America’s tax system can be complicated and opaque, to say the least. After dedicating your life to a career (or several careers!) and finally reaching your hard-earned retirement, you might be wondering what parts of your retirement income are taxable. As is the case with most other tax questions, it’s complicated, and depends on a few factors.
Social Security Income
According to the Social Security Administration, around 40% of recipients must pay federal income tax on their benefits. How much they pay depends on a few factors: joint or individual filing, and income bracket within those filings. For example, if your combined income on an individual filing is between $25,000 and $34,000, you could pay taxes on up to 50% of your benefits. A quick breakdown is below:
| Individual Filing | |
| Income Bracket | Percentage of benefits taxable |
| $25,000 – $34,000 | Up to 50% |
| More than $34,000 | Up to 85% |
| Joint Filing | |
| Income Bracket | Percentage of benefits taxable |
| $32,000 – $44,000 | Up to 50% |
| More than $44,000 | Up to 85% |
To learn more about income taxes on your social security benefits, visit www.ssa.gov.
Traditional IRAs and Roth IRAs
An individual retirement arrangement (or IRA) allows you to make tax-deferred investments after you retire. There are two main kinds of IRAs: traditional IRAs and Roth IRAs. Roth IRAs are different from Traditional IRAs in that qualified distributions from the Roth IRA may be tax free.
Long-term investments
Long-term investments can be a crucial source of income in retirement. These investments are taxable at their long-term capital gains rate, as well as a 3.8% net investment income tax in some cases. For more information, go to www.irs.gov.
If you have any concerns about your long-term investments, please give us a call at 1-800-627-2768. We are happy to help!
Sources:
Social Security Administration – “Income Taxes and Your Social Security Benefit”
Internal Revenue Service – “Individual Retirement Arrangements (IRAs)”
Merrill – “Taxes in retirement: “What you need to know”
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