Is Retirement Income Taxable Under Current Law?

Short Answer

Yes. Retirement income is considered income and is generally taxable, with the tax treatment depending on the source of the income and the account type.

What Is Retirement Income?

Retirement income refers to money received after retirement from sources such as Social Security, pensions, and income derived from retirement accounts or annuities.

How Retirement Income Is Taxed

The IRS treats retirement income as income. Whether and how it is taxed depends on where the income comes from.

How Retirement Income Works Under Current Law

Under current law, income taken from tax-deferred accounts such as 401k plans, IRAs, 403b plans, and similar accounts is taxed at ordinary income levels when distributed. Income paid from annuities funded with tax-deferred money is also taxed at ordinary income levels.

When Retirement Income May Be Taxable

Retirement income may be taxable when it is derived from tax-deferred retirement accounts, pensions, or annuity income streams.

When Retirement Income May Not Be Fully Taxable

Tax treatment can vary depending on the source of the income and applicable rules. Specific tax determinations should be reviewed with a CPA or tax attorney.

Common Misunderstandings About Retirement Income Taxes

One common misunderstanding is that retirement income is tax free. Another misunderstanding is that Social Security is never taxed.

Key Considerations for Retirement Income Taxation

Tax treatment depends on the source of the income, the type of account involved, and current tax law. Future tax rates cannot be predicted.

Bottom Line

Retirement income is generally taxable under current law, and income from tax-deferred sources is taxed at ordinary income levels.

FAQ

Is retirement income taxable?

‍Yes. Retirement income is generally taxable.

Is Social Security taxed?

Yes. Social Security is currently taxed.

Is annuity income taxable?

Annuity income funded with tax-deferred money is taxed at ordinary income levels.

Who should answer specific tax questions?

Specific tax questions should be addressed by a CPA or tax attorney.