What taxes do you pay after retirement?

Yes, you generally still have to pay federal and sometimes state income taxes in retirement, though you no longer pay payroll (FICA) taxes.

How Different Income Sources Are Taxed

• Traditional IRAs and 401(k)s: Withdrawals are taxed as ordinary income.
• Roth IRAs and 401(k)s: Qualified distributions are completely tax-free.
• Social Security: Up to 50% or 85% of your benefits may be taxable if your combined income exceeds specific thresholds. For single filers, the threshold starts at $25,000; for married couples filing jointly, it starts at $32,000.
• Pensions and Annuities: Usually taxed at ordinary income rates.
• Capital Gains: Long-term gains and qualified dividends from taxable brokerage accounts are taxed at lower rates (0%, 15%, or 20%).

Key Retirement Tax Rules

• Required Minimum Distributions (RMDs): Once you turn 73, you must take mandatory withdrawals from pre-tax retirement accounts, which count as taxable income and can increase your tax bracket.
• State Taxes: Some states do not tax retirement income or Social Security benefits, while others tax them fully.

Strategies to Reduce Your Tax Burden

• Roth Conversions: Move money from traditional pre-tax accounts to Roth accounts over time during lower-income years to avoid massive RMDs later.
• Strategic Withdrawals: Mix withdrawals from taxable, tax-deferred, and tax-free accounts to manage your annual adjusted gross income.
• Withholding or Estimated Payments: Set up automatic tax withholding from your IRA, 401(k), or Social Security check to avoid quarterly IRS estimated payment penalties.

The federal government taxes retirement income based on the specific type of account or benefit your money comes from.

Traditional Retirement Accounts & Pensions

• Pre-tax accounts: Withdrawals from traditional IRAs, 401(k)s, and 403(b)s are taxed as ordinary income at your current marginal federal tax rate.
• Pensions: Employer pensions funded with pre-tax dollars are fully taxable as ordinary income.
• Required Minimum Distributions (RMDs): You must start taking mandatory withdrawals from traditional pre-tax accounts at age 73 (rising to 75 in later years), which count as taxable income.

Tax-Free Accounts

• Roth accounts: Qualified withdrawals from Roth IRAs and Roth 401(k)s are 100% tax-free because you paid taxes on the money when you contributed it. Roth withdrawals do not count toward your taxable income.

Social Security Benefits

• Combined income formula: The IRS looks at your combined income (adjusted gross income plus nontaxable interest plus half of your Social Security benefits) to see if your benefits are taxable.
• Single filers: If your combined income is between $25,000 and $34,000, up to 50% of your benefits are taxable. If it is above $34,000, up to 85% is taxable.
• Married filing jointly: If your combined income is between $32,000 and $44,000, up to 50% is taxable. If it is above $44,000, up to 85% is taxable.

You can manage your tax burden by checking the IRS Tax Withholding Estimator to plan your withdrawals.

You will pay anywhere from 0% to 37% in federal income taxes on your retirement income, depending on your total taxable withdrawals and filing status.

How much you actually pay depends on where your money comes from and how much you take out each year. Four out of five retired U.S. households pay little to no federal income tax because their main income is Social Security.

How Different Income Sources are Taxed

• Traditional IRAs and 401(k)s: Withdrawals count as ordinary income and face marginal federal tax rates from 10% to 37%.
• Roth IRAs and Roth 401(k)s: Qualified withdrawals are completely tax-free.
• Social Security: Up to 50% or 85% of your benefits can be taxed if your combined income crosses specific federal thresholds.
• Pensions and Annuities: Taxed as ordinary income.

Additional Taxes to Expect

• State Taxes: Most states tax retirement income, though a few states do not tax retirement income or Social Security.
• Local Taxes: Property and sales taxes still apply.
• Medicare Surcharges: Higher-income retirees may pay extra for Medicare Part B and D premiums.

No, you do not pay standard Social Security and Medicare payroll taxes (FICA) on typical retirement income like pensions, traditional IRAs, 401(k) withdrawals, or investment portfolio gains.

However, whether you stop paying these taxes completely depends on your specific sources of income in retirement.

When You Do NOT Pay FICA Taxes

• Standard retirement accounts: Withdrawals from a 401(k), IRA, or pension do not incur Social Security and Medicare payroll taxes.
• Investment income: Capital gains, stock dividends, and interest from a personal investment portfolio are exempt from FICA taxes.
• Social Security benefits: The monthly benefit checks you receive from the Social Security Administration are not subject to FICA payroll taxes (though they may be subject to federal income tax depending on your overall income).

When You DO Pay FICA Taxes

• Working in retirement: If you take a part-time job, do freelance work, or run a business, any earned income is still subject to the standard 6.2% Social Security tax and 1.45% Medicare tax, regardless of your age.
• High-earning investments: High-income households with a modified adjusted gross income above $200,000 (single) or $250,000 (married filing jointly) may owe the 3.8% Net Investment Income Tax (NIIT), which functions as a supplemental Medicare tax on investment earnings.
• Federal and state income taxes: Even without FICA payroll taxes, standard retirement income like traditional retirement distributions or a portion of Social Security benefits may still be subject to federal and state income taxes.

While completely eliminating taxes in retirement is difficult, you can significantly lower your tax burden using smart withdrawal and planning strategies.

Use Roth Conversions Early

• Move money from traditional, pre-tax accounts (like traditional IRAs) into tax-free Roth accounts.
• Do this during the "gap years" after you stop working, but before Social Security or Required Minimum Distributions (RMDs) kick in.
• Paying taxes now at a lower rate can prevent massive tax bills later.

Manage Required Minimum Distributions (RMDs)

• The IRS forces you to start taking money out of traditional retirement accounts at age 73.
• These mandatory withdrawals count as ordinary income and can push you into a higher tax bracket.
• Lower your pre-tax account balances early through Roth conversions or use Qualified Charitable Distributions (QCDs) after age 70½ to send IRA money directly to charity tax-free.

Diversify Your Income Sources

• Pull money from a mix of taxable, tax-deferred, and tax-free accounts.
• A proportional withdrawal strategy (taking set percentages from different accounts rather than draining one account at a time) keeps your annual income stable and smooths out tax bumps.

Delay Social Security

• Wait to claim Social Security benefits until age 70.
• This increases your monthly payout and shortens the window where pre-tax withdrawals and Social Security overlap, reducing overall taxes.

Utilize Health Savings Accounts (HSAs)

• Use an HSA for qualified medical expenses.
• Contributions, growth, and withdrawals for health costs are entirely tax-free.