Your income will likely come from a variety of sources, each with its own rules for taking distributions. Knowing how each income source works can help you manage taxes and maximize retirement income.
- Government-backed, inflation-adjusted income for life.
- Benefit amount depends on eligibility, spousal eligibility and timing of your claim. Read More
- If you have additional income, benefits may be partially taxable as ordinary income.
Employer Retirement Plans (such as 401(k) or 403(b))
- Annuities provide different income options including lifetime income.
- Lifetime income options may include guaranteed fixed payments or variable disbursements tied to market returns.
Guarantees are based on the claims-paying ability of the issuing company. If you choose to invest in the variable investment products, your money will also be subject to the risks associated with investing in securities, including loss of principal. The contract value of a variable annuity is subject to market fluctuations and investment risk.
- Mutual funds:
- Systematic withdrawals from balances invested in mutual funds through tax-deferred employer-sponsored defined contribution plans may be available.
- Penalty-free withdrawals from tax-deferred accounts can generally begin at age 59½ with required minimum distributions starting at age 70½.
Withdrawals of earnings from a retirement account are subject to ordinary income tax, plus a possible federal 10% penalty if you make a withdrawal before age 59 ½.
- Although fewer and fewer people can count on a defined benefit pension as a source of income, they do provide fixed monthly income.
- Usually derived from an employer-sponsored plan, based on your time with the company.
Personal savings (such as Traditional and Roth IRAs, Brokerage Accounts, Non-Qualified Annuities)
- Systematic withdrawals from balances in investment portfolios through brokerage platforms and Traditional and Roth IRAs may be available.
- Withdrawals from tax-deferred accounts such as traditional IRAs can generally begin at age 59½ with required minimum distributions starting at age 70½ penalty-free/tax-free.
- Original contributions can generally be withdrawn from Roth IRAs penalty-free/tax-free at any age. After 5 years AND age 59½, earnings can be withdrawn federal penalty and income tax-free. There are other types of qualified withdrawals. You should discuss them with your advisor.
- Because you may have invested in annuities within your employer retirement plan or IRA as well as in individually owned annuities using dollars that have already been taxed, withdrawals may have different rules. Examples of after-tax money include your net pay from employment and distributions from a retirement account that you have paid taxes on. The distinction of creating income, via a lifetime option or systematic withdrawals, from an after-tax annuity is that you pay income tax only on any earnings you realize above your contributions and after distributions are taken. Note that annuities do not provide any additional tax-deferral advantage over other types of investments within a qualified plan.
Income from other sources
- Income from a full- or part-time job in retirement.
- Other income may come from dividends, rental property, royalties, etc.