Note: Muni bond gains may be subject to capital gains taxes upon disposition.ĭistributions from health savings accounts (HSAs) are also tax-free in retirement if the funds are used to pay for qualified medical expenses. Distributions from muni bonds are often free of federal, and sometimes also state and local, income taxes. Municipal bonds are another potential source of tax-free retirement income. This is because contributions to these types of accounts were made after taxes were paid on the income, so the contributions have already been taxed. However, income derived from after-tax retirement accounts like Roth IRAs and Roth 401(k)s is not taxable in retirement at the federal or state level. Such taxable income is taxed at the following ordinary income tax rates for 2023. This includes income from pre-tax retirement plans like pensions, annuities, IRAs and 401(k)s. 1 Federal and state income taxes remainĪssuming you have taxable income in retirement above certain thresholds, you will still be subject to federal income taxes as well as state income taxes if you live in a state that collects income tax on certain types of retirement income. Once you’re retired and no longer receiving a paycheck or generating income as a self-employed individual, you’ll no longer pay FICA or self-employment taxes. Also, if you are a high-income earner (earning more than $200,000 for single or $250,000 for joint filers) you may also have been subject to an additional Medicare tax of. Also known as FICA (Federal Insurance Contributions Act) taxes, payroll taxes are withheld and paid by employers from their employees’ paychecks to cover employees’ contributions to Social Security and Medicare.įICA taxes are broken down as follows: 6.2% of wages for Social Security (capped at $160,200 of wages for 2023) and 1.45% of wages for Medicare (no limit), for a total FICA tax rate of 7.65%. Payroll taxes (or self-employment taxes if you were a self-employed individual) are one of the main types of tax that are no longer paid in retirement. Some of the taxes assessed while working will no longer be paid in retirement, but other taxes will still be due. The short and general answer is yes - individuals and couples generally must pay taxes in retirement. When people do consider this, they commonly want to know two things: Will they have to pay taxes in retirement, and is retirement income taxable? One often-overlooked aspect of retirement planning is the impact of paying taxes in retirement.
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