduce how much you owe at tax time.

For reference, the standard deduction for tax year 2022 is $12,950 for single filers and $25,900 for married couples.

Married couples who are age 65 or older can each receive a $1,400 bump to the standard deduction for tax year 2022 (which are filed in 2023).

Single filers can enjoy a $1,750 increase to the standard deduction.

Increased Standard Deduction for People 65 and Older

Filing Status Additional Standard Deduction for Tax Year 2022 (per person)

Married filing jointly or married filing separately


Single or head of household


You can receive an additional $1,400 or $1,750 if you’re blind or have low vision that’s below 20/200 and not correctable with glasses. Your spouse can also enjoy a higher standard deduction.

This post from the National Disability Institute explains how to qualify for that deduction.

How to Get Help With Your Taxes This Year

As you can see, taxes in retirement can get complicated.

Thankfully, the IRS and AARP Foundation offer free tax help for seniors at no cost to you.

  • The Tax Counseling for the Elderly Program, or TCE, provides free basic tax return preparation to people ages 60 and older. To find the nearest TCE site in your area, call 800-906-9887 or use the VITA/TCE Locator Tool.
  • The AARP Foundation’s Tax Aide is a nationwide program providing free in-person and virtual tax preparation services. Anyone can get assistance but the program focuses on people ages 50 and older as well as taxpayers with low to moderate incomes. You can find an AARP Tax Aide site near you by using this locator tool.

Speaking with a financial advisor or tax professional is the best way to minimize taxes after you retire. A financial expert can help you navigate state and local taxes, as well as federal income taxes. They can also help you anticipate future tax bills so you can plan your finances in retirement accordingly.

Rachel Christian is a Certified Educator in Personal Finance and a senior writer for The Penny Hoarder. She focuses on retirement, investing, taxes and life insurance.