Retirement Taxes Hub
Understand how your retirement income is taxed. Plain-English guides on Social Security taxability, pension withholdings, and traditional IRA/401(k) rules.
How Retirement Income Is Taxed: The Basics
Many retirees are surprised to learn that retirement income is not automatically tax-free. In fact, the three largest retirement income streams — Social Security, traditional IRA and 401(k) distributions, and pensions — are all potentially subject to federal income tax, and in many states, state income tax too. Understanding which income is taxable, and at what rate, is one of the most practical things a retiree can do to protect their take-home income.
Which Retirement Incomes Are Taxable?
- Social Security: Up to 85% of your Social Security benefit may be taxable depending on your "combined income" (adjusted gross income + nontaxable interest + half of Social Security). Use our Social Security Tax Calculator to find your exact taxable amount.
- Traditional IRA and 401(k) distributions: Every dollar you withdraw from a pre-tax retirement account is ordinary income in the year you take it. Required Minimum Distributions (RMDs) that begin at age 73 under current IRS rules add to this total whether you need the cash or not.
- Pensions: Most employer pensions are fully taxable as ordinary income. The exception is the portion that represents your after-tax employee contributions, if any.
- Roth IRA withdrawals: Qualified Roth distributions are federal income tax-free, which is why Roth conversion planning is an important strategy for many retirees in the years before RMDs begin.
- Interest and dividends: Interest income is taxed as ordinary income. Qualified dividends and long-term capital gains are taxed at preferential rates (0%, 15%, or 20% depending on your taxable income).
The Withholding Problem Most Retirees Encounter
Unlike wages, retirement income often has no automatic federal tax withholding — or withholding set at a rate that no longer reflects your full tax liability. If you receive Social Security plus IRA distributions plus a pension, you may owe more in April than you expect. The IRS charges underpayment penalties when your withholding and estimated payments fall short of what you owe.
Our Retirement Tax Withholding Calculator walks through your specific income sources and estimates how much you should ask each payer to withhold — or how much to pay in quarterly estimated taxes — to stay current with the IRS.
Medicare IRMAA: The Hidden Tax on High Retirement Income
Retirees with income above certain thresholds pay higher Medicare Part B and Part D premiums. These surcharges, called IRMAA (Income-Related Monthly Adjustment Amount), are based on your tax return from two years prior. A large one-time IRA withdrawal or Roth conversion can push your reported income above the first IRMAA bracket ($106,000 for a single filer in 2026), adding up to several hundred dollars per month to your Medicare costs.
Check your MAGI for Medicare before making large retirement account withdrawals, and use our IRMAA Calculator to see exactly which bracket applies based on your income.