Benjamin Franklin once said, “But in this world nothing can be said to be certain, except death and taxes.” If we work and gain incomes, we have to file taxes. How about retirement? Can we stop filing taxes after retirement?
The answer is not sure. There are some circumstances that you still need to pay taxes after retirement.
Retirement Accounts
In fact, it is your adjusted gross income that determines your tax bracket. For most retirees, the money from their retirement accounts consists most of their retirement income. Whether you have to file taxes or not depends on the type of account. Money withdrawn from a traditional IRA or a traditional 401(K) are taxable, since the money are tax-deferred when you put money in that account during your working time. Money withdrawn from a Roth IRA or Roth 401(K) are not taxable, since you paid the taxed already. Once you reach the age of 70 ½, you must withdraw money from traditional IRA or 401(K), or there would be a penalty. Pay attention, for this year, a new law has been made. Seniors, retirees not required to take distributions from retirement accounts for the year 2020.
Non-Retirement Accounts
The income from investment is usually taxable, such as money market accounts, certificate of deposits (CDs), mutual funds and others. However, there are some bonds or bond funds are tax-exempt, which is not subject to tax. That’s why IRS recommends you diversify retirement portfolio to lower taxable income.
Social Security
Social security benefits are taxable, if your total income is more than $25,000 for an individual or $32,000 for a married couple filing jointly. Below those thresholds, your benefits are not taxed.