Do I need to think differently about taxes in retirement?

When you retire, income you receive may be taxed differently than when you were working.

Taxes in retirement are different because you're drawing on savings and investments. Your new set of rules can vary widely and could be more complex.

Why? Because many contributions to Individual Retirement Accounts (IRAs) grow on a tax-deferred basis. So, once you begin taking distributions, you'll likely owe taxes—both on your earlier pre-tax contributions and on any earnings.

Taxes in retirement are different because you're drawing on savings and investments.

Taxes in retirement

Workplace retirement plans and IRAs have different tax rules. For example:

  • If you contributed to your 403(b) or 401(k) on a pre-tax basis, the distributions are likely fully taxable. But if you made any after-tax contributions, only the earnings are taxable.
  • You may have funded your IRAs in some years with pre-tax dollars and in other years with after-tax dollars. Keeping track is important. Your IRA plan administrator may be able to help you with this information.
  • Roth IRA contributions are made with after-tax dollars. So your contributions are tax-free. And your earnings may be distributed tax-free, if you've met all of the necessary withdrawal qualifications.
  • As of January 1, 2020, once you reach age 72, you must make required minimum distributions from qualified plans and IRAs. 
  • An inherited account uses a different set of tax rules and needs to be distributed and calculated separately.
  • Annuities purchased with after-tax dollars may be taxed several ways. These include: income first, cost basis first, or possibly using a ratio formula that factors in the purchase and the timing of the distribution.
  • Brokerage accounts with different securities may generate short-term or long-term capital gains, dividend income or even exempt income, all of which can be taxed at different rates.
  • A portion of your Social Security benefits may be treated as taxable income.

Get help understanding taxes in retirement

Staying on top of tax rules in retirement can be done. We highly recommend that you seek help—if needed—from a tax professional.

We're here to help

Already with TIAA?

Manage your money with secure online access.

New to TIAA?

Enrolling is your first step to saving for the future.

Want to talk first?

Let's start the conversation.

1 Note that if you have a 403(b) retirement account, accumulations deposited into the plan prior to 1987 are exempt from RMDs until you reach the age of 75.

The TIAA group of companies does not provide legal or tax advice. Please consult your legal or tax advisor.