Unfortunately, taxes don’t disappear when you retire. Most retirees continue to generate income, and much of it may be taxable. The good news? With thoughtful planning, it’s possible to manage taxes in retirement and keep more of your money available for what matters most. Here are four practical strategies to help you move forward with confidence.
- Take Inventory of Your Accounts
Retirement income often comes from several sources, and each account type is taxed differently. Understanding what you have can help you withdraw money more strategically and manage your tax bill from year to year.
- Tax-deferred accounts, like traditional IRAs and workplace plans such as 401(k)s and 403(b)s, are typically funded with pretax dollars. Withdrawals are generally taxed as ordinary income.
- Tax-free accounts, including Roth IRAs, Roth 401(k)s, and health savings accounts (HSAs), may allow qualified withdrawals without triggering taxes, which can help manage taxable income later in retirement.
- Taxable accounts, such as individual or joint brokerage accounts, don’t offer special tax advantages. Interest, dividends, and capital gains may be taxable, but these accounts can provide flexibility when planning withdrawals.
Knowing where your income will come from—and how it’s taxed—sets the foundation for smart planning.
- Understand How Social Security and Pension Income Are Taxed
If Social Security is your only income, it may not be taxable. However, if you have additional income—such as wages, investment earnings, pension payments, or withdrawals from pretax retirement accounts—a portion of your benefits may be subject to federal income tax.
Your total “combined income” determines how much of your Social Security is taxable, so managing income sources carefully can help reduce taxes on your benefits. Pension income is often taxable as well, but retirees may have more control over how much federal tax is withheld than they did while working.
- Plan Ahead for Required Minimum Distributions
Once you reach age 73, the IRS generally requires you to start taking required minimum distributions (RMDs) from certain retirement accounts, including traditional IRAs and most employer-sponsored retirement plans. These withdrawals are taxable—even if you don’t need the income.
Because RMDs can increase your taxable income, planning ahead is important. Understanding when RMDs begin and how much you’ll need to withdraw can help you avoid unexpected tax surprises.
- Think Strategically About When You Withdraw
The order and timing of withdrawals can impact how much you pay in taxes. Large withdrawals in a single year may push you into a higher tax bracket, while more balanced withdrawals over time can help smooth out your tax liability.
Some retirees find that drawing from different account types in different years provides greater flexibility. While everyone’s situation is different, a thoughtful withdrawal strategy can help manage taxes and support long-term income needs.
REQUIRED DISCLOSURE:
Bankers Life Securities, Inc., Bankers Life Advisory Services, Inc., and their representatives do not provide legal or tax advice. Each individual should seek specific advice from their own tax or legal advisors.
This material is for general information only and is not intended to provide specific advice or recommendations for any individual. There is no assurance that the views or strategies discussed are suitable for all investors. To determine which investment(s) may be appropriate for you, please consult your financial professional prior to investing.
Bankers Life is the marketing brand of various affiliated companies of CNO Financial Group including, Bankers Life and Casualty Company, Bankers Life Securities, Inc., and Bankers Life Advisory Services, Inc. Non-affiliated insurance products are offered through Bankers Life Securities General Agency, Inc., (dba BL General Insurance Agency, Inc., AK, AL, CA, NV, PA).
Securities and variable annuities offered through Bankers Life Securities, Inc. Member, FINRA/SIPC (dba BL Securities Inc., AL, GA, IA, IL, MI, NV, PA). Advisory products and services offered by Bankers Life Advisory Services, Inc. SEC Registered Investment Adviser (dba BL Advisory Services, Inc., AL, GA, IA, MT, NV, PA).
Investing involves risks including possible loss of principal. No investment strategy or risk management technique can guarantee return or eliminate risk.
Investments are: Not Guaranteed. Involve Risk. May Lose Value.
