The Complications of Retirement Taxes
Retirement should be simple. Unfortunately, tax issues, even in retirement, persist.
While you might think that taxes will get easier when you retire since you don’t have a regular paycheck any longer, the IRS will still be interested in you. With the many different kinds of income a person receives in retirement, it is common for taxes to actually get more complicated.
Some income sources will be fully taxable, others will be tax exempt, and others could be a mix of both. As you ride off into the sunset, make sure you understand the taxable status of your various income sources and plan accordingly to keep your tax bill as low as possible.
Ever since the days FDR and the New Deal, most retired people in the United States receive Social Security benefits. On a standalone basis, Social Security benefits are not normally subject to income tax. But, there are situations that will cause Social Security to become taxable.
There is a taxation threshold for Social Security benefits that, if exceeded, will cause part of your benefits to become taxable. You can get a better idea of how much is taxable by using the IRS worksheet designed for that purpose. Typically, income like interest, dividends, tax-deferred distributions from retirement accounts, taxable pensions, rental property income, wages, and annuities will affect the taxability of Social Security benefits.
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