Understanding Tax Planning for Retirement

retirement and taxes, senior couple planning their taxes for retirement
March 26, 2024

When it comes to retirement and taxes, the exact guidelines of what to expect and how much you’ll pay on an annual basis can be challenging to determine. Not all retirement income is taxed or taxed equally. Therefore, since there are potential surprises or pitfalls, tax planning for retirement should be just as important as building your retirement nest egg. 

A tax expert for all your tax strategies in retirement is your best resource for formulating a plan of how to save for retirement now to minimize the taxes you’ll owe. Additionally, they can guide you with what tax strategies you can adopt in your golden years to reduce your taxes for decades to come. 

In the meantime, however, it helps to have a basic understanding of how retirement income is taxed and how you may be affected as you enjoy your retirement. 

How is Retirement Income Taxed? 

Once you retire, your routine “paycheck” will likely come from a wide range of sources, and each of these sources is potentially unique in how they may be taxed when you file your annual income tax return. 

Let’s take a closer look at how some common sources of retirement income are taxed below. 

Social Security 

According to the IRS, approximately 40% of Americans who receive Social Security must pay federal income tax on their benefits. Furthermore, this usually occurs when individuals have substantial income in addition to their Social Security benefits alone.  

As of 2024, you can expect to pay taxes on your Social Security benefits if the following scenarios apply: 

 Filing a federal tax return as an individual and your combined or total income is: 

  • Between $25,000 and $34,000. In this case, you will likely have to pay income tax on up to 50% of your benefits. 
  • More than $34,000. In this case, you will likely have to pay income tax on up to 85% of your benefits may be taxable. 

 Filing a federal tax return jointly with your spouse and your combined or total income is: 

  • Between $32,000 and $44,000. In this case, you will likely have to pay income tax on up to 50% of your benefits. 
  • More than $44,000. In this case, you will likely have to pay income tax on up to 85% of your benefits may be taxable. 

Keep in mind that these are the current thresholds, and these numbers will likely change in the years and decades ahead.  


Many retired employees receive benefits from a 401(k) once they are retired. Therefore, if any contributions during your career were made with pre-tax dollars (generally the case), these contributions will be taxed at your ordinary income tax rate. 

There may be penalties to bear in mind for not taking required minimum distributions (or RMDs) at the designated timeframe. For instance, RMDs must be taken every year beginning at age 73 unless you are still working.  

There may be ways to minimize taxes when it comes to 401(k) distributions. For example, rolling over your 401(k) or other retirement plan from your workplace to a Roth IRA. Again, a tax specialist can help guide you through your options to maximize your income while minimizing your annual taxes during your retirement years.  


IRAs are distinctive in that the tax you may owe on IRA distributions depends on whether your IRA was funded with pre-tax or after-tax funds. 

Typically, IRAs fall into three different categories. 

  • Traditional IRAs – Contributions to traditional IRAs are generally considered pre-tax, so in your retirement years all distributions are subject to tax at your ordinary income tax rate. 
  • Roth IRAs – Contributions to Roth IRAs are considered after-tax. Therefore, any distributions during your retirement are tax-free if the holding period requirements of at least five years are accounted for. 
  • Rollover IRAs – Rollover IRAs can be complicated. Still if all your workplace retirement plan contributions were made with pre-tax dollars, any subsequent distributions are taxed at the traditional income tax rate. 


Like other retirement accounts, pensions are generally fully taxable at standard income tax rates unless contributions were made with after-tax dollars. 


Income from annuities in your retirement years is generally partially taxed. Therefore, certain cases may be fully taxed, depending on your unique situation. 

  • If contributions were made with pre-tax dollars, then any annuity distribution will be taxed at the standard income tax rate. 
  • If contributions were made with after-tax dollars, then only the portion of annuity distributions representing the earnings generated by the account will be subject to tax. 

Freelance Employment 

Many individuals find that retirement is a great time to launch a passion project or new side gig. This means that self-employment taxes may come into play for any freelance or additional income. 

The self-employment tax rate is 15.3%, in addition to traditional income tax rates.  However, there may be ways to mitigate this expense (which can be determined through guidance by a tax professional.)  

Regardless, if you have net freelance earnings of $400 or more during retirement, then you must complete the following forms, even if you don’t owe any other income tax: 

  • Form 1040 (U.S. Individual Income Tax Return). 
  • Schedule C (Profit or Loss from Business) or Schedule F (Profit or Loss from Farming) as appropriate. 
  • Schedule SE (Self-Employment Tax). 

Tax Planning for Retirement with our Tax Experts  

Taxes are lifelong, and if you want to minimize your taxes now and well into the future, your first step should be to consult an expert in tax planning and tax strategies during all stages of life. 

Waters Hardy can help you navigate the different strategies when mapping out your retirement years. Additionally, we can provide expert guidance on the best ways to save money now and the best ways to enjoy your hard-earned income during your golden years. 

Reach out to us today to start the conversation. We’ll work together to ensure that when it’s time to retire, you won’t have to worry about any tax-related surprises and will have all the money you’ll need to enjoy decades of new adventures.  

Contact us today. 


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