Taxes for Retirees
Income taxes are affected when you turn 65, go on Medicare, start your Social Security check, start drawing down your IRA, possibly need long-term care, and leave money to your spouse or kids.
There are simple ways to minimize the tax of your estate—if you know the mechanics of how various assets are valued and the details of tax law. There is great value in consulting with an expert; mistakes are costly.
Questions we can answer
How do income taxes change in retirement?
Income taxes in retirement often change because you’re no longer earning wages but instead drawing from sources like Social Security, pensions, IRAs, 401(k)s, or taxable accounts. Your tax bill depends on which accounts you tap, since traditional retirement accounts are taxed as ordinary income, Roth accounts are tax-free, and even Social Security can become taxable based on your other income.
Do I pay taxes on my Social Security?
You might. Social Security benefits can be tax-free, partially taxed, or up to 85% taxable depending on your total income. If your combined income (adjusted gross income + nontaxable interest + half your Social Security) is above certain thresholds, part of your benefits will be taxed.
What is the Medicare tax or IRMAA?
IRMAA (Income-Related Monthly Adjustment Amount) is an extra charge added to your Medicare Part B and Part D premiums if your income is above certain levels. It’s essentially a Medicare tax for higher-income retirees, based on your tax return from two years prior.
When do I pay taxes on my IRA and 401(k) money?
You pay taxes on traditional IRA and 401(k) money when you withdraw it in retirement, since contributions were pre-tax. Required minimum distributions (RMDs) must start at age 73 (75 if you were born in 1960 or later), and each withdrawal is taxed as ordinary income.
How can I reduce my income tax in retirement?
You can lower income taxes in retirement by strategically choosing which accounts to draw from and when. Common strategies include doing Roth conversions before RMD age, spreading withdrawals over multiple years, managing taxable investment gains, and timing Social Security to reduce taxable income.
Taxes in Retirement
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