What Taxes Should You Expect In Retirement? by Wray Mathews

What Taxes Should You Expect In Retirement? by Wray Mathews


As per Wray Mathews from the moment you are required to pay taxes, you will always face taxes–even in retirement. The amount of taxes you pay may differ when you are in retirement, especially if your income is lower or higher than what it currently is.

In this article, we will go over some taxes you may face as a retiree by Wray Mathews.

For those that have savings bonds stashed away for retirement, you will likely be liable to pay taxes on the amount, and it will be considered ordinary income.

For those that have invested in HH bonds, you should be paying taxes on interest currently.

If you have purchased bonds from locally or in the state, you should be able to receive a tax break if you have an adjusted gross income of a joint filing married couple if you make less than $123,550. For single filers, you can receive this break if you bring in less than $82,350. The break will not be applied when modified adjusted gross income is more than $153,550 for couples and $96,100 for single filers.

For those that have municipal bonds, these bonds are exempt from federal income taxes. Those that have purchased the bond in the state you reside in may also be exempt from state taxes. However, this can differ from state to state, so be sure to do some research as per described by Wray Mathews.

Also, any profit made from selling your municipal bonds can be liable for taxation.

Another tax that you will be liable as ordinary income will be on the gained interests from Certificate of Deposits (CDs), interest-bearing accounts, and savings accounts.

For those that receive dividends from investments, you will need to pay taxes at the long-term capital gains rate if you have a qualified account or at the ordinary income rate if you have a non-qualified account.

You will receive a lower tax percentage if your investment dividend is qualified. To qualify, the investment must be on common stock that you’ve had for more than 60 days within the 60-day limit window that begins when the company sends out dividends.

Those who have retirement annuities will only be only liable for the interest paid as the principal amount has already been taxed the year the annuity was purchased. However, those that have purchased annuities with deferred-tax balances will have to pay the tax on the entire dividend as ordinary income.

Of course, a majority of you know that you will be liable for taxes on cashouts on mutual funds, stocks, and bonds.

Those that have had these investments for over a year will be liable to pay long-term capital gains tax. Married couples that are filing jointly and have an income of less than $80,001 will have a long-term capital gains rate of 0 percent. Those that are filing as single and have taxable earnings less than $40,001 will also have a capital gains rate of 0 percent.

The rates will be15 percent for joint-filing couples that make over $40,001 and up to $441,450. Singles will also face that rate if they make at least $80,001 to $496,600.

The highest rate is 20 percent, along with a 3.8 percent surtax on investments, such as dividends and long term capital gains. Married couples that have an adjusted gross income of over $250,000 and singles that bring in over $200,000 will face this rate.

Those that are expecting to receive a pension will also need to pay the tax as ordinary income. This is because most pensions are invested with tax-deferred money. However, for those that have used money that has already been taxed, you may be exempt.

Wray Mathews said a majority of Americans will be relying on Social Security as an income source during retirement, and these benefits are subject to federal income tax. However, single filers that make less than $25,000 will be exempt. Married couples that have a combined income of less than $32,000 will also be exempt. Single filers that make at least $25,000 to $34,000 will face up to 50 percent of their benefits being taxable. Married couples can also be liable for 50 percent of their benefits if they bring in $32,000 to $44,000 in combined income. Singles and married couples that bring in over $34,000 or $44,000, respectively, can have up to 85 percent of their benefits taxed.

Those that have had their Roth IRA for less than five years will have to pay taxes on the withdrawals. Those that have had their Roth for over five years will be able to make tax-free withdrawals. If you make a withdrawal on any interest gained before you are 59 and a half, you will face a 10 percent premature withdrawal tax penalty.

Lastly, traditional IRAs and 401(k)s will also be liable to pay taxes as ordinary earnings on these withdrawals.

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