How Retirement Income Is Taxed (And Why It's Higher Than You Expect)
Most retirement plans eventually run into one big surprise:
Taxes in retirement are often higher than people expect.
For some retirees, taxes do drop.
For many professionals with significant savings, retirement income is taxed more heavily than they anticipated — and the reason usually comes down to how the different income sources interact.
In this episode, I walk through:
Why retirement taxes are about interaction, not just rates
How Traditional IRA and 401(k) withdrawals are taxed as ordinary income
Why long-term capital gains in taxable accounts may be taxed at a lower rate
Why Roth withdrawals are generally tax-free
How up to 85% of your Social Security benefit can become taxable depending on your total income
Here's a simple example. A retiree pulling $70,000 from an IRA and receiving $30,000 in Social Security may find that the IRA withdrawal pushes their total income high enough that a portion of the Social Security becomes taxable too.
A withdrawal strategy that looks simple on the surface can quietly raise your lifetime tax bill.
That's why retirement income taxes work best inside a broader plan that considers:
Portfolio withdrawals
Social Security timing
Roth and Traditional balances
Capital gains exposure
Long-term tax flexibility
If you're within a few years of retirement, this is usually where the tax questions get personal:
Which accounts should I pull from first?
How do I keep my Social Security from being pushed into the taxable zone?
Should I consider Roth conversions before retirement starts?
How do capital gains fit in?
How do I coordinate all of this over time?
That's exactly what this stage of planning is about.
This is Episode 5 of the 12-part Retirement Transition Series for those 5–10 years from retirement.
If you're thinking about this stage of planning, you may also want to see:
→ Retirement Income Planning
→ Retirement Transition Field Guide
→ Retirement Transition Series
Missed Episode 4? Watch it here, or move forward to Episode 6, where I explain how a Roth conversion works and when it can be one of the most powerful tax planning moves available.
