Understanding Taxes During Retirement
“Some retirees may be surprised to learn that a portion of their Social Security benefits could be subject to federal income taxes.”
Paying taxes when you aren’t working but are instead receiving income from a lifetime of working and Social Security is a harsh reality of retirement for many people. Figuring out how much of your income will be consumed by taxes is a tricky task, according to the article “What You Need to Know About Taxes and Your Retirement” from Next Avenue. Ignore it, and your finances will suffer.
How Much Income Tax to Expect in Retirement
Tax Implications of Different Retirement Accounts
Taxes on Investment Income in Retirement
Roth IRA and 401(k) distributions are tax free, since taxes are paid when the funds go into the accounts, not when they are withdrawn.
If you have investments in addition to your tax-deferred funds, like stocks or bond funds, you also pay taxes on the dividends and interest paid to you. If you sell them, you’ll likely need to pay any capital gains taxes.
The Impact of Social Security Benefits on Taxes
Federal Income Taxes on Social Security Benefits
State Taxes on Social Security Benefits
Working Part-Time and Its Effects on Social Security Benefits
Earnings Limits and Benefit Reductions
Social Security withholds $1 in benefits for every $2 earned above the annual earnings limitation cap. If you reach your FRA after 2020, that’s $18,240. If you reach your FRA in 2020, the annual exemption amount is $48,600.
Pension, investment income and any government benefits, like unemployment compensation, don’t count towards earned income.
Withheld Benefits and Full Retirement Age Compensation
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