Income Taxes

As mentioned earlier, income management in retirement needs to focus on tax implications. Since income is net of taxes and US taxes are progressive (tax rate increases with income), you need to be vigilant regarding the tax impact (expense) of actions taken to obtain income. Any time you receive money from pensions or annuities or receive distributions of dividends, interest or capital gains, you generate a corresponding tax bill. Even interest from “tax-free” municipal bonds is considered in the tax calculation. You may also generate a tax bill from your Social Security income (see below).

Also, the government requires you to withdraw specific amounts (Required Minimum Distributions) from certain retirement investment accounts each year beginning at age 70 ½. Money invested in these accounts is taxable when it is withdrawn, and it must be withdrawn in annual installments (according to IRS Uniform Lifetime schedules). These schedules are used to calculate withdrawals based on your accounts' prior end-of-year balances and your age. RMDs apply to most types of retirement plans including IRAs, 401(k)s, 403(b)s, 457(b)s, and inherited IRA plans. See the Investment Fund Income page of this website for more information on RMDs.

Money invested in Roth IRAs or Roth 401(k)s grows tax free, is not taxable when withdrawn, and has no withdrawal requirements.

In retirement, many of you have the option of determining your annual income. You decide how much of your investments to "cash in" (above RMD requirements) and how much to save for later years. Presumably, you make this decision assuring that you won't run out of money during your lifetime. Correspondingly, you have to consider what percent of your income you pay to Uncle Sam. The more you withdraw/receive in the same tax year, the higher percentage you’ll pay and the less net income you’ll have. As the tax tables at the bottom of this page illustrate, if you’re married and filing jointly in 2023, you’ll pay only 10% tax on the first $22,000 received, but 12% or more on greater amounts (37% tax on gross income/withdrawal dollars over $693,750).

You may have to pay income taxes on your Social Security benefits if you have other income. About one-third of people who get Social Security have to pay taxes on a portion or all of their benefits.

If you file a federal tax return as an “individual,” and your combined income is between $25,000 and $34,000, you may have to pay taxes on 50 percent of your Social Security benefits. If your combined income is more than $34,000, up to 85 percent of your Social Security benefits are subject to income tax.
If you file a joint return, you may have to pay taxes on 50 percent of your benefits if you and your spouse have a combined income that is between $32,000 and $44,000. If your combined income is more than $44,000, up to 85 percent of your Social Security benefits are subject to income tax.
If you are married and file a separate return, you probably will pay taxes on your benefits.

"Combined Income" is defined as the sum of your Adjusted Gross Income, nontaxable interest and half of your Social Security benefit.

At the end of each year, you will receive a Social Security Benefit Statement (Form SSA-1099) showing the amount of benefits you received. You can use this statement when you complete your federal income tax return to find out if you have to pay taxes on your benefits.

There are two main types of tax deductions: the standard deduction and itemized deductions. The IRS allows you to claim one type of tax deduction, but not both. Tax deductions are subtracted from your Adjusted Gross Income (AGI), lowering your taxable income.

For 2023, the Standard Deduction Amounts are as follows:

Filing Status	Standard Deduction Amount	If 65 or Older	If Blind
Single	$13,850	Add $1,850	Add $1,850
Married Filing Jointly or Qualifying Widow(er)	$27,700	Add $1,500 per person.	Add $1,500 per person.
Head of Household	$20,800	Add $1,850	Add $1,850
Married Filing Separately	$13,850	Add $1,500	Add $1,500

For 2024, the Standard Deduction Amounts are as follows:

Filing Status	Standard Deduction Amount	If 65 or Older	If Blind
Single	$14,600	Add $1,950	Add $1,950
Married Filing Jointly or Qualifying Widow(er)	$29,200	Add $1,550 per person.	Add $1,550 per person.
Head of Household	$21,900	Add $1,950	Add $1,950
Married Filing Separately	$14,600	Add $1,550	Add $1,550

When you sell stock, you are responsible for paying taxes only on the profits -- not on the entire sales proceeds.

To determine profit, you first need to calculate the cost basis (also known as tax basis) for the shares of stock that you are selling. This consists of the amount you paid to buy the stock shares plus any commissions or fees you paid to buy and sell them. This amount needs to be subtracted from your total proceeds to obtain profit.

Cost basis = Price paid per share times # of shares sold + Commission and fees
Profit = Proceeds from sale - Cost basis

Profit from the sale of stock shares is considered as either short-term or long-term capital gains depending on how long the shares were held. Generally speaking, if you held your shares for one year or less, then profits from the sale will be taxed as short-term capital gains. If you held shares for more than one year before selling them, the profits will be taxed at the lower long-term capital gains rate.

Both short-term and long-term capital gains tax rates are determined by your overall taxable income. Short-term capital gains are taxed at the same rate as your marginal tax rate (tax bracket).

