Is Retirement Income Taxable?

Is retirement income taxable? When I first stepped into retirement, I thought I had my financial ducks in a row — savings in the bank, a steady pension, and Social Security on the way. But then tax season rolled around, and I got a surprise letter from the IRS that made my coffee go cold.

Here’s what I learned that day: retirement doesn’t mean you’re done with taxes. In fact, some of your income will be taxed, some won’t — and which bucket yours falls into can change everything about your monthly budget.

We’ll break it down piece by piece so you can see exactly where your money stands, and how to keep more of it in your pocket.

If you’re still building your plan, you might want to start with a broader look at financial planning for retirement before diving in. But for now, let’s tackle the tax question that can make or break your retirement comfort.

Key Takeaways

Is retirement income taxable? Most retirees still pay taxes on at least part of their income. Whether retirement income is taxable depends on the source, total earnings, and state laws. Using a mix of taxable, tax-deferred, and tax-free accounts — and planning withdrawals wisely — can reduce your tax bill.

Is Retirement Income Taxable?

The short answer — yes, retirement income can be taxable, but not all of it is. The IRS looks at where your money comes from, how much you receive, and in some cases, where you live. That means your Social Security benefits, pension payments, IRA or 401(k) withdrawals, and even part-time work income can all be treated differently.

Think of your retirement income like a pie made of different slices — some slices are fully taxable, some partially taxable, and a lucky few are tax-free. The challenge is knowing which is which, and how combining them can push you into a higher tax bracket.

Here’s the general breakdown at the federal level:

• Taxable – Traditional IRA withdrawals, 401(k)/403(b) distributions, most pensions, and earnings from part-time work.
• Partially Taxable – Social Security benefits, depending on your combined income.
• Tax-Free – Roth IRA withdrawals (if rules are met), some municipal bond interest, and certain health savings account (HSA) payouts.

It’s also important to remember that federal tax rules are just one part of the picture. Your state may have its own approach — some states don’t tax retirement income at all, while others tax most of it. We’ll cover that in detail later.

If you want to understand how your mix of income sources will play out, a tool like the monthly retirement income calculator can help you see your tax exposure in advance.

Federal Taxes on Retirement Income

Not all retirement income is treated equally by the IRS. Understanding how each type is taxed can help you plan withdrawals and avoid surprises come April.

Social Security

Whether your Social Security is taxable depends on your combined income — that’s your adjusted gross income (AGI) + nontaxable interest + half of your Social Security benefits.

• Single filers: If combined income is
  • $25,000 or less — benefits aren’t taxed.
  • $25,001–$34,000 — up to 50% of benefits taxed.
  • Over $34,000 — up to 85% taxed.
• Married filing jointly: If combined income is
  • $32,000 or less — benefits aren’t taxed.
  • $32,001–$44,000 — up to 50% taxed.
  • Over $44,000 — up to 85% taxed.

Example: If you and your spouse have $40,000 in combined income and $20,000 in Social Security, you could pay tax on $10,000–$17,000 of those benefits.

Pensions

Most pensions are fully taxable at the federal level if you didn’t contribute after-tax money to the plan. The payments are taxed as ordinary income in the year you receive them.
Some states don’t tax pensions at all — we’ll cover those shortly.

Retirement Accounts (401(k), IRA, etc.)

• Traditional IRA & 401(k) — Withdrawals are fully taxable as ordinary income.
• Roth IRA — Qualified withdrawals are tax-free if you’re 59½ and the account is at least 5 years old.
• Required Minimum Distributions (RMDs) — For traditional accounts, you must start taking these at age 73 (unless you were born before 1951), and they are taxable.

Part-Time Work in Retirement

Earnings from part-time jobs or freelance work count as earned income and are taxed at regular income tax rates. They may also affect the taxation of your Social Security benefits.

Good planning can help you control which income streams you tap first. For strategies to stretch your savings and manage withdrawals, see our guide on creating a retirement income stream.

Is Social Security Income Taxable?

For many retirees, Social Security feels like a well-earned reward after decades of work — but the IRS may still want a slice. Whether your benefits are taxable depends on your combined income, and this calculation catches a lot of people off guard.

