I have to pay taxes on that?

Most of my clients are surprised to find that their tax bill does not go down in retirement. Often, their tax bill can be higher than in their working years. Let’s take a look at some of the retirement incomes that carry a tax surprise.
While we know that while saving into qualified plans during our working years, many retirees underestimate what percentage of tax they will have to pay on the withdrawals. Roth accounts are the exception, assuming that your funds have been on deposit for five years or more.
Once upon a time Social Security benefits were tax-free, but that all ended with the signing of the Social Security amendments in 1983. Currently, depending on your “provisional income,” up to 85% of your Social Security benefits are subject to federal income taxes. To determine your provisional income, take your modified adjusted gross income, add half of your Social Security benefits and add all of your tax-exempt interest.
If your income is between $32,000 and $44,000 ($25,000 to $34,000 for singles), then up to 50% of your Social Security benefits can be taxed.
If your income is more than $44,000 ($34,000 for singles), then up to 85% of your Social Security benefits are taxable.
Most pensions are funded with pretax income, and that means the full amount of your pension income would be taxable. Payments from private and government pensions are usually taxable at your ordinary income rate, assuming you made no after-tax contributions to the plan.

Plan carefully, as taxes never seem to go away.


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