If you’re like most people, you’re probably looking forward
to retirement. Make sure, however, that you’re not looking forward to it as a
time when you won’t have to pay taxes. Unfortunately, contrary to popular
belief, you do still have to pay taxes in retirement.
The fact of the matter is that life post-retirement and
pre-retirement aren’t all that different, at least not in terms of taxes. Your
taxes are still calculated based on your income. Of course, there will be some
variations based on the type of income you have, but taxes still exist, no
matter what.
Since you know you will be subjected to taxes in retirement,
it’s a good idea to start planning for them now, which you can do with just a
little effort on your part.
IRA and 401(k) Withdrawals
Are you planning on living off of withdrawals from your
retirement accounts? If so, then you can expect these withdrawals to be taxed
as income. How much tax you’ll have to pay will depend on the amount you
deducted and how much is counted as income, any deductions you take, and your
tax bracket. Bear in mind, however, that these rules do not apply to Roth IRA
withdrawals, which are tax-free.
Annuity Distributions
In retirement, many people count on annuity distributions as
a source of income. Unfortunately, however, most annuities do have taxation
rules attached. Immediate annuities, for example, count the interest portion
you receive as taxable income. Fixed variable annuities, on the other hand, tax
all withdrawals except withdrawals of your original contributions
Home Sales
In retirement, it is very common for people to sell their
homes, making some money to live on in the process. Often, they don’t have to
pay taxes on the money they earn. In some cases, though, taxation is required,
such as when you earn more than $250,000 (if single) or more than $500,000 (if
married).