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Understanding taxes in retirement

Prepare with tax-smart planning strategies.

Key Takeaways

  • Your Social Security benefits are federally taxed, based on the IRS’s “combined income formula,” and there are 9 states that also tax social security benefits.
  • Distributions from traditional IRAs or 401(k)s are taxed as ordinary income, but qualified withdrawals from Roth IRAs or Roth 401(k)s are tax-free.
  • If you have different streams of income to pull from, that can give you flexibility in managing your tax bracket.

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Investing involves risk, including risk of loss.

This information is intended to be educational and is not tailored to the investment needs of any specific investor.

Views expressed are as of the date indicated, based on the information available at that time, and may change based on market or other conditions. Unless otherwise noted, the opinions provided are those of the speaker or author and not necessarily those of Fidelity Investments or its affiliates. Fidelity does not assume any duty to update any of the information.

Fidelity does not provide legal or tax advice. The information herein is general in nature and should not be considered legal or tax advice. Consult an attorney or tax professional regarding your specific situation.

For a distribution to be considered qualified, the 5-year aging requirement has to be satisfied, and you must be age 59½ or older or meet one of several exemptions (disability, qualified first-time home purchase, or death among them).

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