Taxable Retirement Income
- Withdrawals from Traditional IRAs, 401ks, or other retirement plans.
If a plan was funded with pre-tax dollars, whether by you or your employer, it will result in taxable retirement income when withdrawn.
- Pension income.
Most pensions are a source of taxable retirement income.
- Interest income, dividend income and capital gains inside of after-tax accounts.
Interest, dividends and capital gains that occur within tax-deferred accounts, such as IRAs, 401k plans or variable annuities, are not taxable in the year they occur. Instead, all gains are deferred and you only pay tax when you take a withdrawal.
- Withdrawals from an annuity.
When you take withdrawals from a fixed or variable annuity (one that is not owned by an IRA or retirement account) the IRS rules say any gain must be withdrawn first, and this gain is taxed as ordinary income. Once all gain has been withdrawn, you would be withdrawing your basis, or principal. Withdrawals of basis are not counted as taxable retirement income.
Partially Taxable Retirement Income
- 50-85% of your social security income may be taxable.
If your combined income is over the social security limit.
- Non-deductible IRA withdrawals.
If you have traditional pre-tax IRA contributions as well as after-tax, non-deductible IRA contributions, a portion of each non-deductible IRA withdrawal may be considered gain, and a portion your basis. The gain portion is considered taxable retirement income.
- Income from an immediate annuity which was purchased with after-tax money.
If the immediate annuity was purchased with pre-tax money, such as in an IRA or retirement account, all of the income will be taxable.
- Proceeds from cashing in a cash value life insurance policy.
Any portion attributed to gain will be taxable. Your basis (usually the total of all your premiums paid) is not taxable retirement income to you.
Tax Free Retirement Income
- Roth IRA withdrawals.
If you meet ROTH IRA withdrawal requirements.
- Interest income from municipal bonds.
Most municipal bond income is free from federal income taxes, but you may be subject to state income taxes on this form of retirement income.
- Loans from life insurance policies.
After you take a loan from a life insurance policy if you terminate the policy before repaying the loan, at that time a portion of the loan amount may become taxable income to you.