Learn how retirement income is taxed — from Social Security and IRAs to pensions and 401(k)s — plus retirement tax strategies to help you keep more of your money.
When most people picture retirement, they see a monthly “retirement check” — Social Security, pensions, and withdrawals from savings — and assume they’ll get to spend every dollar.
The truth? Taxes don’t retire when you do.
Whether it’s Social Security taxes, required minimum distributions (RMDs), or withdrawals from your IRA or 401(k), the amount you see on paper is often more than you’ll actually keep. Understanding how retirement income is taxed and which retirement tax strategies can help lower your lifetime bill — and how to plan for it — can mean the difference between a comfortable retirement and an expensive surprise.
Retirement Rules That Actually Matter - Blog
At Ignite Financial, we work as flat-fee, fiduciary advisors in Iowa. We don’t sell products or earn commissions — we charge one fair fee for advice, no matter how much you’ve saved. That lets us focus on what matters: helping you make smart, tax-savvy choices that keep more of your money working for you.
Every year, we hear the same question:
"How much can I withdraw from my retirement accounts?"
The answer depends on a variety of factors to name a few: your planning horizon, asset allocation, where your money comes from, when you take it, and how well you’ve planned for taxes. Let’s separate fact from fiction.
Fiction: You won’t owe taxes in retirement
Fact: Many retirees still owe federal income tax on Social Security, pensions, IRA withdrawals, and other income. Without a strategy, taxes can be your biggest expense after health care.
Fiction: Taxes Always Go Down in Retirement
Fact: They can stay the same — or go up — especially when required minimum distributions (RMDs) begin.
Your 60s (or earlier) can be a golden window: maybe you’ve stopped working, but RMDs haven’t started. That’s often the best time to make Roth conversions and lower your lifetime tax bill.
For most people, retirement income is a mix:
Each source is taxed differently. Understanding the rules is the first step in retirement income planning.
We’ll focus here on federal taxes.
While most retirees lean on Social Security, pensions, and IRAs, many have other accounts or assets that come with their own tax rules:
Why it matters: Each account type has its own tax rules, penalties, and timing considerations. A tax-smart withdrawal plan weaves them all together so you can avoid surprises and keep more of your income.
Imagine a couple withdrawing $60,000 from a traditional IRA and receiving $40,000 from Social Security. On paper, that’s $100,000.
In reality, the entire IRA withdrawal is taxable, and up to 85% of Social Security may be taxable too. After federal taxes, they could end up closer to $80,000 of real spending power.
That $20,000 difference is why planning matters.
And here’s the key: it’s not just about one year. The “right” withdrawal strategy changes depending on what accounts you have (traditional, Roth, taxable), your goals, and your time horizon to name a few factors. Revisiting this each year helps you avoid leaving the IRS a tip.
Iowa currently excludes most retirement income from state taxes, which makes planning for retiremment taxes at the federal level even more important.
Retiring in Cedar Falls - blog
Once you know how your income will be taxed, you can start planning:
Fact: Tax planning is an annual job. Laws change. Your income changes. Your spending changes. The plan you make at 65 may not be the one you need at 75 — or even at 66.
A good plan includes:
We help people in or near retirement fit all the pieces together — taxes, investments, Social Security, and health care — so you can enjoy life without worrying about running out of money.
👉Schedule your free assessment today to see how much of your “retirement check” you’ll really keep. We help you lower your lifetime taxes, optimize your investments,
Questions to ask a Financial Advisor
Is Social Security taxable in retirement?
Yes. Depending on your total income, up to 85% of your Social Security benefits may be subject to federal income tax. The exact amount depends on what other retirement income you have (pensions, IRA withdrawals, dividends, etc.).
Do taxes go down when you retire?
Not always. Many retirees assume their taxes will automatically be lower, but Required Minimum Distributions (RMDs), pensions, and investment income can keep you in the same bracket—or even push you higher. Careful tax planning is essential.
What are the best retirement tax strategies?
The right approach depends on your mix of accounts (Traditional, Roth, taxable. etc.), your goals, and your time horizon. Common retirement tax strategies include Roth conversions, coordinating withdrawals across different accounts, managing Medicare IRMAA brackets, and using Qualified Charitable Distributions (QCDs) to reduce taxable income.