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Are the tax brackets the same if I am retired?

When planning for retirement, it’s important to keep in mind how much you will be taxed on your income from the nest egg you built. Here’s a look…

Planning for retirement, it’s important to keep in mind how much you will be taxed on your income from the nest egg you built. Here’s a look…

After working for decades, one day you’ll look forward to retiring and living off the nest egg you built up. Knowing how much you’ll have to pay in taxes in retirement will help you know just how much those savings will have to be.

You would hope for preferential treatment from Uncle Sam with a special tax bracket, but that isn’t so. However, different sources of retirement income will be taxed differently. Here’s a look.

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Income tax brackets in retirement

The same basic income tax brackets apply to all taxpayers including retirees. The bracket you fall into is determined by your filing status and taxable income, which is your income minus deductions.

There are seven tax brackets that are applied progressively. That means you pay the rate for the portion of your income that falls within each bracket. So for example if you are an individual filer with a taxable income of $50,000 in 2021, you don’t pay 22 percent on the full amount. Instead you’d pay 10 percent on the first $9,950, 12 percent on the next $30,575 and then 22 percent on the remainder above $40,526.

The current rates were established under the Tax Cuts and Jobs Act of 2017. The taxable income rates will revert to the 2017 levels in 2026 if no Congressional action is taken before then.

Different retirement income taxed differently

The more sources of income you have when you retire would hopefully provide you with more financial security in your golden years, but it will also mean more work when filing tax returns. Some retirement income is taxed at the full rate of your tax bracket, some at lower rates and others are not taxed. Using tax deductions, you can put yourself into a lower tax bracket.

Social Security

Under current law up to 85% of your annual Social Security benefits can be taxed if your total income exceeds upper thresholds. However, if your only source of income is monthly Social Security payments you most likely won’t owe taxes since your income will be too low.

If you expect that you will have to pay taxes on your Social Security benefits, just as an employer would, you can ask the Social Security Administration to withhold taxes from your check, so you don't end up owing the IRS when you file your taxes.

IRA and 401(k) retirement income

Traditional IRA and 401(k) retirement savings could help you save on what you owe Uncle Sam each year when you file your tax return. But then you will be taxed on that income when you retire. On the other hand, distributions from Roth IRA and 401(k) accounts are not taxed when you retire. But you miss out on the up-front tax break.


Investments could give you income through interest, dividends or cashing in. Interest is usually taxed at your ordinary rate. Dividends typically receive a preferential rate if they meet certain criteria. Depending on how long you hold onto an investment before you sell it will determine the rate you must pay. Long-term investments, those held for a year and a day, receive a preferential rate but short-term investments will be taxed at the rate of the tax bracket you fall into.

Depending on the type of bond, it may be exempt from taxes at the federal level or at the state level.

At any rate, talk to a financial advisor to evaluate your options as you build up your nest egg for retirement. Likewise, consult an accredited professional tax preparer to help make sure you aren’t paying more tax than you are required to.