July 23


Retirement Checks: What Taxes Are Taken Out?

By Harrison O'Reill

July 23, 2023

Retirement is a time when many people look forward to enjoying the fruits of their labor. However, the issue of taxes on retirement income is one that can cause confusion and frustration for many. Retirement income can come from various sources, such as Social Security, pensions, and investments, and the taxes taken out of each source can differ.

Social Security benefits are subject to federal income tax, and the amount of tax depends on the recipient’s income level.

Pensions are also subject to federal income tax, and some states may also tax them. Investment income, such as dividends and capital gains, can also be subject to federal and state income taxes, depending on the type of investment and the individual’s income level.

So many are subject to tax, eh? Understand deeper by reading through this article!

Understanding Retirement Income

Retirement income can come from various sources, including pensions, retirement accounts, Social Security, and annuities. Pensions are a type of retirement plan where an employer contributes to a fund that pays a retiree a set amount of money each month.

Retirement accounts, such as 401(k)s, 403(b)s, and IRAs, are individual plans where an employee contributes a portion of their income each paycheck, and the money is invested in stocks, bonds, or mutual funds.

Social Security is a government program that provides a monthly income to retirees based on their work history. Annuities are financial products that provide regular payments for a set period or for life.

Taxation of Retirement Income

The taxation of retirement income depends on the source of the income and the type of plan. Pension income is typically taxable at the federal and state level. Retirement account withdrawals, such as from traditional IRAs and 401(k)s, are also taxable at the federal and state level. However, Roth accounts are taxed differently.

Contributions to Roth accounts are made with after-tax dollars, so withdrawals are tax-free. Social Security income may also be taxable depending on the retiree’s income level. Annuities are taxed differently depending on the type of annuity and how the payments are structured.

It’s important to understand the tax implications of retirement income when planning for retirement. Retirees should consider their income sources and how they will be taxed to ensure they have enough money to cover their expenses.

Some retirees may choose to take a lump sum from their retirement accounts, which can have different tax implications than regular withdrawals. Working with a financial advisor or tax professional can help retirees make informed decisions about their retirement income and taxes.

Taxes in Retirement

In summary, retirees need to be aware of the different types of taxes that may be taken out of their retirement income, including federal and state income taxes.

It’s important to understand the difference between taxable and nontaxable income and to make estimated tax payments if necessary.

By staying informed and taking the necessary steps, retirees can minimize their tax liability and enjoy a comfortable retirement.


Taxable vs. Nontaxable Income

When it comes to retirement income, it’s important to understand the difference between taxable and nontaxable income. Taxable income includes pensions, annuities, traditional IRA and 401(k) withdrawals, and Social Security benefits.

Nontaxable income includes Roth IRA and 401(k) withdrawals, as well as some types of disability and life insurance benefits.

Federal Taxes

Retirees are still subject to federal income taxes on their retirement income. The amount of federal tax owed depends on several factors, including adjusted gross income and the retiree’s tax bracket.

It’s important to note that Social Security benefits may be subject to federal income tax if the retiree’s total income exceeds a certain threshold.

State Taxes

In addition to federal taxes, retirees may also be subject to state income taxes on their retirement income. State tax rules vary, so it’s important to check the specific rules for the state in which the retiree resides.

For example, Florida and Washington do not have state income tax, while other states may have different tax rates and rules.

Estimated Tax Payments

Retirees who receive taxable income from sources that don’t withhold taxes, such as self-employment income or rental income, may need to make quarterly estimated tax payments to the Internal Revenue Service (IRS) to avoid penalties.

Retirees can use their previous year’s federal tax return to estimate their tax liability and determine the number of estimated tax payments they need to make.


In conclusion, it’s important to understand that retirement income is subject to taxes, just like any other income. The specific taxes that are taken out of your retirement check will depend on the type of retirement account you have, your income level, and your state of residence.

Some common taxes that may be taken out of your retirement check include federal income tax, state income tax, and Social Security and Medicare taxes. However, if you have a Roth IRA or Roth 401(k), you may not have to pay taxes on your retirement income at all.

It’s also important to note that taxes can change over time, so it’s a good idea to stay informed about any updates or changes to tax laws that may affect your retirement income.

Overall, understanding the taxes that are taken out of your retirement check can help you plan for your financial future and ensure that you’re prepared for any tax obligations that may arise.

Frequently Asked Questions

Here are some common questions about this topic.

What taxes are taken out of my retirement check?

When you receive your retirement check, several taxes may be taken out, including federal income tax, state income tax, and, in some cases, local taxes. The amount of taxes taken out depends on various factors, such as your marital status, taxable income, and contributions to a pension plan or IRA.

Do I have to pay taxes on my pension or IRA distributions?

Yes, you generally have to pay taxes on pension or IRA distributions, as they are considered taxable income. The amount of taxes you owe depends on your taxable income and the type of retirement plan you have.

How do I calculate my estimated taxes?

To calculate your estimated taxes, you can use Form 1040-ES, which is a worksheet that helps you estimate your tax liability for the year. You will need to estimate your total income, deductions, and credits to determine your estimated tax liability.

Can I avoid paying taxes on my retirement income?

It is difficult to avoid paying taxes on retirement income, as most retirement plans are designed to provide taxable income. However, there are some strategies you can use to minimize your tax liability, such as contributing to a 401(k) plan or IRA with pre-tax dollars.

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