Taxes in Retirement
Another important concern in retirement is related to taxes, so you need to know this:
- Social Security – Your Social Security income could be taxed if you come to the realization that your income crosses a particular threshold.
- Traditional IRAs and 401(k) accounts – The traditional types of retirement savings accounts will let you contribute money on any pre-tax basis, automatically shrinking your taxable income when you make your contribution. In exchange for that type of upfront tax break, your withdrawals will be treated just as taxable income.
- Roth IRAs and Roth 401(k) accounts – These accounts don’t have any kind of upfront tax break, but in case you want to play by the rules, you could withdraw money from them in retirement, free of charge. That’s mainly because you were already taxed on all the funds you contributed.
- Investment Income – Your other investments have to face taxes, as well. Short-term capital gains are usually taxed at the usual income tax rate, and long-term capital gains are taxed at 0% or 15%. Dividend income from the majority of stocks for over 60 days is usually taxed at 0% and 15%, too.
- Interest income – The interest income is seen as ordinary income, and it’s also subject to taxation. Treasury bonds and bills have federal taxes, and corporate bonds are usually taxable at the federal, state, but also local levels.
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