Taxes as a Retiree:
5 Things To Know
Let us make the process simpler for you
Taxes are often dreaded by anyone working, but they are also a big dread for retirees. Many times, taxes are confusing after retirement. What do you owe? What is taxable? So many questions are simply left unanswered. Taxes are often complicated and we want to make the process simpler for you.
We have created a guide to 5 basic things you should know before filing taxes as a retiree.
- You Will Have To Pay Taxes On Pension Income
Traditional 401ks, retirement plans, tax-deferred annuities, and more will be considered taxable income after retirement. You will owe taxes at a regular rate on all payments made to you from your pension. If you take a direct lump-sum payout from your pension, you will pay the total tax due upfront the next time you file.
- Social Security Is Not (Usually) Taxable Income
Most likely, you will receive a social security check upon retirement. If you only receive funds via social security after retiring, you will have $0 in taxable income coming in, meaning you do not need to file taxes.
The only reason you will have to file taxes if drawing social security is if you are also receiving money from another retirement plan and that combined with half your social security amount is greater than $25,000 ($32,000 if filing jointly). In this case, you will have to consider some of your social security taxable.
- Diversify Your Income During Retirement
It is important to diversify where your income is coming from during retirement to extend your money. If you have money coming from both taxable and non-taxable sources, when you mix it up a little, you will hopefully never have a huge tax bill that you cannot handle.
- You Can Still Contribute To An IRA During Retirement
Anyone can still contribute to a traditional or Roth IRA during retirement if they are still earning a salary. You may put up to $6,000 a year into these accounts if you’re under 50, after 50 you can put an extra $1,000 in there per year. All money put into these accounts has to be from a job that you currently work and you cannot put more in the accounts than you earn.
- Withdrawals From A Roth IRA Are Not Taxable
Money goes into the Roth IRA account after it has already been taxed, therefore leaving you able to take out contributions tax and penalty-free. If you’re older than 59.5 and have owned a Roth IRA account for 5 or more years, you will then be able to withdraw all the earnings tax-free.
If you are still on the fence about taxes as a retiree, no need to fear! Contact one of our retirement financial experts at West Financial Group. With years of experience, they are ready to seamlessly help you discover the ins and outs of paying taxes after retirement.