📝 BLOG POST

Taxes in Retirement: What You Need to Know Before You Stop Working

📖 5 min read Apr 14, 2026

The Tax Landscape Changes in Retirement

One of the most common misconceptions about retirement is that your tax burden will simply vanish once you stop working. The reality is quite different. While your overall income may decrease, taxes can still take a significant bite out of your retirement savings if you haven’t planned accordingly.

Understanding how various income sources are taxed during retirement is essential for creating a sustainable withdrawal strategy and preserving your wealth for the years ahead.

How Different Retirement Income Sources Are Taxed

Not all retirement income is treated equally by the IRS. Here’s a breakdown of the most common sources and their typical tax treatment:

Traditional 401(k) and IRA Distributions: Withdrawals from these pre-tax accounts are generally taxed as ordinary income at your current tax bracket. This includes required minimum distributions (RMDs) that typically begin at age 73.
Roth 401(k) and Roth IRA Distributions: Qualified withdrawals from Roth accounts are typically tax-free, provided you’ve met the five-year holding requirement and are at least 59½ years old.
Social Security Benefits: Depending on your combined income, up to 85% of your Social Security benefits may be subject to federal income tax. Some states also tax Social Security, while others do not.
Pension Income: Most pension payments are fully taxable as ordinary income, though a portion may be tax-free if you made after-tax contributions.
Investment Income: Long-term capital gains and qualified dividends typically receive preferential tax rates, while interest income and short-term gains are taxed as ordinary income.

Strategies to Consider for Tax-Efficient Retirement Income

With proper planning, you may be able to reduce your overall tax burden in retirement. Here are several strategies worth discussing with your financial advisor:

Diversify Your Tax Buckets: Having funds in taxable, tax-deferred, and tax-free accounts gives you flexibility to manage your taxable income year by year. This approach can help you stay in lower tax brackets and potentially reduce the taxation of your Social Security benefits.

Consider Roth Conversions: Converting traditional IRA funds to a Roth IRA before retirement—or during lower-income years—means paying taxes now at potentially lower rates. This strategy may reduce future RMDs and provide tax-free income later.

Time Your Withdrawals Strategically: The order in which you tap different accounts can significantly impact your lifetime tax bill. Many retirees benefit from a coordinated withdrawal strategy rather than simply taking from one account at a time.

Be Mindful of Tax Brackets: Understanding where your income falls within the tax brackets can help you make informed decisions about when to realize income or gains. Sometimes it makes sense to recognize additional income to fill up a lower bracket before it phases out.

Don’t Forget About State Taxes

Federal taxes are only part of the equation. State tax treatment of retirement income varies dramatically. Some states have no income tax at all, while others offer exemptions for certain types of retirement income such as Social Security or pension payments. If you’re considering relocating in retirement, understanding the state tax implications can be valuable in your decision-making process.

The Value of Proactive Tax Planning

Tax planning shouldn’t stop when you retire—in many ways, it becomes even more important. By understanding how your various income sources will be taxed and implementing thoughtful strategies, you can potentially keep more of your savings working for you throughout retirement.

Working with a qualified financial advisor and tax professional can help you navigate these complexities and develop a personalized approach that aligns with your unique situation and goals. The time to start planning is now, whether retirement is decades away or just around the corner.

Ronald Briggs FIC, CRPC® Briggs Financial Group

📞 (810) 522-6685 🌐 www.bfgwealthadvisors.com

Financial Professional Ronald J. Briggs Jr, FIC, CRPC®, is an industry veteran with over four decades of experience. As the founder of Caitlin John Private Wealth Management, a Fiduciary based Registered Investment Advisor firm established in late 2010, the inspiration and namesake of Caitlin John was conceived from Ron and his wife Kristin’s two children’s middle names. The vision then and future legacy was to build a fiduciary-based advisory firm to continue serving his clients and future generations grow his practice. The boutique feel and personalized experience that Ron’s clients felt spread to other Advisors both locally and nationally and enabled the Firm to grow exponentially to this date. Each of these Advisors came to Caitlin John to be part of our “FIDUCIARY” and independent Registered Investment Advisor (RIA) firm with their own individual brand and identity they built in their local community. With that being said, Ron and his Team of Tax and Risk mitigation experts are proud to announce the Briggs Financial Group, Wealth Advisors (BFG) serving Ron’s personal clients across the US, with its dual national headquarters located in Brighton, Michigan and Bonita Springs, Florida.

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