Understand how income from your IRA, 401(k), 403(b), and other retirement accounts are taxed


Life’s Financial Journeys

Heading Off to College
Getting Out on Your Own
Blending Two Lives
Having a Child
Emptying the Nest
Entering Retirement
Divorce
Death of a Life Partner
Military Life

Almost all money in traditional IRAs and 401(k)-type accounts is pre-tax money that has never been taxed. In essence, the IRS has provided you a “loan” of the tax that would have been due in order to help you build a larger account.

When you withdraw money from these accounts in retirement you will be required time to pay taxes as you would on employment income.

For example, if you are in the 25% Federal tax bracket you would pay up to $0.25 tax for every dollar withdrawn. Stated another way, you need to withdrawal up to $1.33 from the account to spend a dollar.

The following resources may assist you in understanding how income from your IRA, 401(k), 403(b), and other retirement accounts are taxed.

Strategies for Handling Taxation of Retirement

IRA and 401(k) Distribution Taxation

State-by-State Guide to Retirement Income Taxation


Entering Retirement Tasks

1. Selecting your retirement lifestyle
2. Estimating your monthly retirement income
3. Setting up your spending plan
4. Enrolling in Social Security and Medicare
5. Managing taxes during retirement

Managing taxes during retirement Subtasks

1. Understand how your Social Security benefits are taxed
2. Understand how income from your IRA, 401(k), 403(b), and other retirement accounts are taxed
3. Understand the tax impacts of taking retirement plan income early
4. Take mandatory distributions before age 70½ to avoid tax penalties

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