For the 2023 tax year (i.e., the taxes most individuals will file by April 17, 2024), long-term capital gains rates are either 0%, 15%, or 20% depending on your tax bracket:

Long-Term Capital Gaines Tax Rate	Single-Filers (Taxable Income)	Married Filing Jointly/ Qualifying Widow(er)	Heads of Household	Married Filing Separately
0%	Up to $44,625	Up to $89,250	Up to $59,750	Up to $44,625
15%	$44,626 - $492,300	$89,251 - $553,850	$59,751 - $523,050	$44,626 - $276,900
20%	Over $492,300	Over $553,850	Over $523,050	Over $276,900

Married Filing Jointly

Single / Unmarried

Married Filing Separately

Head of Household

Married Filing Jointly or Qualifying Widow/Widower (2023)

If taxable income is over --	But not over--	The Tax is:
$0	$22,000	10% of taxable income.
$22,000	$89,450	$2,200 plus 12% of the amount over $22,000.
$89,450	$190,750	$10,294 plus 22% of the amount over $89,450.
$190,750	$364,200	$32,580 plus 24% of the amount over $190,750.
$364,200	$462,500	$74,208 plus 32% of the amount over $364,200.
$462,500	$693,750	$105,664 plus 35% of the amount over $462,500.
$693,750	no limit	$186,601.50 plus 37% of the amount over $693,750.

Single / Unmarried Individuals (2023)

If taxable income is over --	But not over--	The Tax is:
$0	$11,000	10% of taxable income.
$11,000	$44,725	$1,100 plus 12% of the amount over $11,000.
$44,725	$95,375	$5,147 plus 22% of the amount over $44,725.
$95,375	$182,100	$16,290 plus 24% of the amount over $95,375.
$182,100	$231,250	$37,104 plus 32% of the amount over $182,100.
$231,250	$578,125	$52,832 plus 35% of the amount over $231,250.
$578,125	no limit	$174,238.25 plus 37% of the amount over $578,125.

Married Filing Separately (2023)

If taxable income is over --	But not over--	The Tax is:
$0	$11,000	10% of taxable income.
$11,000	$44,725	$1,100 plus 12% of the amount over $11,000.
$44,725	$95,375	$5,147 plus 22% of the amount over $44,725.
$95,375	$182,100	$16,290 plus 24% of the amount over $95,375.
$182,100	$231,250	$37,104 plus 32% of the amount over $182,100.
$231,250	$346,875	$52,832 plus 35% of the amount over $231,250.
$346,875	no limit	$93,300.75 plus 37% of the amount over $346,875.

Head of Household (2023)

If taxable income is over --	But not over--	The Tax is:
$0	$15,700	10% of taxable income.
$15,700	$59,850	$1,570 plus 12% of the amount over $15,700.
$59,850	$95,350	$6,868 plus 22% of the amount over $59,850.
$95,350	$182,100	$14,678 plus 24% of the amount over $95,350.
$182,100	$231,250	$35,498 plus 32% of the amount over $182,100.
$231,250	$578,100	$51,226 plus 35% of the amount over $231,250.
$578,100	no limit	$172,623.50 plus 37% of the amount over $578,100.

Married Filing Jointly

Single / Unmarried

Married Filing Separately

Head of Household

Married Filing Jointly or Qualifying Widow/Widower (2024)

If taxable income is over --	But not over--	The Tax is:
$0	$23,200	10% of taxable income.
$23,200	$94,300	$2,320 plus 12% of the amount over $23,200.
$94,300	$201,050	$10,852 plus 22% of the amount over $94,300.
$201,050	$383,900	$34,337 plus 24% of the amount over $201,050.
$383,900	$487,450	$78,221 plus 32% of the amount over $383,900.
$487,450	$731,200	$111,357 plus 35% of the amount over $487,450.
$731,200	no limit	$196,669.50 plus 37% of the amount over $731,200.

Single / Unmarried Individuals (2024)

If taxable income is over --	But not over--	The Tax is:
$0	$11,600	10% of taxable income.
$11,600	$47,150	$1,160 plus 12% of the amount over $11,600.
$47,150	$100,525	$5,426 plus 22% of the amount over $47,150.
$100,525	$191,950	$17,168.50 plus 24% of the amount over $100,525.
$191,950	$243,725	$39,110.50 plus 32% of the amount over $191,950.
$243,725	$609,350	$55,678.50 plus 35% of the amount over $243,725.
$609,350	no limit	$183,647.25 plus 37% of the amount over $609,350.

Married Filing Separately (2024)

If taxable income is over --	But not over--	The Tax is:
$0	$11,600	10% of taxable income.
$11,600	$47,150	$1,160 plus 12% of the amount over $11,600.
$47,150	$100,525	$5,426 plus 22% of the amount over $47,150.
$100,525	$191,950	$17,168.50 plus 24% of the amount over $100,525.
$191,950	$243,725	$39,110.50 plus 32% of the amount over $191,950.
$243,725	$365,600	$55,678.50 plus 35% of the amount over $243,725.
$365,600	no limit	$98,334.75 plus 37% of the amount over $365,600.

Head of Household (2024)

If taxable income is over --	But not over--	The Tax is:
$0	$16,550	10% of taxable income.
$16,550	$63,100	$1,655 plus 12% of the amount over $16,550.
$63,100	$100,500	$7,241 plus 22% of the amount over $63,100.
$100,500	$191,950	$15,469 plus 24% of the amount over $100,500.
$191,950	$243,700	$37,417 plus 32% of the amount over $191,950.
$243,700	$609,350	$53,977 plus 35% of the amount over $243,700.
$609,350	no limit	$181,954.50 plus 37% of the amount over $609,350.

Retirees Need to Focus on Taxes, not Income.

Uncle Sam Wants Your Retirement Funds

Taxes on Social Security Benefits

State Income Taxes

Standard Deduction

Taxes on Stock Sales

2023 Individual Income Tax Brackets