The Combined Income Formula

Combined Income = Adjusted Gross Income (AGI) + Nontaxable Interest + ½ of Social Security Benefits

Federal Tax Thresholds

Single Filers:

• $25,000 or less — No benefits taxed.
• $25,001 to $34,000 — Up to 50% of benefits taxed.
• Over $34,000 — Up to 85% of benefits taxed.

Married Filing Jointly:

• $32,000 or less — No benefits taxed.
• $32,001 to $44,000 — Up to 50% taxed.
• Over $44,000 — Up to 85% taxed.

Example

Let’s say you’re married, filing jointly, with $20,000 in Social Security benefits and $30,000 from a traditional IRA.

• AGI = $30,000
• Nontaxable interest = $0
• Half of benefits = $10,000
• Combined income = $40,000 → This falls in the middle tier, meaning up to 50% of your benefits are taxable.

Ways to Reduce Taxation on Social Security

1. Tap Roth accounts first — Qualified Roth withdrawals don’t count toward combined income.
2. Spread withdrawals over more years — Avoid big taxable spikes in a single year.
3. Manage investment income — Selling assets with high gains can push you into the 85% bracket.

For more guidance on balancing income sources, our managing finances in retirement guide walks through strategies that blend cash flow and tax efficiency.

Federal Taxes on Pensions by State

At the federal level, most pensions are taxed as ordinary income — but your state of residence can make a big difference in what you actually keep.

When I retired, a friend from my old job moved from Illinois to Florida. He didn’t just trade snow for sunshine — he also eliminated state income tax on his pension. That move put several hundred extra dollars in his pocket each month.

Here’s the general picture:

States with No Income Tax (Pensions Untaxed)

• Alaska
• Florida
• Nevada
• South Dakota
• Texas
• Washington
• Wyoming

States with No Tax on Pensions (even if they tax other income)

• Illinois
• Mississippi
• Pennsylvania

States with Partial Pension Exemptions

Some states, like New York and Michigan, exempt a portion of pension income, often based on age or total income. For example, Michigan allows residents over 65 to exclude a set amount of retirement income from state taxes.

States that Fully Tax Pensions

Examples include California, Nebraska, and Vermont — meaning your pension income is added to your other taxable income for state tax purposes.

Relocating isn’t just a lifestyle decision — it’s also a tax strategy. If you’re considering a move, run the numbers carefully with our good monthly retirement income guide to see how taxes and cost of living balance out.

Is Retirement Income Considered Earned Income?

This question trips up a lot of new retirees — and for good reason. The IRS has a very specific definition of earned income, and most retirement income doesn’t qualify.

What Counts as Earned Income

• Wages from a job
• Self-employment income
• Certain disability benefits (before retirement age)

What Does Not Count

• Social Security
• Pension payments
• IRA or 401(k) withdrawals
• Investment income (dividends, interest, capital gains)

Why does this matter? Because earned income rules affect things like:

• Contributing to retirement accounts — You can only contribute to IRAs if you have earned income.
• Earned Income Tax Credit (EITC) — Not available based on retirement income alone.
• Tax withholding — Retirement income usually requires estimated tax payments instead.

Example: If you’re 67 and earning $10,000 a year from a part-time consulting gig, that’s earned income. Your $25,000 in Social Security benefits and $15,000 in pension payments? Not earned income in the IRS’s eyes.

If you’re juggling work and retirement income, our how to manage money after retirement guide walks through balancing taxes, savings, and spending.

FAQs

Conclusion

When I first started thinking seriously about retirement, I didn’t just want to know is retirement income taxable — I wanted to know how to keep more of my own money in my pocket. Over the years, I’ve learned that while taxes in retirement are unavoidable for most of us, they’re also manageable with the right planning.

The answer to is retirement income taxable isn’t a simple yes or no — it’s a “yes, but it depends.” Your income sources, your total earnings, and even your ZIP code can change your tax picture. The good news? With a smart mix of taxable, tax-deferred, and tax-free accounts, you can control when and how much you pay.

As you map out your own retirement, remember that a good plan doesn’t just cover how much you’ll make — it covers how much you’ll keep after taxes. That’s why having a strategy for withdrawals, timing, and account types is just as important as building your nest egg in the first place.

If you’re ready to put your plan into action, I recommend starting with our guide on creating a retirement income stream. A little preparation now can mean a lot more freedom later.

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