Retirement Tax Information You Need to Know
One of the biggest (and happiest) surprises many retirees enjoy is how little they are taxed once they retire.
Note: I am not a CPA. I am not licensed to give tax advice, so I am just going to give you some really juicy tax facts.
So let’s take a look at what taxes you can expect to pay during your golden years.
1. State income tax. If you live in Florida, there is no state income tax.
2. Social security payroll tax. You do not pay into the social security system once you stop working. That saves you 6.2%.
3. Medicare payroll tax. You do not pay taxes into Medicare once you stop working. That saves you 1.45%
4. Federal income tax. This is the main tax you will be paying once retired. I have more good news! You may be in a lower tax rate than you expect.
A. Social Security is only taxed if your provisional income reaches certain limits. Provisional income is calculated by taking ½ of your social security + pension income + w-2 income + IRA/401k distributions. To learn more click here. See below for provisional income table.
B. The rest of your income will be taxed using standard tax brackets.
So, why is this all such good news?
Let’s look at an example. Bob and Mary Jones just retired.
Bob’s social security- $1500/mo
Mary’s social security- $1800/mo
Mary’s teacher’s pension- $500/mo
Withdrawals from Bob’s IRA- $500/mo
In this example, their social security is tax-free, because their provisional income is $31,800. ($39,600/2 + $6000 + $6000)
Using a standard deduction, Bob and Mary would have to pay $0 in federal income tax on their pension and IRA income. Wow! That IS good news!
If you want to look into your own retirement tax situation, Turbo Tax has a very helpful tax calculator at https://turbotax.intuit.com/tax-tools/calculators/taxcaster/
Bottom Line: You may have more money in your pockets each month than you were expecting.
P.S.- I am taking the wife and the four kids up to Pittsburgh for a visit with Grammy and Pop next week. If you need any assistance, the rest of my team is still here to help and serve you. I’ve got get going, we have a lot of packing to do.